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North Dakota considers best way forward amid price collapse
Some Bakken producers have already announced plans to cut activity.
NORTH DAKOTA
NORTH Dakota’s regulators and producers are evaluating their options for how to move forward amid a further oil price drop. Warn- ings were sounded over how the state – home to much of the Bakken oil play – would fare as crude prices were dropping into the $30s per barrel last week. This week, however, the crisis is all the more urgent, with West Texas Interme- diate (WTI) hovering around $22 per barrel as of March 18.
This comes as consultancy Rystad Energy has warned that only six producers in North Dakota can cover costs at oil prices below $40 per barrel. Warnings have come from the state itself as well.
“We are in this for a protracted period of time,”theNorthDakotaDepartmentofMineral Resources’ (DMR) director, Lynn Helms, said this week. “We are looking at a situation very much like we saw in early 2015.”
In a monthly briefing on oil production in the state, Helms added that it was impossible to predict how long the oil price war between Saudi Arabia and Russia would go on.
In response to this situation, reports have emerged that the North Dakota Industrial Com- mission (NDIC), part of the DMR, will consider adopting new rules. These would be aimed at preventing operators from either bringing excess crude onto the market or abandoning their wells.
This comes as North Dakota’s abandoned well count is already on the rise, hitting a new record of 2,607 in January, up by 687 wells com- pared with December. The NDIC will consider allowing operators to keep their wells inactive
through a waiver process rather than classifying them as abandoned after one year of inactivity. Under the current system, once a well is desig- nated as abandoned, operators have six months to either bring it back online, plug it or post a bond to cover the costs of its ultimate reclama- tion. This can take around three years, poten- tially delaying the transfer of ownership and the restart of a given well.
“I think the commission needs to send a
signal to the industry and to the markets that it
doesn’t make good business sense to force North
Dakota Bakken crude oil into a market that’s
already priced well below breakevens and below
really what long-term world demand says the
market should be at,” Helms said. abandoned well
One major Bakken producer, Hess, has
already announced that it is cutting its capi-
tal expenditure budget for 2020 by $800mn to
$2.2bn from $3bn previously. The company is
dropping five of its six rigs in the Bakken by the
end of May and focusing on its assets in Guyana
in the near term. The company’s Bakken net pro- record of 2,607 duction is forecast to average roughly 175,000
barrels of oil equivalent per day (boepd) in 2020, compared with previous guidance of around 180,000 boepd.
Other producers in the region are taking similar steps. Whiting Petroleum, which has its largest operations in North Dakota, has cut its capex budget by $185mn, or 30%, to $400- 435mn. Meanwhile, an oilfield services firm, MBI Energy Services, has said it plans to cut at least 200 jobs.™
This comes as North Dakota’s
count is already on the rise, hitting a new
in January.
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w w w . N E W S B A S E . c o m Week 11 19•March•2020