Today, the U.S. Energy Information Administration (“EIA”) issued its Today in Energy entitled U.S. Crude Oil Production Growth Projected to be Led by Light, Sweet Crude Oil.

We all know that I have a sweet tooth, but we aren’t talking those kinds of sweets today – we are talking light, sweet crude. It is no secret that light, sweet crude oil accounted for the growth in domestic production in recent years – but just how much growth is attributable to lighter crude from tight formations?

According to the EIA’s Today in Energy, “light, sweet crude oil, defined as having an API gravity of 35 or higher and a sulfur content of 0.3% or less” accounted for “nearly 90% of the 3.1 million barrel per day (b/d) growth in production from 2010 to 2017.”

In fact, just last week on April 4, 2018, the EIA issued a Today in Energy entitled U.S. Production of Crude Oil Grew 5% in 2017, Likely Leading to Record 2018 Production. This article discussed the significant increase in domestic crude oil production due to the development of tight rock formations. Specifically, the EIA’s April 4 Today in Energy provides as follows:

“Annual average U.S. crude oil production reached 9.3 million barrels per day (b/d) in 2017, an increase of 464,000 b/d from 2016 levels after declining by 551,000 b/d in 2016.”

“In November 2017, monthly U.S. crude oil production reached 10.07 million b/d, the highest monthly level of crude oil production in U.S. history.”

As I write this, according to Bloomberg Energy, oil prices are pretty steady – WTI Crude Oil is at $63.30 per barrel and Brent Crude is at $68.65 per barrel.

I took this photo while flying into North Dakota a couple of weeks ago – flying high above North Dakota’s Bakken oil play and the mecca of light, sweet crude.

After reading this weekend’s headlines and checking the stock market, Tom Cruise in the movie Jerry Maguire yelling, “SHOW ME THE MONEY” has been ringing in my head this afternoon.

So here we go, let me give you a quick summary of what has been going on to bring you up to speed and show you the money:

  1. The price of oil is up! As I write this, according to Bloomberg Energy, WTI Crude Oil is at $52.17 per barrel, up 2.98%, and Brent Crude is at $58.99 per barrel, up 3.75%.  According to MarketWatch, WTI is at its highest level in about five months as of today and Brent crude has been lifted to a more than two-year high!!
  2. Also, Forbes put out an article today entitled, The Biggest Global Tax Break Ever Bubbles Up from Texas Oil Industry, which reports that, “According to the Energy Information Administration’s (EIA) most recent report on drilling productivity, total U.S. shale oil output is expected to climb above 6 million barrels a day for the first time in September.”  Production is increasing.
  3. In Cowboy State News:  The State of Wyoming reportedly netted $19 million from a federal oil and gas lease sale on Friday, largely in the Powder River Basin. The full article, Federal Lease Sale Nets $38.7 million from Oil and Gas Developers, can be found here.
  4. Things are looking good in North Dakota too.  The NDIC September Director’s Cut from Lynn Helms shows oil production up in late summer – reporting 32,473,305 barrels for the month of July from a new all-time high of 13,981 producing wells in July.
  5. Lastly, the Baker Hughes Rig Count is reflecting the rig count as of September 22, 2017 as 935 rigs, a 424 increase from September 2016.  That sounds like a monster increase over the course of one year.

This is all good news – it is great for our local economies and the folks who have been forced to tighten their belt while the energy industry saw extreme lows and experienced significant volatility.  Those of you who know me know that I am an eternal optimist and I love good news. And good movies. In the words of Jerry Maguire, you…complete me – well, good news does!  It is the best way to start the week.

Record Year

The number of producing oil wells in North Dakota just hit a new record…by all accounts, North Dakota could be on track for having a record year.

On Friday, Lynn Helms, Director of Mineral Resources for the North Dakota Industrial Commission, released the Director’s Cut dated 5/12/2017 – which can be found here.

The Director’s Cut outlines oil and gas activity for the State of North Dakota on a monthly basis. The March 2017 Director’s Cut contains some interesting information:

  • New Record: A new all-time high number of producing wells has been reported – The number of wells producing oil, according to the preliminary count in the March 2017 Director’s Cut, is 13,632. This is up over 100 wells since the numbers reported for February 2017.
  • However, Daily Oil Production is Actually Down: According to the March 2017 Director’s Cut preliminary numbers, oil production is down from 1,034,248 barrels/day in February 2017 to 1,025,638 barrels/day for March 2017.
  • Rig Count Up: The rig count as of Friday was reportedly 51, up from 39 in February of 2017.
  • The Comments section of the March 2017 Director’s Cut gives us the insight that “[m]ore than 98% of drilling [in North Dakota] now targets the Bakken and Three Forks formations.”

As of right now, the price of oil is up. According to Bloomberg Energy, WTI Crude is currently at $49.06 per barrel, up 0.43%, and Brent Crude is at $51.98 per barrel, up 0.33%.

Good news for a Monday! Here’s hoping it is a record year…

Director's Cut

Yesterday, Lynn Helms, Director of Mineral Resources for the North Dakota Industrial Commission, Department of Mineral Resources (“NDIC”), issued his monthly Director’s Cut newsletter. The full Director’s Cut can be found here.

