North Dakota oil production fell 1.7 percent in August, slipping below 1.2 million barrels per day in the fifth monthly decline since the state’s output peaked last December.
The nearly 21,000 barrel-per-day drop from July represented the first time in 12 years that the state’s oil output fell in August, a month when the industry historically has a growth spurt thanks to favorable conditions, the state Department of Mineral Resources reported.
“Production is down, and significantly down,” Lynn Helms, the head of the department, said Tuesday in his monthly update on the industry.
The decline for August “is definitely not normal,” he added. “This is a reflection of what’s happening in the industry.”
World oil prices sank to a six-year low in August despite an increase in demand, but the growth in demand is expected to end in 2016, the International Energy Agency said Tuesday. U.S. shale producers, like North Dakota’s, face a big challenge because new shale wells rapidly fall off in production — an 82 percent decline in the first two years — forcing continuous investment in new wells to sustain production, the IEA said. U.S. oil production growth could be stopped in its tracks, IEA said.
North Dakota oil, which sells at a discount to the benchmark crude, fell almost $10 per barrel from July to August, but has since recovered slightly to $35 per barrel, according to data North Dakota collects from the Flint Hills Refinery in Rosemount.
Helms said producers are electing to keep oil in the ground. He attributed about half of the decline in August’s output to reduced pumping by companies facing problems at a natural gas compression plant. Without that cutback, some companies risked exceeding flaring targets, he said. The cutback is expected to last though January, he added.
Natural gas production in North Dakota also fell from the record set in July, off 1 percent.
“I expect a slow decline in production,” added Helms, who said output could dip to 1 million barrels per day by the end of next year if conditions worsen.
The number of rigs drilling for North Dakota oil and gas also is down — to 67 rigs this month. That’s less than a third of the rigs that were operating in May 2012, during the height of the state’s oil boom. It’s 10 to 15 rigs below the reduced levels drillers projected this year, Helms said.
Fewer newly drilled wells are getting completed, a costly step called hydraulic fracturing that injects water, sand and chemicals into shale to free oil and gas. That left a record 993 uncompleted North Dakota wells at the end of August, up 79 from July.
Helms said the number of drilled, but unfracked wells is sure to rise as oil companies leave oil and gas temporarily untapped rather than sell it for low prices. Operators are supposed to finish wells, and start paying royalties, one year after drilling a well, but can seek a delay for a year or more.
Two North Dakota operators, Tulsa-based Samson Resources and Denver-based American Eagle Energy, have filed for Chapter 11 bankruptcy this year.
The industry is “reefing its sails,” Helms added. “They are trying to weather the storm.”