N.D. sees second consecutive monthly drop in oil output

North Dakota's oil output declined for the second consecutive month as just one new well was completed in February and some producers pumped less oil and gas to meet flaring rules, state officials said Tuesday.

"It was an unusual event," Lynn Helms, director of the North Dakota Mineral Resources Department, said of the back-to-back monthly decline in production, which last happened in 2011.

Oil production in the state likely will fall through May because of the drop in the number of drilling rigs to 91 this month, less than half the number operating a year ago, he added.

Output was just under 1.18 million barrels per day in February, a drop of 50,435 daily barrels since December, when the state hit a 1.2-million-barrel-per-day record high.

Helms said the falloff in drilling has happened faster than projected, driven by low oil prices that have cut capital investment by oil companies. The output of newly completed oil wells always declines, so new ones must be drilled constantly or an oil field's production steadily drops.

After North Dakota's news, light sweet crude oil futures for May closed the day up 3.2 percent at $53.55 per barrel on the New York Mercantile Exchange.

Helms attributed most of February's drop of 14,000 barrels per day to producers cutting back production to meet new regulations on flaring, or burning of natural gas at wells that are not connected to pipelines. Under regulations that gradually get stricter, producers are allowed to burn no more than 23 percent of gas output or face state-ordered cuts in ­production.

"I think we are going to see continued production declines through May and then we'll see a big catch up in June that will take us back up pretty close to the 1.2 million-barrels-per-day-mark," Helms said on his monthly conference call with reporters.

For reasons that are not yet clear, a smaller share of North Dakota's oil — 55 percent — ended up on oil trains in February, said Justin Kringstad, director of the North Dakota Pipeline Authority. That compares with 58 percent in January, he said. Much of the oil train traffic passes though Minnesota.

In a separate report released Monday, the research firm IHS Inc. found that North Dakota's oil and gas business is having little ripple effect in Minnesota, resulting in "only a small percent increase in statewide economic activity."

Two Minnesota sectors — frac sand mining and pipeline construction — benefit most from North Dakota's economy. IHS forecast the peak contribution in 2016, thanks to major oil and gas infrastructure projects. After that, the ripples begin to subside, and by 2019, North Dakota's effect on the gross state product of Minnesota ranges from 0.1 percent to 0.3 percent, IHS forecast.

"While Minnesota is relatively close to the Bakken ­compared with other states, it is not close enough to benefit from being a supplier of construction labor and raw materials, with the exception of frac (silica) sand," said the IHS report, "The effects of North Dakota oil production on the Minnesota economy."

"Really the impacts there are pretty minimal because of the distance and lack of oil service firms to meet the demands of oil companies," said Neal Young, economic analysis director of the Minnesota Department of Employment and Economic Development.

The department oversaw the $250,000 study ordered by the Minnesota Legislature early last year when North Dakota's oil sector was booming. Then the price of crude oil dropped — down about 50 percent from last June until now. Young said researchers shifted gears to generate Minnesota economic forecasts under low, medium and high oil prices.