crude oil acquisition costs

Refiner's acquisition costs, based on EIA statistics.

While current North Dakota crude oil production has likely fallen below the million barrel mark, for the month of March it posted a mere 2 percent production drop.

North Dakota’s Department of Mineral Resources Director Lynn Helms reported production statistics of 1.43 million barrels of crude oil per day in the state for March, and slightly higher gas production of 3.1 billion cubic feet per day, with a gas capture rate of 87 percent.

“(OPEC+) didn’t unravel until March 9,” Helms pointed out. That is when Saudi Arabia announced it would boost its production by millions of barrels of oil per day and discount Arabian light crude, following Russia’s rejection of production cuts amid demand destruction caused by global stay-home orders to curb the spread of coronavirus.

Bakken operators completed 120 wells in March, despite the tumultuous markets, but it was not long after March 9, that a big slowdown began. Companies quickly announced 30 to 50 percent reductions to capital expenditures, stacking rigs and suspending hydraulic fracturing crews.

North Dakota had 25 hydraulic fracturing crews going into the crisis, but now has just one. There are now 12 operating rigs. That represents an 80 percent reduction — much steeper than the initially forecast 55 or so percent.

Helms said discussion with industry suggests the state will lose four to five more rigs before things begin to ease and return to normal.

The location of all the state’s rigs reflects a predictable flight to the very core of the Bakken resource, where its economics are best. Half the state’s operating rigs are on Fort Berthold.

“The resource hasn’t gone anywhere, and the oil is still in the ground,” Helms said. “Future potential is still there. It is a matter of when we might see that future potential arise.”

Prices will determine that when. As far as prices, the Director’s report listed North Dakota Light Sweet as $37.21 in February, $20.33 in March, $9.16 in April and $6.75 on Friday, May 15.

The extent to which these prices will affect revenues at this point is unclear. A question about the figures and where the state is at on its new revenue projections was not answered by close of business Friday.

Helms said the first batch of wells taken off line in North Dakota were low production wells that were producing high amounts of water. Those didn’t affect production figures or gas capture statistics much.

The next group to be shut in were those that were flaring most of their gas. Those are likely to have an enormous impact on production statistics for April.

Gas capture will likely look good, Helms said wryly, while crude oil production will not.

Helms said while some additional wells have been shut in, his fuel inspectors in the field have also seen some wells going back into production.

It suggests that the current oil price, which is approaching $30 a barrel, is supportive of already producing wells, even if it won’t support drilling or completing of new wells, Helms said.

“So we may have seen the bottom of this thing early this week,” he added.

The market, however, is still sending mixed signals, largely because the world is still awash in over-supplied oil. In May, future prices collapsed as speculative purchasers, who had no way to take delivery of oil, sought to divest themselves of their contracts.

June crude oil futures, meanwhile, expire in just one week. Whether that will result in another dramatic dive into negative prices remains to be seen, but Helms said the combination of futures and Brent prices will be a clue as to how the world is responding to all the stored oil that remains on the market.

“It’s going to take months to work that off,” he added. “It is enormous.”

Meanwhile, Helms said the state is working hard to build a bridge to retain its workforce for better market conditions.

One approach would be to use a little more than $33 million, which Helms mentioned had been approved in a “budget section,” to confiscate abandoned wells plug between 400 to 550 wells. The state has six months to use funds under the CARES Act for purposes related to the COVID-19 disruption, and using it that way would keep as many as 500 people in the oil and gas service sector working, while resolving a potential environmental headache for the state.

Those employees could be key, Helms said, to quickly returning wells to production.

“The task force is very active and doing a lot of talking about how we can sustain the oil and gas service sector employment,” Helms said, “and how we can incentivize the industry to put North Dakota production back on before our competitors tart putting their production back on.”

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