“Uff da”: North Dakota’s oil production stagnates and falls to 3rd place in the United States
Since the initial rebound from last year’s pandemic price collapse, North Dakota’s oil production has remained more or less stagnant last year. In July, a month in which heads of state had hoped to profit from high oil prices, North Dakota’s production actually fell 5%. That same month, the state lost its status as the nation’s second-largest oil producer – a position it had held since 2012 – behind a booming industry in New Mexico.
July’s production figures, the most recent figures available, prompted a backlash from the state’s main oil and gas regulator, Lynn Helms, during a press briefing at the start of the month: “Uff da”.
North Dakota hit its all-time high of over 1.5 million barrels of daily production in November 2019, just months before COVID-19 helped lower oil prices, and the performance of the country. State have looked lackluster since it initially regained its foothold late last year. Although analysts and industry advocates predict an increase in production in 2022, they also note that changing environmental priorities on Wall Street could put North Dakota at a disadvantage relative to other oil and gas states in the world. coming years.
Ron Ness, chairman of the North Dakota Petroleum Council, said while the COVID-19 pandemic has hit oil production everywhere, the effects may have been more severe for the Bakkens. He noted that the lingering uncertainty regarding the legal status of the Dakota Access Pipeline, as well as Bakken’s distance from the market, has given operators more reservations about increasing their production here. And while Ness predicted a shift in trend lines early next year, he also stressed the importance for North Dakota to maintain its rank against the competition and noted the potential consequences for d ‘other businesses, such as the hotel industry.
Helms struck a chord with industry audiences in Watford City last week, likening the competition with New Mexico to a horse race. As long as North Dakota can maintain its place in the top three, it will stay “in the money” in the eyes of investors, Helms said, but added a call for companies to step up their commitments in the Bakken. .
“As policy makers and capitalists, we never need to take all of this for granted,” he said. “Never, never, never take the money that comes out of this industry and into this industry for granted.”
U.S. oil prices have skyrocketed over the past year, hitting $ 75 a barrel on Monday, September 27, nearly double the price of the same period a year ago. But the releases held up well short of the clip that observers are used to seeing in such favorable conditions.
On Monday, North Dakota came from 26 active drilling rigs, about half of the number Helms said is needed to support growth. Helms attributed the surprising drop in oil production in July to planned maintenance-related outages at five different natural gas processing facilities that month, but he also pointed to labor shortages and the lack of capital as the underlying causes of last year’s stagnation.
Even in Texas, which has long been the national leader in oil production, companies have shown a smaller appetite for pumping oil since the pandemic’s price collapse, instead investing their money in paying down debt. and increased cash returns to shareholders. But analysts said the impacts of the industry’s recent frugality could have a more pronounced impact in North Dakota.
Artem Abramov, head of shale research at consultancy Rystad Energy, said that among major US oil basins, the Bakken had one of the lowest reinvestment rates in the past year, around 15-20% below average, meaning many companies are simply maintaining production levels in North Dakota even as they expand their footprint in other areas.
At the same time, circumstances have been much more favorable for the industry of North Dakota’s recent rival, New Mexico. The southwestern state’s oil fields are part of the Great Permian Basin, where robust natural gas infrastructure and proximity to Gulf Coast markets have made the region the hottest oil patch in the country. Notably, Abramov said President Joe Biden’s administration precipitated a scramble for land in New Mexico, which is mostly federal land, as oil companies sought to stake leases before the Democratic White House cut back. federal drilling activities.
The construction movement to tackle climate change with a shift away from fossil fuels has forced an existential crisis on some of the world’s biggest oil companies. And while analysts said the consequences of the energy transition for oil production in North Dakota are still distant, they noted that shifting investor priorities towards low-emission power generation poses a challenge. immediately to the Bakken.
Bakken producers have always struggled to control the flaring of environmentally harmful natural gas, and Marianne Kah, a senior researcher at Columbia University’s Center for Global Energy Policy, said the comparative challenge of reduction Flaring in North Dakota likely gives the Permian an edge in the eyes of environmentally conscious investors.
Regulators in New Mexico have much stricter gas flaring requirements than North Dakota, Kah noted, while a Texas coalition of oil and gas companies earlier this year committed to ending the practice of routine flaring by 2030. Such aggressive measures would be much more difficult to achieve in North Dakota, which has less infrastructure to capture natural gas, Kah said, a difference that could become a problem when it comes to attracting gas. capital.
“It’s certainly already important for some companies,” Kah said of these environmental concerns. “And investors are making it a more permanent factor.”
Recent industry upheavals could foreshadow the implications of these investor forces for North Dakota in the years to come. Just last week, oil titan ConocoPhillips, long a mainstay of the Bakken, announced a $ 9.5 billion acquisition of Shell Texas assets – a massive move that Abramov says suggests the company may soon be considering leaving North Dakota.
In an interview, Helms acknowledged that the purchase of ConocoPhillips could be an indicator the company is considering a cleaner emissions profile in Texas and expressed concern about the implications of the acquisition for North Dakota production. Like Ness, the regulator predicted further production increases in North Dakota next year, but added that a potential change from a major player like ConocoPhillips raises new questions about where that production comes from.
“There are serious headwinds,” Helms said. “And we’re just going to have to figure out how to handle this.”
Readers can contact Forum reporter Adam Willis, Report for America body member, [email protected]