North Dakota’s steep climb in oil production growth is hitting a lull as oil drillers retrench amid plummeting crude oil prices.
State officials said Friday that oil production in October declined by about 4,000 barrels per day to 1.18 million daily barrels compared with September, the first decline in eight months. Drilling for new wells also declined and is expected to decline even more in 2015.
Lynn Helms, director of the North Dakota Mineral Resources Department, said oil prices in North Dakota are down 44 percent since September, far more than ever expected.
“I honestly did not see them this soft,” Helms said in a conference call with reporters. “That is going to have a significant impact.”
Helms, whose agency regulates the oil industry, said he expects the 183 current drilling rigs to be down by 40 to 50 rigs by mid-2015. “That means it will be a month-to-month struggle to see production increases — if they come at all,” Helms said.
Oasis Petroleum, one of the large operators in North Dakota, announced Wednesday that it would drop from 16 drilling rigs to six rigs. On Friday, stock prices for the 10 largest publicly traded oil companies with North Dakota operations were down by an average of 51 percent over three months.
In North Dakota, production from the Bakken and Three Forks shale plays has risen nearly sixfold in the past five years, and the state in October had a record 11,892 oil wells. Production has declined just seven times in five years, usually in the winter when it can be tough to complete wells.
“This is a blip in the long-term scheme of things,” Helms said.
North Dakota officials’ outlook was more gloomy than the U.S. Energy Information Administration’s. The agency on Friday issued a report reiterating that it expects U.S. crude oil production to increase 700,000 barrels per day in 2015 compared with this year. That estimate is down from an earlier projection, however.
New North Dakota regulations to reduce flaring, or wasteful burning, of natural gas at wellheads contributed to the decline in output, Helms said. After drilling wells, operators increasingly are deciding not to immediately complete them.
That step, called hydraulic fracturing, pumps water, chemicals and sand into the shale layer to release the oil. The number of wells in this uncompleted stage rose by 40, to 650 in October as many awaited construction of gas pipelines so they can avoid flaring, Helms said.
The price drop is driven by weak world demand for oil in Europe and China, whose economies have weakened, the growth in U.S. domestic shale production and decisions by Middle East and other oil producers not to reduce output.
“Everybody seems to be sharing the view that crude oil is in a free fall,” said Walt Breitinger, president of Breitinger & Sons, a commodities futures trading firm in Valparaiso, Ind. “Right now, it appears that demand is continuing to wane.”
Amid the turmoil in markets, the growth in crude oil shipping by rail hasn’t slowed. North Dakota officials said 60 percent of the state’s crude oil was shipped on trains, on par with recent levels.
The state’s Industrial Commission on Tuesday approved new crude oil conditioning regulations, a safety measure that takes effect April 1. The rules likely will require a $20 million investment by North Dakota producers, and add 10 cents per barrel in operating costs, Helms said. The investment, he said, is mainly for vapor-recovery systems to heat crude oil at the wellhead and extract gases that otherwise condense back into liquids, posing risk during transportation.
Rail safety concerns
Such volatile components have been a concern of rail safety advocates after a series of oil train disasters. On Friday, a La Crosse, Wis.-based group, Citizens Acting for Rail Safety, criticized the new regulations as insufficient to reduce the explosive risk of oil trains.
Updated rail traffic reports obtained by the Star Tribune indicate even more Bakken oil trains now cross Minnesota, with most shipments passing through the Twin Cities.
On the Canadian Pacific Railway through the Twin Cities, the average number of oil trains has risen to nine per week, compared with four in June, according to a Dec. 1 report filed by the railroad with Minnesota authorities and released under the state Data Practices Act.
Bakken oil trains, typically of 100 tank cars or more, carry at least 1 million gallons of crude oil each. Many are destined for refineries on the East Coast or eastern Canadian provinces.
BNSF Railway, an even bigger hauler of North Dakota crude, reported in November a change in traffic patterns for oil trains, running fewer trains through far southwest Minnesota. But the traffic levels — a range of 37 to 52 oil trains per week — remained unchanged, the report said. Up to 39 BNSF oil trains pass through the Twin Cities per week, the railroad reported.