Rig counts have long been a leading indicator for future oil production in the state. This month, they’re hovering around 34, although they did reach 36 for a day or two the first week in February.
That’s a two-year high since the pandemic began, which follows the national trend. Baker Hughes listed rig counts on Friday, Feb. 18, at 645 — 10 more than the week prior and 248 more than in 2021.
North Dakota’s rig count might well be higher at this point, but there are a couple of systemic factors that are holding things back, and it’s not just that the state has been branded “mature” by its top producers.
For one, the exceptionally tight labor pool has chopped at least five off the top of North Dakota’s potential rig count. North Dakota Department of Mineral Resources Director Lynn Helms mentioned this briefly in his monthly oil production report.
“A couple of operators have been working hard to add rigs,” Helms said, “And in one case it took them three months and three attempts at hiring a full crew to actually get the rig out of the yard.”
The first go-round, workers did not show up for training and the second round, workers actually showed up but it was a bitterly cold part of December, and many of them did not stick around.
The other company was only able to add a rig when a different company backed off of a couple of rigs, which allowed the other company to add workers — but did nothing to improve the net rig count.
“It’s just that hard to get workers,” Helms said. “And so the expectation has changed from adding, you know, a dozen rigs over the next year to hoping to add seven.”
The situation illustrates how North Dakota’s labor crunch is holding the state’s oil and gas sector recovery back, despite the prolonged period of higher oil prices — mid $90s — that more normally would be prompting a spike in rig counts.
Each rig employs around 150 people, about 50 of which are direct jobs, according to the North Dakota Division of Oil and Gas.
Hydraulic fracturing crews with a hundred or so employees follow along behind rigs, completing the wells that have been drilled. North Dakota has 11 active hydraulic fracturing crews right now, Helms said, up from one during the pandemic. That is about as many as needed to keep up with the existing number of rigs.
Another problem that’s also holding back oil production is the increasing gas to oil ratio and the lack of infrastructure to take that gas to market. This is a problem that could get worse, as the gas-oil ratio in the Bakken is set to continue growing, even at flat production.
North Dakota Pipeline Authority Justin Kringstad has talked about this issue frequently. Even 5 percent growth in oil production would be difficult, as things stand now, when it comes to gas takeaway. That sets a new ceiling, as many companies have set ambitious 98 and 99 percent gas capture rates for their ESG goals.
“We know that even at flat, slight growth in oil, gas growth is going to continue to stay strong, and we will likely start to see that really come on strong here toward the summertime,” he said.
The oil and gas sector is working on more gas infrastructure, to de-bottleneck areas where takeaway capacity has been constrained and to add to overall capacity out of the Bakken.
Among these projects is the recently completed WBI pipeline system that came online two or three weeks ago, which helped debottneneck an area north of the lake near Tioga.
In late 2024, the Wahpeton line comes online in the southeast corner of North Dakota, and it will plans to deliver natural gas to customers off of the WBI line.
Meanwhile, in January, the Grasslands pipeline held an open season to send about 90 million cubic feet of natural gas per day to the Wyoming market. The results of that open season are not yet known, but the target in-service date for the line is fall 2023.
Meanwhile, a deadline is coming up March 1 for applications on a cross-state pipeline that will carry natural gas to the eastern half of the state from the West.
Kringstad said one thing he’ll be watching is whether the new infrastructure that’s being built is large enough for these newly ambitious gas capture targets industry has set, targets that are substantially higher than the state’s regulation that requires 91 percent capture.
“It’s one thing to build for 91 percent capture,” Kringstad said. “It’s another build a system for 97 percent capture and 99 percent.”
Lack of adequate gas infrastructure can set an artificially low ceiling on the Bakken’s potential oil production, and which can also act to depress rig counts over time.