U.S. crude oil stocks have decreased for the eighth week in a row amid rising world demand for crude oil, and North Dakota’s oil and gas sector is more than ready to bounce back. But it’s in a tug of war right now with Texas and New Mexico for the oil and gas labor it lost during the pandemic. And, right now, it appears the nation’s No. 2 oil play could be the underdog in this economic dogfight.
North Dakota Department of Mineral Resources Director Lynn Helms said the dynamic contributed to mostly flat crude oil production from April to May, leaving production at 1.127 million barrels of crude oil per day, and defying hopes for production gains that would keep the state ahead of New Mexico. The latter narrowed the gap between it and North Dakota for the nation’s No. 2 oil producer to 90,000 barrels per day.
“They are looming in our rear view mirror,” Helms said. “We’ll see just how long we can stay ahead in this race with only 23 rigs operating here and 75 operating in New Mexico. It’s going to be a severe challenge now.”
Helms said his inspectors report only eight hydraulic fracturing crews in the field.
“At these prices, we would normally have 20 to 25 frac crews,” he said.
The companies Helms has talked to tell him they are trying “with all their might” to hire workers for completion crews in the Bakken.
“But they are not finding employees that want to come back into the industry and come back to North Dakota to work on the frac crews,” he said.
Pre-pandemic, North Dakota had 25 hydraulic fracturing crews, but it went down to a single crew during the worst of the pandemic in June and July.
“So many of those people were let go,” Helms said, “and many of them have left the state.”
To grow production at this point, Helms said the state needs to double or triple the number of hydraulic fracturing crews operating in the state. Hiring that many people, though, will likely require larger salaries and the return of at least some perks, such as housing allowances.
Whether that’s realistic, given the current ESG climate and the “disciplined” growth that major Bakken producers such as Continental are preaching right now, remains to be seen.
“There are some of our larger producers that have expressed the need and they’re really dialing in 1 to 2 percent growth,” Helms said. That’s lower than statewide projections, he added, “So there is concern this could be a longer-term trend.”
Another factor that’s undercutting the oil and gas sector’s recovery has not been much talked about. Oil is trading in the $70s, but most producers hedged in the $40 to $50 range. That’s leaving billions on the table for many debt-laden oil and gas companies. It will take some time for those hedges to drop off and for those companies to begin benefitting from the market’s price recovery.
Gas production, meanwhile, increased by 1 percent to 2.98 billion cubic feet per day despite the mostly flat oil production, and gas capture lost ground by about the same amount, dropping from 93 to 92 percent.
Contributing to the flaring increase is a turnaround at the Hess plant in Tioga, which takes 250 million cubic feet per day capacity offline at least temporarily. The plant will ultimately be expanded, however, to 400 million cubic feet per day.
Helms said the state might have seen more significant flaring as a result of the turnaround but for the new B. Sanderson plant built by Outrigger in Williams County. That plant was to have taken XTO production, but, since that didn’t happen, the new gas plant had room to help pick up excess gas and help take the edge off capacity issues.
Despite the challenges facing the Bakken, Helms said there are signs that activity is likely to pick up soon, and Helms is hopeful they will translate into production gains for June and July.
“In June, we issued 75 permits,” he said, “and we haven’t been there since before the pandemic, so that’s great news.”
North Dakota also set a new record for active, producing wells despite the lack of drilling rigs and hydraulic fracturing crews.
“(Oil and gas companies) carved into the non-completed wells or the DUC well count pretty substantially,” Helms said. “It went from 731 to 677.”
Included in that record number of producing wells is a feather in the cap for McKenzie County, which can now say it’s the first county in the state to have 5,000 active producing wells.
“To put that in context, in April of 2006, as they were drilling the first big Bakken well over in Parshall, statewide we had 3,525 wells,” Helms said. “So McKenzie County all by itself has 150 percent of the wells the whole state had in 2006.”
Another thing that bodes well for North Dakota as a competitive oil and gas play is the fact that during the pandemic it was the only shale play to increase its production efficiency. That’s according to a report just out from the EIA.
Production stats, meanwhile, are in line with the state’s budget forecast. The only thing not in line are prices, which have exceeded revenue forecast by about 19 percent in May, and were also exceeding it by some 25 percent Tuesday.
“State revenues should be extremely healthy,” Helms said.