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Oil production drop not as steep as expected; need for cash flow meant small decline in February

A drilling rig operates near Keene, N.D., on Monday, March 14, 2016. North Dakota's drilling rig count is down to 29, the lowest since October 2005. Amy Dalrymple/Forum News Service

WILLISTON -- North Dakota oil production had a smaller decline than expected in February as more companies put fracking crews to work to maintain cash flow, the state’s top oil regulator said.

Oil production fell more than 4,000 barrels per day in February to 1,118,333 barrels per day, a 0.4 percent decrease, show preliminary figures released Friday by the Department of Mineral Resources.

Director Lynn Helms said he anticipated a larger decline because in February following two back-to-back monthly drops in production of about 30,000 barrels per day.

But operators mobilized more hydraulic fracturing crews in February and decreased the number of wells that have been drilled but not fracked to 907, a decrease of 38 since January, the preliminary figures show.

“What we saw happening was the need for some cash flow and some production by some operators,” Helms said Friday.

Natural gas production increased by 3 percent to an average of 1.69 billion cubic feet per day in February. Helms attributed the increase to a focus on drilling the core area of the Bakken.

Natural gas flaring fell to 11 percent in February, down from 13 percent in January. The volume of natural gas flared fell from 222.7 million cubic feet per day in January to 200.8 million cubic feet per day in February, according to Department of Mineral Resources figures.

One factor for the decrease in flaring was Oneok’s new Lonesome Creek natural gas processing plant in McKenzie County was at full capacity in February, Helms said.

Helms said he expects more reductions in flaring in the short-term, but as oil prices improve and more wells are completed, the state could see flaring go back in the other direction.

“I’m delighted by the increased efficiency, but we’ve still got some significant work to do,” Helms said. “Our goal really is to get that flaring back to 5 percent.”

The state had 29 drilling rigs operating as of Friday, the lowest since October 2005. Helms said he anticipates one to four more rigs could become idle.

“It’s looking more and more like we’re going to stay in that 25 to 30 range until we see some significant price improvement,” Helms said.

The industry anticipates oil prices will recover between the end of 2016 and the first half of 2017, Helms said.

In the meantime, Helms said he expects North Dakota will see continued oil production declines, potentially getting to 1 million barrels a day by the end of 2016 and dropping below that next year.

State regulators saw oil permitting activity in March hit a seven-year low, he said.

The state continues to see an increase in inactive wells, primarily older wells outside of the Bakken, estimated to be 1,439 in February.

The state had a total of 13,012 producing oil and gas wells at the end of February.

Rail transportation of crude oil continued to fall in February and was estimated to be about 500,000 barrels per day, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Fifty-one percent of crude oil was transported by pipeline in February while 41 percent was transported by rail, Kringstad said.