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North Dakota oil production slips to 1.175 million b/d in February: state regulator

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North Dakota oil production slipped in February for the third consecutive month, to 1.175 million b/d, but remained higher year on year on an increase in drilling activity, data from the state Department of Mineral Resources showed Friday.

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February production was down 4,795 b/d from January -- and is down 22,207 b/d from November 2017 -- but is up 140,592 b/d from February of that year. There were 57 active oil rigs in February, up from 56 rigs in January and 35 at end-February 2017. Active rigs in March climbed to 59.

"We could see another seven to 10 rigs by the end of this year," Lynn Helms, North Dakota's top oil and gas regulator, said during an online press conference.

Helms blamed the drop in production on cold weather, which is primarily impacting conventional wells. "Winter is what is really holding everything up," he said.



The cold weather has taken a toll on well completions, which fell to 51 in February from 106 in December, Helms said. He expects to see slow activity in the March data as well, although he was optimistic about North Dakota production in 2018.

"We thought we'd be starting from below 1 million b/d...but we are starting just below 1.2 million b/d," he said.

Helms has said he expects production to average 1.3 million b/d by the end of the year. S&P Global Platts Analytics expects North Dakota oil output to end the year at roughly the same level, and rise to 1.34 million b/d by end-2019.

A slight increase has been seen in crude by rail shipments over the past couple of months, to roughly 200,000 b/d in February, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Refining margins for Bakken crude have justified moving barrels by rail or pipeline to coastal refineries, especially on the US West Coast, S&P Global Platts data shows. USWC cracking margins for Bakken crude averaged $12.24/b in February, and have since risen to $16.52/b so far in April.

US Atlantic Coast margins are averaging $10.33/b so far in April, up from $6.84/b in February.

Growing North Dakota output could exceed Dakota Access Pipeline's 520,000 b/d capacity "in two years or less," Helms said, which would widen Bakken crude price discounts.

Bakken price discounts have widened in recent months. Bakken ex-Clearbrook, for instance, has averaged $1.58/b under Cushing WTI so far in April, out from a 24 cents/b discount in January.

Discounts could also see some downward pressure later this year after capacity on the Ozark crude pipeline is expanded. The Marathon Pipe Line LLC subsidiary expects to boost capacity to 345,000 b/d from 230,000 b/d in the second quarter, which would bring more crude from Cushing, Oklahoma, to Illinois-area refiners.

Still, while Bakken price differentials may see some downward pressure, outright prices continue to outpace breakeven costs. Platts Analytics shows Bakken oil breakeven costs at $34.34/b in April, well below the $64.34/b month-to-date average for Bakken ex-Clearbrook. ---Jeff Mower, jeff.mower@spglobal.com

--Edited by Kevin Saville, newsdesk@spglobal.com