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North Dakota oil output rises back above 1 mil b/d in Feb

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North Dakota oil output rises back above 1 mil b/d in Feb

Highlights

Up 5% from Jan; first month above 1 mil b/d since Nov

Spring thaw will slash output, but rebound expected by May

Bakken spot prices rise while breakeven prices fall

North Dakota crude oil production rose back above the 1 million b/d threshold in February for the first time since November, but output could drop as low as 950,000 b/d in March or April as frozen roads thaw and force the state to impose weight restrictions on service trucks, the state's top oil and gas regulator said Thursday.

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February's preliminary output of 1.03 million b/d was 5% higher than January's adjusted figure of 981,380 b/d, but it's still well below the state's all-time high of 1.23 million b/d in December 2014.

Lynn Helms, director of the state Department of Mineral Resources, said during a press conference that he did not expect production to hit 1 million b/d until much later in the year.

"I was anticipating a drop in February and got a surprise here, [but] I think we're going to ride the roller coaster down as much as up," he said.



Helms expects production to slow in March and April before picking back up in May and then becoming "very aggressive" in June-August. He estimated a return to 1 million b/d by late in the third quarter or early Q4.

He attributed the unexpected February rebound to WTI prices rising above $50/b, higher confidence among operators and better weather compared with December and January.

"We had frozen roads, so they deployed a lot of completion crews," Helms said, adding that the state's tally of drilled but uncompleted wells fell below 800 for the first time since December 2014.


THAWING ROADS SLOW ACTIVITY


The state will soon start imposing severe vehicle weight restrictions while the soil underneath roads thaw, forcing producers to use twice as many trucks between late March and early May, he said.

Helms said the Dakota Access Pipeline's impending startup will help to level the playing field between the Williston and Permian basins, with some North Dakota operators expecting $1-$2/b lower transportation costs and others $5-$6/b.

"In every case, it's lower and it's stable," he said. "That results in a lot more confidence in making investments."

North Dakota had 51 rigs operating Thursday, after the monthly average jumped 18% from February to March. The rig count averaged 46 in March, 39 in February and 38 in January.

Marathon Petroleum has led the rig count with 10 as of April 7, with all but one added since the beginning of the year, according to Platts Analytics. Continental Resources has the next highest rig count at five, including two added since the beginning of the year.

The state's natural gas production averaged 1.71 Bcf/d in February, up from 1.56 Bcf/d in January. It set a record high of 1.76 Bcf/d in November.

North Dakota had 13,500 producing wells in in February, up from 13,341 in January.


MORE SAND, LOWER BREAKEVENS


While spot Bakken crude prices have risen in recent months, the breakeven price has fallen.

The Bakken breakeven price was $33.53/b in April, according to Platts Analytics Well Economics Analyzer, down from $37.91/b in April 2016. The spot price has averaged $49.19/b so far in April, up roughly $12/b year on year, Platts assessments show.

The April breakeven price assumes higher drilling and completion costs of $6.3 million per well, as producers are using more sand.

"In 2017, producers will most likely also incur an additional 15%-20% increase to completion costs as oil service companies are starting to bring their rates more in line with what companies were charging before the price collapse that occurred back in the winter of 2014-2015," said Platts Analytics analyst Matt Andre.

Platts Analytics expects Bakken service costs to keep rising as drilling activity ramps up, but continued efforts to cut drilling costs and perfect the completion process should drive returns higher on stronger initial producing rates.

"Even with the forward curve stalling at $50/b, there seems to be strong enough margins to encourage operators to increase their production in both Bakken and the DJ throughout 2017," Platts Analytics said in a recent report.

--Meghan Gordon, meghan.gordon@spglobal.com

--Jeff Mower, jeff.mower@spglobal.com

--Edited by Valarie Jackson, valarie.jackson@spglobal.com