North Dakota oil output slips again as outlook for industry gets bleaker

Production has declined in five of the past eight months as the industry tries "to weather the storm."

October 14, 2015 at 2:33AM
Floor hand Ray Gerrish worked to make repairs on a drilling rig as the sun rose near the site outside Watford City. ] (JIM GEHRZ/STAR TRIBUNE) / October 23, 2013, Keene, ND – BACKGROUND INFORMATION- PHOTOS FOR USE IN SECOND PART OF NORTH DAKOTA OIL BOOM PROJECT: Dozens of drilling rigs dot the North Dakota landscape in the Williston Basin and the Bakken Oil Formation. Once the rigs drill holes, several miles deep and then several miles horizontally, hydraulic fracturing techno
A worker strived to repair a North Dakota oil rig in late 2013, a time when the industry was still going strong in the state. (The Minnesota Star Tribune)

North Dakota oil pro­duc­tion fell 1.7 percent in Au­gust, slip­ping be­low 1.2 mil­lion bar­rels per day in the fifth month­ly de­cline since the state's out­put peak­ed last De­cem­ber.

The near­ly 21,000 bar­rel-per-day drop from July rep­re­sent­ed the first time in 12 years that the state's oil out­put fell in Au­gust, a month when the in­dus­try historically has a growth spurt thanks to fa­vor­a­ble con­di­tions, the state Department of Min­er­al Resources re­port­ed.

"Pro­duc­tion is down, and sig­nif­i­cant­ly down," Lynn Helms, the head of the de­part­ment, said Tues­day in his month­ly up­date on the in­dus­try.

The de­cline for Au­gust "is def­i­nite­ly not nor­mal," he add­ed. "This is a re­flec­tion of what's hap­pen­ing in the in­dus­try."

World oil prices sank to a six-year low in Au­gust de­spite an in­crease in de­mand, but the growth in de­mand is ex­pect­ed to end in 2016, the International Energy Agency said Tues­day. U.S. shale pro­duc­ers, like North Dakota's, face a big chal­lenge be­cause new shale wells rap­id­ly fall off in pro­duc­tion — an 82 percent de­cline in the first two years — for­cing con­tin­u­ous in­vest­ment in new wells to sus­tain pro­duc­tion, the IEA said. U.S. oil pro­duc­tion growth could be stopped in its tracks, IEA said.

North Dakota oil, which sells at a dis­count to the bench­mark crude, fell al­most $10 per bar­rel from July to Au­gust, but has since re­cov­ered slight­ly to $35 per bar­rel, ac­cord­ing to data North Dakota col­lects from the Flint Hills Re­fin­er­y in Rosemount.

Helms said pro­duc­ers are elect­ing to keep oil in the ground. He at­trib­ut­ed about half of the de­cline in Au­gust's out­put to re­duced pump­ing by com­panies facing prob­lems at a nat­u­ral gas com­pres­sion plant. With­out that cut­back, some com­panies risked ex­ceed­ing flar­ing tar­gets, he said. The cut­back is ex­pect­ed to last though Jan­u­ar­y, he add­ed.

Nat­u­ral gas pro­duc­tion in North Dakota also fell from the re­cord set in July, off 1 percent.

"I ex­pect a slow de­cline in pro­duc­tion," add­ed Helms, who said out­put could dip to 1 mil­lion bar­rels per day by the end of next year if con­di­tions wor­sen.

The num­ber of rigs drill­ing for North Dakota oil and gas also is down — to 67 rigs this month. That's less than a third of the rigs that were op­er­at­ing in May 2012, dur­ing the height of the state's oil boom. It's 10 to 15 rigs be­low the re­duced lev­els drill­ers pro­ject­ed this year, Helms said.

Fewer new­ly drilled wells are get­ting com­pleted, a cost­ly step called hy­drau­lic frac­tur­ing that in­jects wa­ter, sand and chemi­cals into shale to free oil and gas. That left a re­cord 993 un­completed North Dakota wells at the end of Au­gust, up 79 from July.

Helms said the num­ber of drilled, but unfracked wells is sure to rise as oil com­panies leave oil and gas tem­po­rar­i­ly un­tapped rath­er than sell it for low prices. Op­era­tors are sup­posed to fin­ish wells, and start pay­ing royal­ties, one year af­ter drill­ing a well, but can seek a de­lay for a year or more.

Two North Dakota op­era­tors, Tul­sa-based Sam­son Resources and Den­ver-based American Eagle Energy, have filed for Chapter 11 bank­rupt­cy this year.

The in­dus­try is "reef­ing its sails," Helms add­ed. "They are try­ing to weath­er the storm."

David Shaffer • 612-673-7090 Twitter: @ShafferStrib


Oil pump jacks in North Dakota haven't been as active in 2015. Just 65 drilling rigs are operating in North Dakota, down two-thirds from a year ago, and more than 12 small drillers have folded or sold out.
The sun set over the Bakken Oil Formation, behind an oil well near Williston. ] (JIM GEHRZ/STAR TRIBUNE) / September 26, 2013, Watford City, ND – BACKGROUND INFORMATION- PHOTOS FOR USE IN FIRST PART OF NORTH DAKOTA OIL BOOM PROJECT: Dozens of drilling rigs dot the North Dakota landscape in the Williston Basin and the Bakken Oil Formation. Once the rigs drill holes, several miles deep and then several miles horizontally, hydraulic fracturing technology (“fracking”) is then employed to extract oil and natural gas from the underlying shale formation. Flaring of natural gas is a practice that costs drillers and mineral rights holders hundreds of millions of dollars a year. While pipelines are being built, the cost to build pipelines needed to ship gas to refineries, especially in remote areas, still exceeds the cost of burning the resource off. ORG XMIT: MIN1309271006084187 (Star Tribune/The Minnesota Star Tribune)
Derrick hand Scott Berreth (right) rappelled through the drilling rig structure as the crew prepared to restart machinery after some repairs had been made earlier in the morning. ] (JIM GEHRZ/STAR TRIBUNE) / December 17, 2013, Watford City, ND Men work around the clock at Raven Rig No. 1 near Watford City, one of nearly 200 towering oil rigs in the Bakken.
A worker in a drilling rig structure near Watford City, N.D. (The Minnesota Star Tribune)
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