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Vol. 18, No. 29 Week of July 21, 2013
Providing coverage of Bakken oil and gas

ND breaks 800,000 bpd; drilling still outpaces completions; production ahead of projections

Not only did North Dakota set yet another record high in oil production in May, and not only did the state finally reach a long-awaited milestone — 800,000 barrels of oil per day production — but production in May broke that barrier by more than 10,000 bpd finishing the month with average production of 810,129 bpd. That according to data released on July 15 by the Oil and Gas Division of the North Dakota Industrial Commission’s Department of Mineral Resources.

“May’s production numbers were really a happy surprise,” said Oil and Gas Division Director Lynn Helms in a July 15 press conference. “We finally broke through that 800,000 barrel-a-day barrier, and that’s something we’ve been looking forward to for some time.”

After a period of what Helms had previously called a “sawtooth” trend in production that began in November 2012 and continued through February 2013, followed by two months of small to moderate production increases in March and April (see chart), the May production is getting back to what Helms considers more normal production. “Kind of back to what we normally experience in the Bakken and Three Forks,” Helms said.

Completions backlog

Drilling in May continued to outpace well completions. The number of rigs in North Dakota increased by only one rig to 187 in May, and the number of well completions increased by only 10 in May to a total of 143 for the month. However, those 143 well completions did not even put a dent in the total number of wells waiting on completion, and as of the end of May there were approximately 500 wells awaiting completion, up 10 wells from the 490 awaiting completion at the end of April.

The reason for the continued backlog of completions, according to Helms, is the weather. He said May 2013 was the wettest May on record in North Dakota, and he said the road restrictions remained in effect later in the spring than ever. He added that while it never happened, one county was actually considering temporary road closures.

Adding to the backlog of completions is the continued decrease in the time it’s taking to drill wells. Helms said the time from spud to total depth is now slightly less than 22 days. Conversely, the time required to complete wells, i.e., the period from reaching total depth to when the well actually goes on production, has increased from 60 to 70 days and now, he said, it’s up to 92 days. Much of that increase in completion time, Helms said, was due to logistics associated with moving fracking equipment and water to the well sites. However, Helms said this is an area where companies are planning to focus efforts in the coming year in order to improve the efficiency of moving fracking equipment and materials.

However, with improving weather and the lifting road restrictions, operators will be able to begin catching up on the backlog of completions. In addition, he said some operators are planning to bring in additional frack crews and equipment.

Catching up on the backlog, Helms said, will result in increases in monthly production volumes. “We’re going to see even larger monthly increases in production in June and July and August as we use up that inventory and put those frack crews to work,” Helms said, adding that the division is anticipating those monthly production increases to exceed 20,000 bpd through the summer months.

Helms said there is a desire among some operators to increase the number of drill rigs in the state, but added that with the large backlog in completions, he doesn’t foresee more rigs coming in until later in the year when companies get caught up on completions.

Ahead of revenue projections

The 2013 North Dakota legislature based its oil and gas tax revenue forecast for the 2013-15 biennium on a production estimate made in February that projected the state’s crude oil production would reach 830,000 bpd at the beginning of the biennium, July 1, increase to 850,000 bpd in January 2014 and remain at that level throughout the remainder of the biennium, i.e., through June 30, 2015.

Based on the February projection, in order to reach 830,000 bpd by July 1, production would have to be near 805,000 bpd by the end of May, and Helms noted in the July 15 press conference that the May production was approximately 5,000 bpd ahead of where it needed to be to achieve the projected 830,000 bpd by July 1. With the anticipated monthly production increases in excess of 20,000 bpd, Helms believes the state could finish the year well ahead of the production estimates used in the revenue projections.

The legislature’s revenue forecast also assumed a North Dakota crude oil price of $75 per barrel for the first year of the biennium, and a price of $80 per barrel for the second year of the biennium. Helms said in the July 15 press conference that the price of North Dakota sweet crude oil at the end of May, which is the equal daily quantity, EDQ, for the month on the Flint Hills market, was $87.94 per barrel. That price was more than 17 percent higher than the revenue projected price of $75 per barrel for this fiscal year.

The price of North Dakota crude oil remained quite steady over the past six months, Helms noted, hovering in the $85 to $87 per barrel range through May. However, as of July 16, North Dakota light sweet crude was bringing $97.25 per barrel on the Flint Hills market. That sharp increase, Helms said, is the result of uncertainty over the export of crude oil from the Middle East in what he calls the “fear premium” that is built into oil prices.

The May numbers

May oil production was a net increase of 16,277 bpd over April’s daily production of 793,852, an increase of slightly more than 2 percent. All together, North Dakota produced a total of 25.1 million barrels of oil in May, up 1.30 million barrels from the 23.8 million barrels produced in April.

Natural gas production also increased in May and also set a new record at 900 million cubic feet, mmcf, per day, up 4.5 percent from the 861 mmcf produced per day in April. A total of 27.9 billion cubic feet of natural gas was produced in North Dakota in May, an increase of 7.8 percent over April’s gas production.

The 143 well completions in May brought the total number of oil producing wells in North Dakota to 8,915, a record for the state and an increase of 1.6 percent.

A total of 165 drilling permits were issued by the Oil and Gas Division in May, down from 211 permits issued in May and the 202 permits issued in April.

The total rig count in the state in June was 187, exactly the same as May and one more than in April. As of June 15, however, the rig count had fallen by one to 186. The highest rig count ever in North Dakota was on May 29, 2012, when there were 218 rigs operating in the state.

—Mike Ellerd

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