May was not a merry month for the oil and gas industry in North Dakota, with production dropping by record amounts for a second month in a row.
North Dakota oil production fell 30 percent month over month to 850,000 barrels per day in May, setting a back-to-back record with April, when production fell a record 15 percent to 1.2 million barrels per day.
That’s the lowest production has been since 2013.
Natural gas production, meanwhile, dropped a record 23 percent to 1.9 billion cubic feet per day. That followed on April’s record 14 to 15 percent decline to 2.7 billion cubic feet per day.
“Every operator was shutting in everything,” North Dakota Director of Mineral Resources Lynn Helms said. “We just saw a tremendous decline.”
The inactive well count has hit 6,100 — the highest ever — triple what it was in April.
Curtailment, however, is higher than even that number reflects.
According to figures from North Dakota Pipeline Authority Justin Kringstad, the number of wells shutting in at least 75 percent of production is 6,700. These wells are spread across the Bakken map. They are not in particular areas, they don’t reflect particular well types, and they are not limited to any particular operators.
Helms said the bottom has probably already been reached, and predicted better numbers when July production is reported two months from now.
“By the time July numbers come out, we may be back to that million number or higher,” he said.
Prices, meanwhile, were terrible for May, while differentials were worse, Helms said. Differentials refer to the cost of transporting oil and gas to markets. The average differential for WTI and North Dakota crude was $14 on a $28 barrel.
“There was no incentive for North Dakota operators to produce and market North Dakota crude oil, unless they had that crude oil hedged,” Helms said. “And there was a significant amount of hedging that was out there. That is kind of what sustained activity as it was in the month of May.”
Even that support may turn out to be thin, given the legal issues facing Dakota Access pipeline, ordered by a federal court to shut down by Aug. 5 while more environmental study is done. A temporary stay of that shutdown is in place for now, while a higher court determines whether it should stand.
“The only completion activity we are aware of is a company with a lot of hedges,” Helms said. “And that company, though, is moving that oil through Dakota Access. They had protected themselves from the market, but they are not protected from a DC Circuit court decision, so we will see how that all plays out.”
That company had been looking at putting on two more completion crews, Helms added later in the presentation, but in light of the Dakota Access decision, put them on hold.
Drilling rigs in the state are hovering around 11, which Helms said is an 82 percent drop since January.
About one-third of the state’s rigs are on Fort Berthold. That one completion crew in North Dakota is not working there, either, so that means that inventory is drilled uncompleted wells or DUCs.
Helms added that at least one operator has stated that the federal “Hokey Pokey” — with rules coming in and out and litigation shaking it all about — is prompting that operator to commit two rigs to develop all the federal permits they have as quickly as possible.
That suggests the state could be losing at least one more rig in the near future, and perhaps two, Helms added.
Unemployment is around 10,250 as of Thursday, representing 20 percent of the sector.
“That’s an enormous number, which is why we are pushing so hard to get this plugging and reclamation project underway, so we can put some of them back to work,” Helms said.
Flaring meanwhile, has dropped to 10 percent statewide, though it continues to lag at Fort Berthold, which flared 18 percent.
That could improve somewhat after the recent federal decision vacating the 2018 BLM flaring rule the Trump administration had rolled out, Helms said, but it will be at the expense of production.
The pandemic-induced downturn is shaping up to be one of the worst in history for North Dakota oil and gas, Helms said. If rising coronavirus cases elsewhere result in extended demand destruction, it could well be on track to be the worst.
The EIA has projected a return to pre-COVID demand levels within a year. If that’s realized, then the pandemic downturn will be the state’s second or third worst.
But, Helms added, he believes the EIA is being overly optimistic to project that demand for liquid petroleum products will return to pre-pandemic levels. He believes some of the demand destruction has been permanent.
If the demand remains lower than EIA projects, extending the recovery timeframe, the pandemic downturn could end up ranking as North Dakota’s worst.
“(EIA’s) timing is reasonable,” Helms said. “But I’m not sure that the world is ever going to return to pre-COVID demand numbers.”