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North Dakota oil output growth to improve moderately on OPEC+ cuts: state regulator

Highlights

Without cuts, Bakken crude would have flat-lined

North Dakota oil output was at record 1.52 million b/d in October

State claims Bakken breakevens are $12/b, analysts disagree

Washington — The OPEC+ decision to deepen output cuts will cause "slow to moderate" growth in Bakken production, North Dakota's top oil and gas regulator said Friday.

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Without a deeper cut, North Dakota production, which set a record of 1.52 million b/d in October, would likely have "flat lined" throughout 2020, Lynn Helms, director of North Dakota's Department of Mineral Resources, told reporters Friday. Helms said that the decision will likely lead to an increase in capital available to producers.

"It was going to be a struggle just to match this 1.5 million b/d," Helms said. The OPEC+ decision "should result in small increments of production growth through the year 2020."

Last week, OPEC, Russia and nine other allies announced last week that they will deepen collective output cuts by 503,000 b/d to 1.7 million b/d from January through March. In its Short-Term Energy Outlook Tuesday, the US Energy Information Administration said, assuming the cuts stay in place through 2020, global liquids fuel supply from non-OPEC sources will increase by 1.5 million b/d, offsetting OPEC's decline in production.

North Dakota's oil output in October was up more than 74,500 b/d from September and more than 37,300 b/d from August, when the previous monthly record was set.

Roughly 72% of oil produced in October was shipped out of the state by pipeline, 16% was shipped out by rail, 6% was trucked or railed to Canada, and 6% was refined in state, the North Dakota Pipeline Authority said Friday.

The state reported that there were 126 well permits issued in October, up from 92 in September and 885 wells are waiting on completion, down from 916 in September.

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The statewide rig count has fallen steadily from 61 in September to 59 in October, 55 in November and 53 Friday.

"Operators have shifted to incremental increases and decreases based on oil price, capital availability, and gas capture," Helms wrote in his latest monthly report. "Operators have implemented plans to use fewer rigs second half of 2019 based on oil price, capital availability, and infrastructure constraints."

$12/B BREAKEVENS

Helms said that statewide, breakeven prices averaged $12/b in Q3 2019, unchanged from Q2, averaging $12/b in McKenzie, Dunn and Mountrail counties and $16/b in Williams County. Nearly all of North Dakota's active rigs are in those four counties.

Statewide breakeven prices have fallen by $10/b, a roughly 45% decline, since Q2 2017, according to the agency.

Analysts have long criticized the state agency's breakeven numbers as unrealistically low, claiming officials are ignoring several factors involved in calculating breakeven prices.

S&P Global Platts Analytics calculates Bakken breakevens at about $43/b WTI equivalent and Permian breakevens at $39/b WTI.

Platts Analytics defines breakevens as the oil price needed to recover drilling, completion costs, and operating expenses on an after tax basis for the operator to get a 10% return.

Helms has called the state's breakeven estimates a "pure breakeven," which only accounted for recovering drilling and completion costs and did not consider return on investment.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Debiprasad Nayak, newsdesk@spglobal.com