Amid persistently weak oil prices, the number of rigs drilling new oil wells in North Dakota hit its lowest point in more than five years, North Dakota’s top oil industry regulator said Friday.
The count of rigs, mostly targeting oil and gas in shale, stood at 79, a drop of 21 since March, and the lowest since December 2009, near the beginning of North Dakota’s oil boom, according to the monthly Director’s Cut report by Lynn Helms, head of the state Mineral Resources Department.
Oil drillers have been scaling back for months as price levels made it uneconomical to invest in new wells. The April data also revealed a significant drop in the number of North Dakota wells being completed, a costly process of injecting sand, chemicals and water after they are drilled. Instead, the backlog of uncompleted wells rose 5 percent to 925.
“That’s the driver here — 925 wells they need to complete,” said Eric Mintz, a portfolio co-manager who follows the oil industry at Eagle Asset Management, a mutual fund company. “You have got a pretty good backlog there. And until you see that brought back to something more normal, the rig count is going to continue to go down.”
Mintz said it makes sense for oil field operators to drill and wait, hoping for higher prices. Hydraulic fracturing, or fracking, the step that releases oil and gas from shale, represents 60 percent of the cost of a well, he said. Drillers don’t want to make that investment, and then sell the initial high output of crude oil into a down market, he said.
North Dakota reported a preliminary estimate of just 94 completed wells in April, down from 244 in March. “Continued oil price weakness anticipated to last into next year is by far the primary reason for the slowdown,” Helms said in the report.
The pause in fracking is a chief reason why North Dakota’s daily oil output dropped again in April, to 1.16 million barrels, compared with the record 1.2 million barrels in December. Helms said 110 to 120 wells need to be completed each month to stay at 1.2 million barrels daily. That’s because new wells, after their initial gush, settle into a lower production rate.
“This is an industry where you get a ‘V’ bottom,” Mintz said of the trend in drilling numbers, which he expects to keep going down through the end of the year. “Then you get a sharp recovery when it hits.”
Crude oil showed no sign of recovery on Friday, slipping again below $60 per barrel. The market has rallied since January’s low point of less than $44 per barrel. A year ago, the month-ahead contract for West Texas Intermediate (WTI) was $107 per barrel. North Dakota crude sells at a discount to that price.
Low prices also are pushing energy companies to be more efficient. Over the past year, the cost of drilling — mainly fees to oil field contractors — declined by 19.6 percent, the U.S. Energy Information Administration reported Thursday. The price of fracking sand, which is mined in Minnesota and Wisconsin, fell 12 percent, the agency said.