North Dakota rigs take a big hit from oil's steep fall

The number of oil-drilling rigs in North Dakota has fallen to the lowest level in six years, triggering an estimated 3,000-4,000 oil field job losses that could get worse, a top state official said Thursday.

"It is becoming painful out there in the oil patch," Lynn Helms, director of the North Dakota Department of Mineral Resources, said on a monthly conference call with reporters.

The department, which tracks and regulates the oil industry, also reported that North Dakota oil production declined to just under 1.2 million barrels per day in January, the most recent period for which data are available.

Helms forecasts lagging oil output for a few months because the 111 operating drilling rigs — down from 193 rigs a year ago — aren't enough to sustain production growth. He said the rig count is the lowest since February 2009 and could drop to 100 rigs this year, resulting in more layoffs.

Hundreds of North Dakota wells also have been drilled but not completed, he said. Oil companies are saving money, and awaiting a potential major tax savings, by delaying hydraulic fracturing on 825 wells — a number that likely will increase, Helms said.

Hydraulic fracturing, or fracking, pumps pressured water, chemicals and sand into shale to release oil and gas.

Tax policy is contributing to this practice. Helms said it's "very likely" that a major, automatic state tax break designed to help the oil industry during tough times will be triggered by persistent low oil prices. The tax benefit, along with a state-mandated deadline, could bring a surge of well completions and significant increases in oil output in June, he added.

As North Dakota released its bleak production outlook, U.S. crude oil prices fell to a six-week low Thursday after energy intelligence firm Genscape reported the glut of domestic crude oil is filling up a key storage terminal in Cushing, Okla.

"Now the concern is that people are still producing like gangbusters and where are you going to put it?" Brian Milne, energy editor for global energy management firm Schneider Electric, said in an interview. "If you run out of space to put it, you have to keep it in the ground."

Milne said fear of running out of mid-continent storage is one of several forces at work in oil markets. War in Libya and seasonal outages of U.S. refineries also are influencing supply and demand, he said.

Some North Dakota operators already are choosing to stop pumping, Helms said. So far, it amounts to about 12,000 to 15,000 barrels per day, he added. Overall, he predicted that North Dakota likely will regain its 1.2 million barrels of daily output later this year.

North Dakota and other major oil-producing states also are taking a hit on oil- and gas-related taxes, which often are tied to the price.