In presenting the latest data, through November 2014, Helms explained that the state had reached “record oil production—but just barely record oil production, not really a significant increase.” Looking at the history, oil production has been pretty much the same in September, October, and November. It looks like oil production is flatlining in North Dakota—and hence, in the Bakken shale.
The bigger surprise came with the data on the pace of activity in North Dakota. The Director’s Cut gives statistics that show how fast the oil boom is going, including how many drilling permits the state issued and how many drilling rigs were active. One of the most crucial metrics, I think, is the monthly count of well “completions”: that is, how many wells have been drilled, lined with cement, and then fracked—and so are ready to start producing oil.
The latest Director’s Cut estimated the number of well completions in November, the most recent month it reported, to be just 39. Earlier this year, the rate of well completions was around 200 a month—so the Director’s Cut was saying the rate of completions had dropped off a cliff.
(Note that things usually slow down each winter, but the winter of 2013-2014 was especially severe, leading to a large drop in well completions.)
Helms pointed out that, during the fall of 2014, not only did the number of active drilling rigs drop, but the places where companies were drilling shifted toward the “core” areas where wells yield more oil. Referring to a map of where rigs were located, Helms said, “you’ll see that focus into the core area is really well underway.” And yet, as Helms pointed out, North Dakota’s oil production had remained fairly flat. As Helms put it:
As the technology has improved, and as we’ve focused drilling and completions into that core area, amazingly, in November, with only 39 new wells completed, we were able to sustain production. So that tells you a lot about the core area, the fact that it’s two or three times as productive as much of the Bakken in general.
Since it appeared that only a low number of wells in the “core area” were required to hold production steady, this was a “kind of a little silver lining, or a little ray of sunshine,” Helms said at the press conference.
Helms’ count of well completions for November—just 39—was a preliminary figure. But it seems Helms was taking that number quite seriously.
Data-wrangling
However, that number of well completions was so low, such a drastic drop from the months before, that I wondered whether it was really correct—even with the price of oil having dropped by half. Also, I was skeptical that production could remain flat, when the number of completions had dropped off so rapidly. (For more on how rapidly Bakken production would drop if all drilling stopped, see my earlier article, “The Investment Gap.”)
During the press conference with Lynn Helms, I asked whether there was a lag between when wells were deemed “completed,” and when they started producing. Helms replied:
We have a legal definition of ‘completion’ which is the permanent wellhead is in place, and the well is producing into sales tanks. So by definition, there is no lag.
That kind of lag, it seems, couldn’t be the reason for production holding steady, despite so few well completions.
So I looked for another explanation. What if the reported number of well completions was wrong? What if there were actually a lot more than 39 well completions in November?
I went on a data-wrangling missing to try to get the best possible count of North Dakota’s well completions, month by month. It turned out there were actually far more well completions in November than the Director’s Cut had reported. There has been a clear drop in activity the past few months, but not nearly as large as the recent Director’s Cut stated.
According to my count, there were just over 150 well completions in November, compared with 39 North Dakota’s DMR’s count. That is, it looks to me like nearly four times as many wells were completed as Helms had said. And my count is likely an underestimate, since I excluded all vertical wells.
Perk Earl on Wed, 28th Jan 2015 1:44 pm
Talking about a slow down in the Bakken, ck. out the following glut news from zero hedge:
http://www.zerohedge.com/news/2015-01-28/wti-tumbles-back-towards-44-handle-after-api-build-goldman-downgrade
‘Crude Supplies Surge To Highest Since At Least 1982’
EIA Inventory build was double expectations at 8.87 million barrels…
Remember how exuberant yesterday’s small gains in Crude Oil were perceived to be? Yeah – that’s all over, with WTI back near a $44 handle – following a large 12.7 million barrel inventory build according to API (EIA reports the ‘main event’ at 1030ET today – which Saxo Bank warns “a bigger-than-expected build would likely push the mkt over the cliff edge.”) Additional weakness overnight is also likely due to Goldman’s shift to a ‘sell’ for the next 3 months.
Plantagenet on Wed, 28th Jan 2015 1:49 pm
When you have an oil glut, the price of oil plummets and drilling and exploration activity slows in the oil patch.
Its already started, and I expect to see further reductions in drilling activity in the Bakken and elsewhere if the oil price stays low.
