North Dakota oil production, though growing at its slowest month-to-month pace in more than a year, set new highs for July, even as the number of drilling rigs declined and leasing slowed.
But for the first time, daily oil production from North Dakota’s portion of the vast Bakken petroleum system topped 600,000 barrels, state Industrial Commission reports show.
The commission reported that on average in July, the most recent month for which production statistics were available, the Bakken and Three Forks play produced 609,579 barrels per day, representing 90.4 percent of 674,066 barrels per day of total North Dakota oil production during the same month. The remaining 9.6 percent of oil production came from conventional reservoirs.
Natural gas production for July also set an all-time high, averaging 718,796 cubic feet per day compared to 699,945 cubic feet per day in June, an increase of about 2.6 percent.
Rigs count down
Meanwhile, the North Dakota drilling rig count has decreased to around 190-195 from around 200-205 a month ago as field operators transition to higher efficiency rigs and implement cost cutting measures, Lynn Helms, director of North Dakota’s Department of Mineral Resources, noted in his monthly “Director’s Cut.”
The idle well count “increased significantly” indicating an estimated 394 wells waiting on fracturing services, Helms said.
“Rapidly escalating costs have consumed capital spending budgets faster than many companies anticipated and uncertainty surrounding future federal policies on hydraulic fracturing is impacting capital investment decisions,” he said.
At least two companies — Occidental and Marathon Oil — have reduced their rig counts in the Bakken, in part, because of high service costs.
Montana’s rig count is steady, but North Dakota’s has dropped 11 percent from the May high of 218 rigs, Helms pointed out, noting that the North Dakota rig count on Sept. 19 stood at 194.
He said the utilization rate for rigs capable of drilling 20,000 feet has fallen to 90 percent, but for shallow well rigs that drill to 7,000 feet or less the utilization has increased to about 60 percent.
Drilling permits up
Helms said drilling permit activity increased as more multi-well pads are being drilled and locations need to be built before winter weather comes. Overall, there were 266 permits issued in July compared to 204 in June.
The number of rigs actively drilling on federal surface in the Dakota Prairie Grasslands remained unchanged at three. The number of wells drilling on the Fort Berthold Reservation dropped to 29 with three on fee lands and 26 on trust lands. There are now 691 wells producing (101 on trust lands and 590 on fee lands) 113,200 barrels of oil per day (7,274 from trust lands and 106,480 from fee lands) within the boundaries of Fort Berthold. Moreover, 141 wells were waiting on completion, 233 approved drilling permits (218 on trust lands and 15 on fee lands), and 1,581 additional potential future wells (1,426 on trust lands and 155 on fee lands).
Seismic remained busy with six surveys active-recording, none remediating, none suspended and seven permitted.
Leasing activity slows
“North Dakota leasing activity is much slower, mostly renewals and top leases in the Bakken - Three Forks area,” Helms said.
On the production side, Bakken-Three Forks output of 609,579 barrels per day in July compares to 598,512 barrels per day in June, up 11,067 barrels or nearly 2 percent, and 360,821 barrels per day during July 2011, up 248,758 barrels or 69 percent.
Total North Dakota oil production of 674,066 barrels per day in July compares to 664,618 barrels per day in June, an increase of 9,448 barrels or 1.5 percent, and 425,344 barrels per day in July 2011, an increase of 248,722 barrels per day or 59 percent. The 1.5 percent production increase in July over June was the lowest month-to-month percentage increase since April 2011. Nevertheless, North Dakota’s total oil output is now exceeding 20 million barrels for the entire month of July, another first for the state.
North Dakota still No. 2
July also marked the fifth month in a row that North Dakota produced more oil than Alaska, to remain the second largest state producer behind Texas.
The number of oil wells producing from the North Dakota portion of the Bakken-Three Forks in July numbered 4,319, or approaching 60 percent of 7,467 wells producing oil in the state. That compares to a total of 7,365 wells in June. A year earlier there were a total of 5,514 wells, 2,621 of them producing exclusively from the Bakken-Three Forks.
Helms said that because daily natural gas production is increasing at a slightly faster than oil production, gas-oil ratios may be increasing and more gathering and processing capacity might be needed. He said construction of processing plants and gathering systems is in full swing due to the dry summer weather. U.S. natural gas storage has dropped to 9 percent above the five-year average but this still indicates low prices for the foreseeable future.
North Dakota shallow gas exploration is not economic at near term gas prices. Gas delivered to Northern Border at Watford City is up to $2.50/Mcf, resulting in a current oil-to-gas price ratio of 34 to 1, but the high liquids content makes gathering and processing of Bakken gas economic.
Gas flaring drops slightly
“Additions to the processing capacity are helping and the percentage of gas flared dropped slightly to 31 percent,” Helms said. The historical high was 36 percent in September 2011.
Crude oil take away via pipeline is now less than 45 percent of daily production, but rail and truck transportation are adequate to keep up with near term production projections, Helms said.
The price of Bakken sweet crude averaged $71.13/barrel, down slightly from June’s $72.58/barrel. On Sept. 19, when Helms’ latest Director’s Cut was published, Bakken crude sold at $85.75/barrel, representing a 10 percent discount to NYMEX-WTI and an 18 percent discount to Brent.
“This is resulting in more North Dakota crude oil transported on rail to destinations that pay Brent price,” Helms said.
U.S. production jumps
Increased production out of the Bakken, the Eagle Ford formation in southern Texas and the Permian Basin in western Texas helped U.S. oil output rise to the highest level in 13 years in July, weekly Energy Department data show.
The U.S. met 83 percent of its energy demand from domestic sources in the first five months of this year, heading for the highest annual level since 1991, according to department figures compiled by Bloomberg.
No word on when from BLM, EPA
On a separate subject, Helms said that Bureau of Land Management’s draft regulations for hydraulic fracturing on federal lands were published in the Federal Register. The comment period closed on Sept. 10. BLM has given no indication of when a final rule will be published.
He said Environmental Protection Agency draft guidance for permitting hydraulic fracturing using diesel fuel also has been published. The comment period closed Aug. 23. And there also is no indication from EPA of when a final guidance document will be published.
