ND regulator says 2015 could be tough for oil with slumping prices

BISMARCK - With oil prices on a steep downward slump, 2015 could be a tough year for oil producers, North Dakota’s lead regulator for the industry.

“I started talking months ago about soft oil prices in 2015. I had no idea how soft,” said Lynn Helms, director for the state Department of Mineral Resources.

“I honestly did not see them this soft, and that is going to have a significant impact.”

Sweet crude in North Dakota was at $41.75 per barrel on Friday, according to the report, the lowest since March 2009, before the current boom. The price of oil has dropped 40 percent since June. The New York Mercantile closed Friday with 57.81 per barrel.

October rounded out with almost 1.18 million barrels produced a day, just under September’s numbers. It’s the first time in North Dakota hasn’t set a production record in eight months, Helms said. In the current climate, production could plateau.

The rig count has gone from 191 in October to 183 currently. The all-time high was $136.29 in July 2008.

Helms said the commission has already been advised by a half-dozen companies that from January through March they expect to cut their rig count down by 30, as they let their two- to three-year rig contracts expire every month. He cited Oasis Petroleum’s plan to reduce its rig count by 10 rigs in the first half of 2015 as the company lets its rig contracts expire.
If this price declines holds until next year, Helm said we could see another 12 or 15 rigs being released. That could also slow down production.

“It’s not like we’re going to see a drastic, sudden drop, but we’re going to see all of the major companies laddering their rig count down as we walk through January, February, March and maybe further as oil prices stay down,” he said.

This is the second time since exploration in the Three Forks Formation that drilling has slowed down. In Nov. 2008, North Dakota had 93 oil rigs, Helms said. The financial crisis in 2009 forced oil prices down to $27 per barrel.

“The rig count hit 34, and it did not recover until February of 2010. We were back at 93,” Helms said. “It took, in that case, about nine months to recover.”

The number of producing wells increased to an all-time high with 11,892, according to the report.

Helms said factors in the decline in oil production are gas capture and soft oil prices leading to the reduction in capital investment.

“Most of the state is concerned, but there isn’t really any fear of panic at this point,” he added. “I think there is a much larger concern amongst service companies in the oil and gas industry and a significant concern on the part of those making capital investments.”

However, there is concern going into 2015, he said, especially with more than 600 wells that haven’t been completed. Some could be left in that state until prices rebound, Helms said.

“They can be left (in that state) for a year,” he said. “That could happen and probably will happen.”

He said the soft oil prices would have a significant impact, with an expected 40- to 50-rig reduction by mid-2015.

“This means it will be a month-month struggle to see production increases - if they come at all,” he said.

Though there is no way to predict the future, Helms said the department is optimistic the decline in prices is not long-term.

He said that the resource hasn’t gone away, just the profitability. He added the long-term profits are tremendous, calling the drop in prices “a blip.”

“Everyone is hoping that this price collapse is of the same nature -- that it’s very sharp and very hard and that it bounces back quite quickly,” Helms said.

Flaring decreasing

Oil producers surpassed the Industrial Commission’s goal set for Oct. 1 for gas capture.

Helms reported companies exceeded October’s target of 74 percent by 4 percent. Statewide and within the Bakken gas capture to reduce flaring was 78 percent, with 75 percent on the Fort Berthold Indian Reservation, an improvement that operators achieved.

“I couldn’t be happier,” he said. “I think what has happened since January of last year is exactly what we wanted to happen.”

Helms said surpassing the goal has “built some cushion” in light of January’s gas capture goal of 77 percent.

However, the focus on reducing flaring has triggered a response by companies to leave wells uncompleted to accommodate the gathering capacity of the gas gatherers, Helms said, noting a significant increase in the number of rigs or wells waiting on completion.

Helms reported 60 of 68 operators were in full compliance, and the plan is to help them meet the gas capture goals. A good example, he said, was Zavanna with only a 39 percent statewide gas capture. The company had planned to open its new gas plant, a “key piece of infrastructure” in the Williston area, in September, but is just now bringing the plant into operation.

Of the eight not in compliance, Helms said four companies would be instructed to restrict production on some of their wells.

Kathleen J. Bryan contributed the this report.