North Dakota has now recorded back-to-back months in which the massive Bakken petroleum system has failed to live up to production expectations.
Reasons behind lackluster performances in October and especially in November have led the state’s top oil man, Lynn Helms, to issue a “wake-up call” for those who believed the good times would continue unabated.
“We’ve gotten very used to the increase in production, almost regardless of what was happening out there,” Helms, director of the Department of Mineral Resources, said in a Jan. 11 conference call.
For the first time in 19 months, North Dakota’s oil production declined in November, the most recent month for which production statistics are available. Output fell 2.2 percent, from an average 749,212 barrels per day in October to 733,078 bpd in November.
“Our expectation was for a 2-to 3 percent increase,” Helms conceded.
Storm blamed for slowdown
Winter storm Brutus was blamed for most of the November decline. It brought operations to a halt for several days and, more telling, exposed infrastructure shortcomings, in particular the heavy dependence on trucks and a snow and ice-vulnerable road system to transport fracking water and other materials to drill sites and production to rail and pipeline terminals.
“When you encounter something like that winter storm, you have to shut wells in, you can’t use the oil,” Helms said, noting that the number of new wells waiting to be hydraulically fractured and put on production in November jumped by 50 to 410 because of bad weather.
The huge backlog in hydraulic fracturing jobs has evolved into a major headache for the department, Helms said, adding that during the first half of 2012, service companies assured the state that they would be “bringing in lots and lots of workers and equipment” to the Williston Basin to catch up on the work. Several of the largest companies alone hired an additional 1,500 workers to address the problem.
Colder weather ahead
“And the trend seemed to be going in the right direction,” Helms said. “Now we have two (slow) months in a row as we enter colder weather, where fracking has really slowed up. We may be finding ourselves in a paradigm where the winter months are much more difficult than anybody had anticipated. And it is a serious concern.”
Ironically, as Helms answered questions from reporters on the Web and live from the state capitol in Bismarck, N.D., much of the Midwest was being hammered by yet another snowstorm. And though it appeared the brunt of this storm was going to skirt North Dakota’s oil patch, “I think it could have some impact on January production,” Helms said.
December was a relatively quiet month.
North Dakota also has become a state that’s “all about Bakken production,” with most of the oil patch concentrated in a “fairly tight” four-county area, making it particularly susceptible to disruptions, Helms said. Williams County caught the worst of the November storm, experiencing the snowiest day in more than 110 years.
Helms’ wake-up call
“So, (it’s) unlike the state of Texas where they have Eagle Ford, they have the Permian Basin, and they have East Texas all producing,” Helms said. “All our eggs are sort of in one basket. That’s why I call it a wake-up call. We are so in tune with Bakken and Three Forks development, so dependent on truck transportation, and so dependent on hydraulic fracturing.”
Underground pipelines to transport warm fracking water to drill sites, rather than by truck, would help alleviate the problem, Helms said. He noted that the state is working on legislation to establish rights of way and easements, “so we can bury those pipes six feet underground.”
North Dakota’s oil production did increase in October, but at a much slower pace compared to previous months. Factors that contributed to October’s underperformance also contributed to November’s decline — operators transitioning to higher efficiency drilling rigs and implementing cost-cutting measures at the end of their 2012 capital budgets.
“Rapidly escalating well costs consumed capital spending budgets faster than many companies anticipated, and uncertainty surrounding future federal policies on taxation and hydraulic fracturing impacted capital investment decisions,” Helms said in his January “Director’s Cut” report.
Rig count down again
The Williston Basin drilling rig count averaged 184 in December, down from 186 in November and 188 in October. The count stood at 181 on Dec. 11. The all-time high of 218 rigs was reached on May 29, 2012.
The utilization rate for rigs capable of 20,000-plus feet is down to about 80 percent, and for shallow well rigs — to 7,000 feet or less — utilization remains about 60 percent, according to the department.
There were 8,101 producing wells in November compared to 8,035 in October, a gain of 66 wells.
Drilling permits issued in December stood at 154, down from 211 in November and 370 in October.
“Drilling permit activity was lower in December due to the number of holidays,” Helms noted in his report. “We continue to have a sufficient permit inventory to accommodate more multi-well pads, the desire to not build locations during winter, and the time required to publish hydraulic fracturing rules if required.”
Crude oil takeaway capacity reportedly remains adequate to keep up with a majority of oil now shipped by rail to East Coast, Gulf Coast, and West Coast destinations.
Leasing activity extremely slow
North Dakota leasing activity is said to be extremely slow, mostly renewals and top leases in the Bakken-Three Forks area.
Williston Basin natural gas production of 782,078 thousand cubic feet (mcf) per day in November was down slightly from October’s 797,785 mcf per day.
Construction of processing plants and gathering systems was also severely affected by weather, Helms said, noting that U.S. natural gas storage is up to 11 percent above the five-year average.
“This indicates continuing low prices for the foreseeable future,” he added. “North Dakota shallow gas exploration is not economic at near term gas prices.”
Natural gas delivered to Northern Border at Watford City, N.D., is down to $2.85 per mcf, resulting in a current oil-to-gas price ratio of 31 to 1. But the high liquids content makes gathering and processing of Bakken gas economic. Additions to gathering and processing capacity are helping with the percentage of gas flared dropping to 29 percent. The historical high was 36 percent in September 2011.
Oil prices drop in December
North Dakota sweet crude averaged $77.09 per barrel in December, compared to $80.86 in November and $87.00 in October. The price stood at $87.25 per barrel on Jan. 11. The all-time high reached $136.29 on July 3, 2008.
Meanwhile, the number of rigs actively drilling on federal surface in the Dakota Prairie Grasslands was reported to be down to zero. But the number of rigs drilling on the Fort Berthold Reservation has increased to 28 with four on fee lands and 24 on trust lands.
There are now 793 active wells — 96 on trust lands and 697 on fee lands — producing 135,380 barrels of oil per day — 6,730 from trust lands and 128,650 from fee lands. There are 113 wells waiting on completion.
Additionally, there are 291 approved drilling permits — 266 on trust lands and 25 on fee lands, with 1,479 additional potential future wells — 1,426 on trust lands and 53 on fee lands.
In other developments draft Bureau of Land Management, BLM, regulations for hydraulic fracturing on federal lands have been published in the Federal Register. The comment period closed on Sept. 10, 2012. BLM received over 170,000 comments and has indicated a final rule will be published mid-2013.
Also, Draft Environmental Protection Agency, EPA, guidance for permitting hydraulic fracturing using diesel fuel has been published. The comment period closed on Aug. 23, 2012. EPA received over 97,000 comments and has set a target of spring 2013 for final guidance document publication.