Perk Earl on Wed, 28th Jan 2015 2:05 pm
Does it seem odd to anyone else that the oil industry itself doesn’t contact each other, even between countries and agree on a certain small percentage reduction in production to keep the price higher?
It just seems like this market share war is reducing profits for the whole industry, so why not make the effort to try a little old fashioned collusion?
Plantagenet on Wed, 28th Jan 2015 2:13 pm
The Saudis have called over and over again for Russia, Norway, the US and other OPEC producers to cut oil production, but no one will step forward to do it.
Price wars in oil biz tend to work this way—-once you get an oil glut all the countries are afraid to cut production because their income has already dropped so much due to the low prices caused by the oil glut. Once the downturn starts, every country (and every private oil company) needs every penny of income they can get just to stay afloat.
Its a “vicious circle”.
shortonoil on Wed, 28th Jan 2015 2:40 pm
The last time I looked (mid December) there were 750 wells drilled, but not completed in the Bakken. Drillers have been outpacing the fracking crews for the last 2 years. Not all of those wells will necessarily be completed; fracking a well is about as costly as drilling it to begin with. With Bakken oil now under $40 at the well head, some producers may just wait to complete, and some are likely to go broke before they do. With completions running at about 150 per month, we are not likely to see much decline in overall production until April. After that it will plummet.
ghung on Wed, 28th Jan 2015 3:10 pm
“…some producers may just wait to complete, and some are likely to go broke before they do.”
How long before those holes have to be plugged if not completed. How many will be left unplugged or poorly capped?
art kliewer on Wed, 28th Jan 2015 3:59 pm
The corporation commissions for each state should be able to limit the amount produced by each well. Say cutting production 10% per well after a 60-90 initial production period. The US should impose import duties on foreign oil and use those duties for infrastructure projects, Social Security, balancing the budget, etc.
shortonoil on Wed, 28th Jan 2015 4:00 pm
How long before those holes have to be plugged if not completed. How many will be left unplugged or poorly capped?
We’ve looked into that somewhat. Capping a well can cost upward to $200,000 if done properly. Every producing zone up the well bore must be concreted. The real problem is that a cap only last about 20 years. Pennsylvania has thousands of old wells that are now leaking. As a matter of fact the State doesn’t even know how many of them there are. After the shale industry has died, North Dakota will have no way of servicing the 8,000 wells it now has.
Rodster on Wed, 28th Jan 2015 4:16 pm
“Every producing zone up the well bore must be concreted. The real problem is that a cap only last about 20 years. Pennsylvania has thousands of old wells that are now leaking. As a matter of fact the State doesn’t even know how many of them there are. After the shale industry has died, North Dakota will have no way of servicing the 8,000 wells it now has.”
Good god, that’s a ticking time bomb for the environment.
Perk Earl on Wed, 28th Jan 2015 4:22 pm
“With completions running at about 150 per month, we are not likely to see much decline in overall production until April.”
If oil prices remain this low through April or later, anybody have a notion as to when supply will deplete sufficiently enough to force price up higher? How high who knows, but at least higher than it is currently.
shortonoil on Wed, 28th Jan 2015 5:17 pm
If oil prices remain this low through April or later, anybody have a notion as to when supply will deplete sufficiently enough to force price up higher?
Our projections put prices back in the $60 range by 2016:
http://www.thehillsgroup.org/depletion2_022.htm
To do that production will have to fall faster than demand. We are ball parking that to happen when 4 mb/d have been taken off line. We are estimating 2 mb/d from conventional decline, 1 million from shale, and one million form extra heavy, and ultra deep water. Most likely we will get there by early 2016.
http://www.thehillsgroup.org/
shortonoil on Wed, 28th Jan 2015 5:22 pm
Good god, that’s a ticking time bomb for the environment.
There are over 2 million wells world wide. At some point they will all be leaking methane, and or hydrogen sulfide. Increasing CO2 levels is probably the good news.
James on Wed, 28th Jan 2015 6:36 pm
The wells are that are drilled and cased and not completed are regulated by the NDIC. The wells are to left in a certain state so they are not a problem. The biggest issue is if the well is holding the lease then it depends the lease document. This is not an environment hazard. Get over it.
