North Dakota rig count plunges 40% since January, oil storage nearly full: state

Washington — North Dakota lost about 40% of its drilling rigs over the course of three weeks in March as the impact of low global oil prices and plunging demand started to be felt in one of the top US oil production regions.

The state currently has 34 rigs operating, down from 55 in January, 54 in February and 52 at the start of March, Lynn Helms, director of the North Dakota Department of Mineral Resources, told reporters Tuesday.

Helms said he expects the rig count to fall to the mid- to high 20s, in line with the 27 rigs seen during the 2015 price collapse.

About 175,000 b/d of production was shut in during March at 3,600 wells, Helms said. Another 1,000 wells have shut in so far in April, bringing the state's shut-in production to 260,000 b/d.

North Dakota producers also face shrinking oil storage capacity, which Helms said was "nearly full and looks like it could be full by June."

OIL TANK FARMS

Two companies have approached the state with tentative proposals for building major oil tank farms able to hold 300,000-500,000 barrels. Helms said the projects could be completed within six weeks.

"We're close to filling storage capacity and that is going to lead to rapid acceleration in the number of shut-in wells unless some storage capacity gets built," Helms said. "I think these folks see an opportunity for an arbitrage to purchase North Dakota crude at sub-$20/b, and in a year's time be able to sell that for well above $20/b. We're starting to see a great deal of interest."

Helms said the weekend deal by OPEC+ producers to cut nearly 10 million b/d in oil supply was "certainly a good first step" in that it established a $20/b price floor for NYMEX crude. But he said global oil demand keeps falling, with further declines because of the coronavirus expected in the first half of May.

"That's a real serious situation," he said. "We haven't seen the bottom of this market yet."

INACTIVE WELL WAIVERS

Helms said North Dakota drilling activity would only see any boost from the global supply cut in the fourth quarter.

North Dakota producers have been taking advantage of regulatory waivers approved in late March for inactive and non-completed wells, Helms said. The action by the North Dakota Industrial Commission was designed to prevent oil and natural gas producers from either bringing more unwanted crude onto the market or abandoning wells completely.

"It allows the operators to focus their cash flow on paying employees and making jobs but also the more economic, more productive wells," Helms said. "It takes a lot of that marginal production [offline]."

Before the oil market turmoil in March, North Dakota's production showed a 20,000 b/d uptick in February to 1.451 million b/d, the North Dakota Pipeline Authority said Tuesday.

The state's November production of nearly 1.52 million b/d will likely stand as its peak oil output for the foreseeable future as the effects of low oil prices and plunging global demand take their toll on US drillers.

North Dakota's natural gas production rose to 3.1 Bcf/d in February, up from 3.0 Bcf/d in January.