North Dakota warns of prolonged oil, gas downturn after summer output recovery

Washington — North Dakota oil and natural gas production increased slightly in June, marking the end of a three-month free fall as the state lost drilling rigs and crews in response to plunging oil prices and demand.

While output is expected to climb further in July and August as producers continue to ease curtailments, state regulators warned Aug. 14 to expect another downturn if drilling activity does not significantly pick back up.

The state would need about 60 well completions each month to maintain production at 1.3 million b/d. It had only 30 completions in June, Lynn Helms, director of the North Dakota Department of Mineral Resources, said during a briefing on June's production figures.

"It's kind of like when you fall off the diet wagon," Helms said. "It doesn't last long term. Unless we see completion numbers increase substantially, that's going to turn around and natural decline is going to take over."

June-August recovery

Helms said wellhead prices would need to be around $45/b in North Dakota and $50/b in Midland to prevent another falloff in production.

The state pumped 890,109 b/d of oil in June, up from 859,361 b/d in May, according to the latest North Dakota Pipeline Authority data. North Dakota oil production has dropped 41% since February, when the state was pumping 1.5 million b/d.

About 436,000 b/d of North Dakota oil production remained offline from 5,318 wells in June, recovering from May's shut-ins of 494,000 b/d from 6,770 wells.

Helms predicted operators would bring about 150,000-200,000 b/d of shut production back online in July, with another 200,000-300,000 b/d in August.

The state's natural gas output rose to 1.97 Bcf/d in June, from 1.93 Bcf/d in May.

Election risks loom

Adding to the difficult outlook for North Dakota producers, Helms estimated that an end to new leases on federal lands as proposed by presumptive Democratic presidential nominee Joe Biden would cut drilling permits by about 25%.

"It would be a significant negative impact in terms of production sustaining and growing production in North Dakota," he said. "It's very substantial -- we're talking hundreds of thousands of barrels a day."

Helms said drillers holding federal permits continue to be motivated to use the approvals before a potential federal policy shift.

"There is a great deal of discomfort and uncertainty with the potential November election," he said. "If people have a federal permit or right-of-way in hand, they're acting on it even though it is expensive to do so at this time."

The trend can be seen in other US basins, as operators holding federal permits have kept actively drilling wells ahead of November's election, while other producers have slowed drilling to a bare minimum in response to low prices.

US oil wells drilled on federal lands surged to 22% of total wells drilled in June, from 12% in February, according to S&P Global Platts Analytics.