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NatGas Production Up, Oil Down in North Dakota

Natural gas production was up a little more than 1% while crude was down about 2%, or about 20,000 b/d in June, the most recent month for complete statistics in North Dakota, state officials said Friday.

An underlying good news story is that rig counts were up by seven and breakeven prices in the Bakken's major producing counties were down by an average of $5/bbl.

"The breakeven prices are significantly lower, and that's worth some time talking about," said Lynn Helms, director of the Department of Mineral Resources (DMR) and the state's chief oil/gas regulator. He said oil prices seem "stuck" in the $40/bbl area, while Bakken operators are counting on prices above $50/bbl to resume more hydraulic fracturing (fracking).

"We're really looking at a $50 price point to get increased fracking activity," Helms said.

Natural gas production was 50.9 Bcf (1.643 Bcf/d) in May and 49.8 Bcf (1.662 Bcf/d) in June, while oil production hit 32.4 million bbl (1.047 million b/d) in May and before declining to 30.7 million bbl (1.026 million b/d) in June.

"Oil production is the lowest it has been since 2014, and we now really do expect to drop below the one million b/d mark pretty soon," Helms said. "In talking to operators, more and more are restricting and shutting in production. We're seeing some pretty significant shut-in production."

Noting that natural gas production has been up "significantly" since the state imposed its gas capture plans two years ago (see Shale DailyJuly 3, 2014), Helms said that in the very active part of the Bakken, where the core economics are still robust, everything is very gassy. "There is a lot of natural gas being produced, and the good news is that gas capture is up as well [above 90%], even though gas production continues to grow pretty rapidly."

Helms said Bakken gas production has doubled since the gas capture rules went into effect, and flaring has been reduced to about one-fourth of what it was at that time. "That process has really worked extremely well, focusing investment and activity in the core area," he said.

Producing wells and rig counts were both up in the most recent statistics: 13,239 producing wells, 84% unconventional in June; and 31 rigs in July, up from 27 in May (and 34 as of Friday). Price for North Dakota sweet crude continued downward, hitting $32.25/bbl Friday after being $35.57/bbl in July, down from June ($38.75/bbl).

Based on 2Q2016 well results and cost estimates, DMR analysts have developed new breakeven numbers for the principal producing counties in the state, and Helms said they are on average all down significantly for the five major counties (Dunn, McKenzie, McLean, Mountrail, Stark and Williams).

Breakevens were as low as $16 in Dunn and as high as $38 in Mountrail County, with $20/bbl range prices in the rest. The vast majority of the operating rigs (31 of 34 statewide) are in four of the counties (Dunn, McKenzie, Mountrail and Williams).

The four producing counties have slightly more than 11,000 of the state's 15,130 active wells capable of producing, along with 818 of the state's current 887 uncompleted wells. "It is still a fact that 80% of the drilling in the Bakken is ahead of us; it is just a matter of price," Helms said. "We're really starting to see the cost reductions by industry beginning to impact the breakeven prices."

Helms said the industry has seen 28% decreases in both well and operating costs. "You couple those together, and that's about a 56% decrease in the cost of producing a barrel of oil here," he said.

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