North Dakota oil production hits seven-year low after COVID-19 upends petroleum demand

With COVID-19 upending petroleum demand, North Dakota's oil production fell 30% in May, hitting a monthly low not seen in seven years.

"The second quarter of 2020 was a like a five-alarm fire for the North Dakota oil and gas industry," said Lynn Helms, director of the North Dakota Department of Mineral Resources.

Oil production has picked up since May. But it will take more than a year to return to pre-COVID levels — if ever, given potentially permanent changes in petroleum demand, Helms said.

North Dakota, the nation's largest oil-producing state after Texas, churned out 858,400 barrels per day in May, down 30% from April, according to state data released Friday. Output hasn't been that low since June 2013.

The state's natural gas production in May fell 29% from April, the largest month-to-month decline on record, Helms said.

North Dakota gas and oil production hit all-time highs in November before falling somewhat and then plummeting in April and May.

The state posted another grim statistic: Inactive oil wells shot up from 2,168 in April to 6,108 in May, the highest ever. Oil companies shut in wells, including many new ones, with demand sinking and prices falling.

"Every operator was shutting in everything," Helms said in a conference call with reporters.

The oil bust's human toll — in lost jobs — continued in May, too.

The oil and gas industry had recorded 10,250 layoffs as of last week, meaning an estimated unemployment rate of 20%, Helms said. For the second straight month, there was just one fracking crew working in North Dakota in May, down from 25 in March before the COVID crisis hit.

Frack crews blast torrents of water, sand and chemicals into wells after they are drilled. New well drilling remains depressed, too, though the decline in drilling rigs has slowed considerably. There are currently 11 rigs at work in North Dakota, Helms said, down from 12 last month and 35 in April.

North Dakota's oil production should notch minor increases in June and appears to be on track to recross the 1 million-barrel-per-day mark in July, Helms said.

Oil prices have picked up since May, when West Texas Intermediate (WTI) was trading at an average of $28.53. For most of July, WTI has been trading around $40 a barrel, still historically low but a price that gives oil companies more incentive to produce.

Federal energy experts are forecasting that oil demand should be restored to pre-COVID demand levels in about a year.

But Helms said he thought that projection was a "little optimistic. I think we are going to see a permanent change in world demand [for petroleum products]. I am not sure the world is ever going to return to pre-COVID demand numbers."

North Dakota's oil industry faces another big problem: The possible closure of the Dakota Access pipeline, the largest export artery of the state's crude for the past three years.

U.S. District Court Judge James Boasberg last week ruled that the U.S. Army Corps of Engineers had violated federal environmental law by allowing a stretch of the pipeline beneath Lake Oahe, the source of drinking water for the Standing Rock Sioux tribe.

Responding to the tribe's suit, Boasberg ordered the Dakota Access to be shut down by Aug. 5 and that an additional environmental review be conducted.

A federal appellate court, at the request of Dakota Access operator Energy Transfer Partners and the state of North Dakota, this week temporarily halted the shutdown through an administrative stay. The appellate court did not rule on the case's merits.

Without Dakota Access in operation, $5 to $6 of extra cost would get tacked onto each barrel of oil produced in North Dakota, Helms said. "It is impossible to overemphasize how important that is."

Mike Hughlett • 612-673-7003