North Dakota’s oil production was flat in July, a bit better than expected, but the outlook is still poor for the rest of 2016.
The nation’s second largest oil-producing state pumped out 1.03 million barrels per day during July, up 0.2 percent over June. “We were expecting there might be some decline,” Lynn Helms, head of North Dakota’s Department of Mineral Resources, told reporters in a web conference on Friday.
Enough new wells came online — North Dakota in July hit an all-time high for the number of producing wells — to keep production above 1 million barrels per day. “I think psychologically that’s a significant number,” Helms said.
But with oil prices in the doldrums — a condition expected to last through the year — Helms expects monthly production to dip below the 1 million barrel mark within the next couple of months.
Oil prices began plummeting in 2014, and the world has been awash in a supply glut since. The price of West Texas Intermediate Crude, the U.S. benchmark, closed at $43.03 a barrel on Friday, hitting a one-month low. Sustained prices must be in the $50 to $60 range to spark more activity in the Bakken range.
U.S. and world oil inventories are at levels that should keep oil in its current price range through the rest of the year, Helms said.
Not surprisingly, oil companies continue to contain investments in drilling rigs to scout new wells. North Dakota’s rig count today is 33, up from June’s mark of 28, but far below the all-time high of 218 in May 2012.
Oil companies “are making just the minimum amount of capital expenditures they need to make,” Helms said.
He said that the cost of completing a new well in North Dakota has fallen over the past few years from between $10 million and $11 million to the $6.5 million to $7.5 million range. That’s due to discounts from oil field service companies and lower costs for inputs like sand, a key ingredient in the fracking process, he said.
However, well costs in southern U.S. oil fracking regions are $5.5 million to $6.5 million. So, oil companies investment dollars are more likely to go there than to North Dakota.
“North Dakota operators are making deals in other [oil] basins,” Helms said. “We are seeing capital reallocated to the Permian [basin in Texas and southeastern New Mexico] and Oklahoma.”