North Dakota’s oil and gas production soared 16% in July as operators reopened wells that had been shut-in earlier this year due to the economic downfall caused by the coronavirus pandemic.
The increase was expected, and another jump is anticipated for the remainder through this month as more shut-in wells are retapped.
But unless oil prices improve significantly — and that doesn’t seem likely — oil production is then likely to plateau and possibly fall, Lynn Helms, director of the North Dakota’s Mineral Resources Department, told reporters.
“We don’t see pre-COVID demand coming back until probably late 2022,” he said.
North Dakota, the nation’s second largest oil-producing state after Texas, pumped out 1.04 million barrels per day in July, up from 893,591 barrels per day in June and even fewer in May when output hit a seven-year low.
“I am happy to report that in July, production got above 1 million barrels per day,” Helms said. “It was certainly a departure to be below 1 million for May and June.”
The state posted record oil production of 1.52 million barrels per day in November.
With economic lockdowns sapping oil demand and sending prices to historic lows, U.S. producers curtailed output. But shut-in wells have increasingly come back online as prices rose from the teens in April to over $40 a barrel in August.
Still, West Texas Intermediate — the benchmark U.S. crude price — has fallen this month, settling Tuesday at $38.39 per barrel.
The U.S. summer driving season is ending, a negative for fuel demand. At the same time, “we still have tremendous amounts of crude oil in storage,” Helms said. “Prices are soft, and they are going to stay soft through the winter unless something extraordinary happens.”
Those soft prices are putting a damper on drilling new oil wells throughout the country. North Dakota has only 10 oil rigs operating, down from 12 in August and 52 in February before COVID hit. The drill rig count is an indicator of new production.
After shut-in wells are reopened, the number of drilling rigs and newly fracked wells will need to grow significantly, Helms said.
He noted there needs to be about 25 active frac crews operating in North Dakota to sustain healthy oil production. Today there are five.
That number has increased recently only because some operators are rushing to complete federally permitted wells before the U.S. presidential election, Helms said.
On an upbeat note, natural gas flaring has significantly subsided, Helms said.
When excess natural gas is burned off, resources are wasted and carbon dioxide is emitted into the atmosphere. Gas flaring was above North Dakota’s goals for much of last year as output rose and investment in gas processing equipment lagged.
But gas operators’ spending has increased, and in July, North Dakota captured 91% of natural gas produced, flaring only 9% — besting state goals.
“It’s probably the best we have seen in modern times,” Helms said.
©2020 Star Tribune (Minneapolis)