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North Dakota oil output averages record 1.36 million b/d in September

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North Dakota oil output averages record 1.36 million b/d in September

Houston — North Dakota oil production averaged nearly 1.36 million b/d in September, up about 66,800 b/d from August and a new record for monthly output, state officials announced Friday.

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September marked the fourth straight month for record-breaking oil output in North Dakota, but growth could soon stall due to pipeline congestion, a global supply glut and potentially major changes in flaring regulation, Lynn Helms, the state's top oil and gas regulator told reporters Friday.

"The oil and gas industry broke virtually every record in September," Helms said.

Statewide natural gas production averaged a record 2.53 Bcf/d in September, up from 2.44 Bcf/d in August, Helms said. In addition, producing wells reached 15,287 in September, up 163 from August and also a record, Helms said.

Helms said that September marked the first time in at least three years that oil increased more rapidly than gas as operators shifted out of core drilling areas in the state where the gas to oil ratios are relatively high, to new wells in Divide, Mountrail and Burke counties in northwest North Dakota.

"Those areas had gone for several years without any drilling activity and now with the advent of the three-mile-long laterals and new completion techniques they're much, much more economic," Helms said. "We're starting to see a little moderation in terms of gas-oil ratios. We're seeing oil and gas synchronize a bit more."

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Oil and gas output may break another record in October, data from the state's Department of Mineral Resources show. Last month, 183 drilling permits were issued, up 70 from September, and the statewide rig count climbed by 2 to 67. North Dakota's rig count has since fallen, dropping to 62 on Friday, due mainly to falling oil prices and winter weather, Helms said.

"Operators have shifted from running the minimum number of rigs to incremental increases and decreases based on gas capture, completion crew availability, and oil price," Helms said, adding that North Dakota operators plan to add as many as five rigs next year, depending on workforce and infrastructure constraints.

Helms said he expects the rig count to continue to drop due to "soft" prices in North Dakota.

Bakken crude price differentials have dropped in recent weeks on increased production and tight pipeline takeaway options.

Bakken at Clearbrook, Minnesota traded Friday at a $15/b discount to the NYMEX WTI Calendar Month Average, tightening from a $20.50/b discount November 1, but widening from a $2.50/b discount October 1, S&P Global Platts data shows.

According to Justin Kringstaad, the director of the North Dakota Pipeline Authority, there is currently 1.37 million b/d of pipeline capacity out of the Bakken, with another 250,000-275,000 b/d of crude-by-rail capacity. Still, some lines are idled or operating below capacity, he said last week.

Helms said that high domestic crude stocks, stagnant global demand and record supply, particularly in the US, would also cause Bakken production to slow.

"We're back to an over-supplied market," Helms said. "This is going to slow activity, it's going to slow growth for the next few months."

Roughly 71% of oil was moved out of the state by pipeline in September, 19% by rail, and 4% by truck, while 6% was refined in state, roughly the same as last month, according to the pipeline authority.

About 63% of North Dakota crude exported by rail was shipped to the West Coast, with 37% shipped to the East Coast, according to the authority. No crude was shipped by rail to the Midwest or Gulf Coast in September.

FLARING QUESTIONS

About 83% of the gas produced was captured and sold in September, with the remaining 17% flared, the pipeline authority said Friday. Helms said that operators on the Fort Berthold Indian Reservation, which is home to the Three Affiliated Tribes, captured just 71% of gas, compared to 85% elsewhere in the state. Helms said that operators likely captured less gas in October.

That decline comes as federal regulators plan to defer all regulation of flaring at oil and gas operations to state and tribal officials next week. Helms said that North Dakota, the tribes and the federal government plan to reach an agreement which would require the states and tribe to inform the federal government when a well is in non-compliance of flaring prevention rules.

"Everything is going to change about how flaring and gas capture is regulated in ... North Dakota," Helms said.

Helms said roughly one-third of all North Dakota wells will be impacted by the new regulations.

In September, the US Bureau of Land Management finalized revisions to Obama-era venting and flaring rules for methane emissions from oil and gas operations on federal lands. The revisions, which are scheduled to be implemented later this month, are being challenged by California and New Mexico in federal court.

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

-- Laura Huchzermeyer, laura.huchzermeyer@spglobal.com

-- Edited by Jeff Mower, newsdesk@spglobal.com