North Dakota set an oil production record in January this year, and crude output in the state home to the Bakken shale play held close to that record level in the three months that followed. But is this sustainable in the current oil price environment?
The recent oil price slide in May and June is clouding the outlook for oil drillers in North Dakota, who are additionally challenged by diminishing available pipeline takeaway capacity to ship their oil and natural gas to markets.
North Dakota’s crude currently trades at around US$40 a barrel, dangerously close to the breakeven price for new wells, according to Lynn Helms, Director at North Dakota’s Department of Mineral Resources.
North Dakota’s Bakken play is expected to keep robust output and stable rig count going forward, but production would depend on the price of oil, infrastructure constraints, and workforce availability, Helms said in a press release last week, discussing the April production and future prospects.
North Dakota’s oil production in April was 1.3911million bpd, essentially flat on the March output of 1.3917 million bpd, and slightly off the all-time high production of 1.4038 million bpd reached in January this year, data from the Department of Mineral Resources showed.
A total of 96 percent of North Dakota’s crude oil production for April came from the Bakken and Three Forks formations, while just 4 percent came from legacy conventional pools.
The Energy Information Administration (EIA) predicted in its latest Drilling Productivity Report that Bakken oil production will rise by 11,000 bpd in July from an expected production of 1.428 million bpd in June. Related: How To Buy Gold For $3 An Ounce
In recent months, North Dakota’s rig count has become very stable in the mid-60s, the Department of Mineral Resources’ Helms says, noting that “Operators have shifted from running the minimum number of rigs to incremental increases and decreases based on gas capture, completion crew availability, and oil price. Current operator plans are to hold the rig count steady or perhaps 2-5 fewer rigs second half of 2019 depending on oil price, workforce, and infrastructure constraints.”
The drilling rig count continues to be limited by the price of oil, gas capture, workforce, and competition for capital from the Permian and Anadarko basins, according to Helms. Yet, operators continue to keep a drilling permit inventory that will accommodate varying oil prices for the next twelve months, he said.
Infrastructure constraints, however, could limit the drilling activity in North Dakota going forward. The pipeline shortage in the Bakken weighs particularly heavily on natural gas.
The Bakken, alongside the Permian, are the U.S. shale plays that are flaring the most natural gas, literally burning millions of dollars in potential profits.
In fact, oil and gas producers in the Permian and the Bakken waste so much of the commodity that it exceeds the annual gas demand of certain countries such as Israel, Hungary, or Romania, Rystad Energy said in a report earlier this month.
Despite the start up of the controversial Dakota Access Pipeline in 2017, available oil pipeline capacity in North Dakota is also dwindling as production rises to records.
“Then we start putting crude oil on rail cars again, which none of us want to do. So we are just seven years away from needing a new major oil export pipeline,” Helms said last year.
Just last week, Phillips 66 and Bridger Pipeline LLC said that they plan to build the Liberty Pipeline—a US$1.6-billion pipeline that will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. Subject to receiving permits and regulatory approvals, the pipeline is expected to start up as early as the first quarter of 2021, Phillips 66 says.
“The Liberty Pipeline is an important undertaking on the part of our company to ensure that oil from Wyoming, the Rockies and the Bakken can get to markets in the U.S. and around the world,” Bridger Pipeline’s president Hank True said.
“Our commitment to the Liberty Pipeline will give producers confidence to grow oil production in these important regions,” he added.
Yet, it will be mostly oil prices that will determine if North Dakota will set another production record soon.
By Tsvetana Paraskova for Oilprice.com
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