James on Wed, 28th Jan 2015 6:39 pm
Where did the author get his information for the completion data?
I am surprised Lynn’s data is incorrect as the graph data and the directors should both be the same. 150 wells could be completed (frac’d) but probably only 39 sent oil down the flow line that month. It did get down to -20F in November. Yes and it sucked too.
Ed on Wed, 28th Jan 2015 6:44 pm
shortonoil,
I had read the supply overhang is about 1.5 million barrels per day. Additionally, demand in the US is increasing at current prices. Why would it take a cut in supply of 4 million barrels per day?
shortonoil on Wed, 28th Jan 2015 6:49 pm
This is not an environment hazard. Get over it.
It is definitely comforting that you are so confident! Such optimism has been following the shale fiasco from day one. The people, and cows of North Dakota will be greatly relieved.
Perk Earl on Wed, 28th Jan 2015 8:09 pm
“Our projections put prices back in the $60 range by 2016:”
Sounds about right – thanks, Short.
Tim on Wed, 28th Jan 2015 10:43 pm
i think it’s very important to get the xl up and running as soon as possible,flood the market with foreign oil,get oil down to $20 then we can all drive our cars with a huge grin on our faces.
MKohnen on Thu, 29th Jan 2015 1:37 am
“The wells are that are drilled and cased and not completed are regulated by the NDIC. The wells are to left in a certain state so they are not a problem.”
I cry laughing, or vice versa, when I read such statements. Now tell me how we don’t have to worry about the old mine tailings in Canada because there was once an agency that oversaw their upkeep. Or how the mining companies, now gone into history, are legally obligated to maintain the tailing ponds. It turns out, not surprisingly, that once the money from a particular industry is gone, so is the industry and the “oversight” departments associated with it.
indigoboy on Thu, 29th Jan 2015 7:27 am
On the face of it, it seems logical that ‘shuttered’ wells will be re-opened as the oil price rises, but, whilst the drillers may be gung-ho and willing to take down the steel shutters and start drilling again, will the finance to re-start drilling, be there.? Will ‘the money people’, be willing to put up the new investment to take down the shutters, when an oil drop to $50, has burned their fingers badly (and could very well do so again, and again,… and again! )?
I wouldn’t risk my money in that volatile ‘game’. Would you?
That’s why I suspect the oil price is now in a kind of ‘Goldilocks Price Range’. And that price range (presently about $115 ~ $50 ) will narrow and converge over time, because the high risk (expensive), wells will fall from favour (read -investment), at each price ‘whiplash’ up and down over the coming few years.
And at each price ‘whiplash up and down’, it will shake out those that can’t afford to buy fuel at the ‘up’, and those that can’t afford to drill at the ‘down’, ‘homing-in’ on a mid price point, where global economic growth is not sustainable (at that price), and drilling *new* wells is not financially feasible.
So, enjoy that cheap motoring while it lasts, before your car becomes a chicken coop on bricks !
shortonoil on Thu, 29th Jan 2015 3:32 pm
I had read the supply overhang is about 1.5 million barrels per day. Additionally, demand in the US is increasing at current prices. Why would it take a cut in supply of 4 million barrels per day?
You are viewing that overhang as a static quantity. It is not, and as the price changes so will the overhang. Production must decline until demand, and production balance. Half (53%) of the demand for petroleum, and its products is generated by the extraction, processing, and distribution of the petroleum. For example: let’s say the overhang is 1 mb/d. If production fell by 1 mb/d, demand would fall by half a million from the petroleum industry. There would still be a half million over supply if the non petroleum producing sector of the economy did not change its demand. To balance the 1 mb/d overhang would take a 2 mb/d cut in production.
In the present case production will fall because the price has gone down. That will increase demand (somewhat) in the non petroleum sector of the economy. To compensate for the 1.5 mb/d overcapacity by early 2016 will require a 4 mb/d decline in production.
This is not just an academic discussion of what ifs. This article from ZH highlights the precarious situation of the industry:
http://www.zerohedge.com/news/2015-01-29/either-oil-soars-back-88-or-energy-stocks-have-tumble-over-40
The industry is in serious danger of losing access to its needed credit lines. The implications of that happening on future world production are certainly startling!
http://www.thehillsgroup.org/