WILLISTON, N.D. – North Dakota’s oil regulators said on Monday they might allow more wells to be temporarily abandoned, a step that would allow producers to delay fracking beyond the typical one-year window and prevent even more crude from flooding onto global markets.
The change would fuel massive savings for oil producers in the state who have amassed a backlog of almost 1,000 wells that have been drilled but not completed with processes needed to get the oil flowing. The delays are designed solely to ride out the roughly 50 percent drop in crude prices since last year.
Any regulatory change in North Dakota also would assuage market concerns about supply continuing to outstrip demand at a time when Iraq, Saudi Arabia and other OPEC members show little sign of curbing their own output.
While no decision has been reached, the North Dakota Department of Mineral Resources (DMR) is “leaning toward” sharply increasing the number of requests to temporarily abandon wells, director Lynn Helms told reporters on a conference call.
“It’s just going to be a whole lot better for everyone if we store the oil in the shale formation instead of in Cushing, Oklahoma,” Helms said, a reference to the popular crude storage hub near the geographic center of the United States.
Producers currently have one year to frack and start producing oil from a well. If that window passes, the DMR warns producers they have six months to plug the well or start producing oil. It then moves to confiscate the well if nothing has been done by the end of that six-month window.
The number of North Dakota wells waiting to be completed rose by 70 to 914 in July, and most of them have one-year windows that expire in December, Helms said.
Any decision to allow a well to be temporarily abandoned would be on a case-by-case basis, he said.
“It’s a delicate balancing act because royalty owners expect to get royalties from those wells,” Helms said.
The one-year window has loomed over corporate budget planning, with producers hoping to wait as long as possible to bring new wells online.
For example, EOG Resources Inc., which has one of the largest number of North Dakota wells waiting to be fracked, told investors last week it would spend most of its capital budget in early 2016 on fracking new wells.
The rule change could abrogate the need for EOG to start fracking come January.
“This sends a signal to the global markets that the state is not going to force even more oil out there,” Helms said.
For July, North Dakota produced 1,201,920 barrels of oil per day, down from 1,211,328 barrels per day in June, according to the DMR, which reports on a two-month lag.
Natural gas production rose slightly to about 1,657,138 million cubic feet per day, also an all-time high.
Highlighting the state’s resilience amid low oil prices, the number of producing wells in North Dakota hit 12,940 in July, an all-time high.
Helms compared the state’s oil industry to a popular 1970s poster of a kitten desperately grasping onto a bar in midair.
“As you look at the fundamentals of the oil and gas industry, that seems to be the case it’s in right now,” he said. “The theme for this month is: Hang in there, baby!”