As oil prices continue to fluctuate and North Dakota’s rig count hovers in the 70-rig-range—down from the 190 mark one year ago—the amount of oil produced in the state per day remains at the 1.2 million barrels per day range. The ability of exploration and production companies linked to the Williston Basin to maintain production at 1.2 mbpd despite the major reduction in the state’s rig count due to low oil prices has been surprising to many, including, in small part, to Lynn Helms, director of the North Dakota department of mineral resources oil and gas division. According to Helms, industry has figured out how to manage its cash flow and capital investment while it deploys high efficiency drilling rigs. The money management strategy used with the basin’s best rigs will keep the state producing in the 1.2 million barrel per day range for at least the next two years. Operators can drill wells faster than ever before and do so with less investment into drilling rigs.
“I think people are hoping prices increase and we can go back to a growth mode,” Helms said during his monthly oil and gas industry update. “But, we are capable of sustaining production for a couple of years.”
Due to the production decline curve related to Williston Basin wells completed through a combination of horizontal drilling and hydraulic fracturing, new wells have to continuously be brought only every month for the state to keep its daily and monthly production totals consistent.
The current drilling rig fleet in the Williston Basin can drill a well from spud to total depth in two weeks, a major improvement over the 45-day average seen in 2013. Because the remaining rigs operating in North Dakota are so efficient, the comparison between the current rig total and that of the past when the rig count total was near 200, cannot be made, Helms said.
Rig efficiencies are only one reason why operators have been able to sustain the state’s daily production totals. Well costs are down roughly $1 million, pressure pumping service costs have decreased and individual well production has increased by 25 percent more than the previous year. Because of that combination of factors, several operators have been able to weather the low oil price environment.
In May 2014, roughly 24 wells reported for the month showed an initial production rate of 500 barrels per day or less. This year, zero wells have come in with an IP of under 500. The numbers reveal that exploration and production companies have retreated to the core of the Williston Basin where the best geology and production conditions exist. According to Helms, three wells have come in with IPs over 3,000 barrels per day. “The core area they are drilling in is far more productive,” Helms said.
Despite the 67 percent rig count drop from the previous year, there has only been a 48 percent drop in permitting applications for new wells to the DMR, Helms added. “Companies are still really optimistic about Bakken drilling. It is just a matter of when not if,” he said.
Many entities will ramp up completion and production efforts when West Texas Intermediate prices reach $65/b. When prices reach $70/b, drilling rig activity will pick up. “Companies are positioning themselves for that magic price point,” he said.