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North Dakota’s E&Ps Face More 'Belt-Tightening,’ Says Helms

Oil-rich production is holding steady in North Dakota, but the rig count and well completions have continued to decline, which may pressure the state’s struggling producers through at least the first half of 2016, Department of Mineral Resources (DMR) Director Lynn Helms said Wednesday.

"There are probably more variables in play than we have ever seen," said Helms during a webinar to report October oil and gas production figures.

Oil production rose from September by 7,000 b/d. October oil output was 36.2 million bbl (1.168 million b/d), versus 34.8 million bbl (1.162 million b/d) in September. Gas production was down slightly in October month/month, at 48.1 Bcf (1.65 Bcf/d) from 48.2 Bcf (1.60 Bcf/d) in September. There was one extra day in October.

Producing wells set another all-time high at 13,174 from 13,036 in September.

There is some asset selling going on, which is bringing in new operators if not more production, Helms said. As of Wednesday, about 710 wells in the state had been sold through various sales to nine new parties. Helms said 300 of the wells were part of the announced sale in October by Occidental Petroleum Corp., which is exiting the Bakken Shale, while another large group of wells were owned by Whiting Petroleum Corp. (see Shale Daily, Oct. 29).

 "There are now nine new operators seeking to enter the state through the acquisitions, and it’s another way for existing operators to improve their cash flows and bottom lines," Helms said.

The state’s rig count dropped to 65 in October from 71 in September. It was at 64 in November but had climbed to 65 as of Wednesday.Helms said he has heard from producers that at the current price of $27/bbl for North Dakota sweet crude, the state’s rig count could decline by another 10 rigs over the first half of 2016.

"Right now there are so many things in play that to try to predict what is going to happen is virtually impossible," Helms said. "What we do know is that OPEC officials have indicated that they don't expect improvements in prices until the second half of next year, so we are looking at a lot of belt-tightening the entire first half of 2016."

Current production for the state’s fiscal biennium is running about 6% higher than projected, while the average crude oil price is running 23% below projections, he noted.

Operators are running out of ways to respond to the continuing low-price environment as they already have slashed rig counts, deferred well completions and cut personnel, adding up to collective cost reductions of more than 40%. Asset sales are the last step.

"I don't know of any other tools they have in their toolboxes," Helms said of the operators. "It looks like selling legacy properties or some of their noncore Bakken/Three Forks assets is the last line of defense to keep the rigs operating and the crews working."

There is optimism beyond 2016, Helms said.

"If there were not optimism, the nine new operators wouldn't have been able to raise the capital to buy the properties, so investors see [North Dakota] as a good play long term.”

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