To me, reading the monthly Director’s Cut is like sitting down to coffee with Lynn Helms and picking his brain – its like having a conversation with the man in the know in North Dakota. I wish every oil producing Rocky Mountain state put one of these newsletters out every month…

So what are the takeaways from the March Director’s Cut?  Here’s the skinny on North Dakota:

  • Oil Production

January 2017 oil production was up from December 2016: Up roughly 38,000 barrels/day

  • Gas Production

January 2017 gas production was up from December 2016: Up over 550,000 MCF

  • Permitting

Drilling permits spiked from 35 in December 2016 to reportedly 81 in January and 45 in February

  • Rig Count

Holding pretty steady – reportedly 40 in December 2016, 38 in January 2017 and 39 in February 2017

BUT THERE’S MORE…the rig count as of the issuance of the March Director’s Cut on March 8, 2017 was up to 44

The comments to the Director’s Cut state that, “Operators are shifting from running the minimum number of rigs to incremental increases throughout 2017, as long as oil prices remain between $50/barrel and $60/barrel WTI.”

In addition, the comments state that:

  • “The number of well completions decreased significantly from 84 (final) in December to 54 (preliminary) in January.”
  • “Low oil price associated with lifting of sanctions on Iran, a weak world economy, and capital movement to the Permian basin continued to depress drilling rig count.”

And that is the skinny on the March Director’s Cut!

Is the Bakken Fixin' to End

Earlier this week, Forbes published an article entitled, “The Beginning of the End for the Bakken Shale Play,” that likely caused many hearts to sink. In fact, I started writing this blog discussing the article yesterday and I didn’t have the stomach to finish it until this morning…

What is the article’s main prediction?

Basically that the heyday in the Bakken is over…that the decline in the Bakken has signaled “the beginning of the end for the Bakken Shale play.”

It is worth noting that the author of the Forbes article is Art Berman, a petroleum geologist with nearly 40 years of oil and gas experience – his full bio can be found here and additional information about him can be found here.

So is the Bakken fixin’ to end?

Things are not looking great for the Bakken according to the Forbes article, which reports that “[t]he decline in Bakken oil production that started in January 2015 is probably not reversible.”  The article also includes numerous charts and graphs to visually explain its proposition that the Bakken’s heyday is over.

What does the article base this conclusion on?

Here are the following factors that the article cites as the evidence that the Bakken production decline is probably not reversible:

  1. Poorer well performance: New well performance has reportedly deteriorated and estimated ultimate recovery (“EUR”) has reportedly decreased over time for most operators. According to the article, “[t]his suggests that well performance has deteriorated despite improvements in technology and efficiency;”
  2. Less oil: Gas-oil ratios have reportedly increased;
  3. Higher water: Water cuts are reportedly rising; and
  4. Increased efficiencies in drilling technology reportedly increasing depletion.

What is probably most troubling in the article is its conclusion that “[a]vailable evidence suggests that current well density is sufficient to fully drain reservoir volumes.”

In layman’s terms – no new wells are necessary.

According to the article, “[t]hat implies that further drilling will not result in producing new oil volumes but will interfere with and cannibalize production from existing wells.”

A local North Dakota news source addressed the Forbes article this morning by running an article entitled, “Bakken Dispute: What will the Future Hold?” which points out that the Forbes article did not consider the effects of the harsh North Dakota winter when predicting future oil production.

The article concludes that “[i]f observations presented here hold up, there may be nowhere for the Bakken to go but down.”

It is likely that this will be an area that is hotly contested in future months – only time will tell if the heyday in the Bakken is truly over…

To not end the week on a bad note, I am glad to report that as I finished writing this blog this morning, oil prices are up – according to Bloomberg Energy, WTI Crude Oil is at $53.10 per barrel and Brent Crude is at $55.62 per barrel.

Lynn Helms, Director of the North Dakota Industrial Commission Department of Mineral Resources, released his monthly “Director’s Cut” today showing North Dakota’s oil and gas stats. The full Director’s Cut can be found here.

North Dakota’s rig count as of today is 29 – representing the lowest number of rigs since October of 2005.  The all-time high was reportedly 218 rigs in May of 2012.  The statewide rig count is down 87% according to the Director’s Cut.

The Director reportedly opines that “Operators are committed to running the minimum number of rigs while oil prices remain at current low levels.”

However, while production is also decreasing, the numbers do not reflect significant decline.

The Director’s Cut reports January, 2016 oil production at 34,796,333 barrels = 1,122,462 barrels/day and February, 2016 oil production at 32,431,669 barrels = 1,118,333 barrels/day.

The Wall Street Journal noted today that “[s]lumping oil prices are starting to affect output in U.S. shale fields, including the prolific Bakken formation in North Dakota.”

That is a great way to put it – prices are starting to affect output.

In reality, a slight decline in production has occurred, but it is not really notable in light of the rig count in January being nearly double today’s count.  In January the rig count stood at 52…

According to the Wall Street Journal article, “North Dakota crude oil production fell for the third month in a row, ticking down 0.4% in February and hitting its lowest level in 18 months.  The slightly lower production in February follows a 2.6% drop in January and a 2.5% slide in December, data from the department show.”

With the relatively drastic decline in the rig count, one would expect to see a more significant decline in production.

The North Dakota Department of Mineral Resources announced that the drilling rig count in the state had fallen to 29 – the lowest count since October 2005.  By contrast, one year ago there were 94 active drilling rigs in the state, and the state’s high mark for operating rigs came in 2012 with 218 active rigs.

Concurrently with the reduction in drilling rigs, this morning, oil reached near one-month lows on news of an unexpected dip in the demand for gasoline in the U.S. and on doubts that the much discussed oil producers freeze will materialize.

These seemingly contradictory notes provide clear evidence to us that the supply/demand precipice upon which oil prices are balanced is treacherous, and that any climb toward higher prices is going to be slow at best.

Today, Lynn Helms, director of the North Dakota Industrial Commission, released his Director’s Cut, which can be found here.

Although the total production from November to December 2105 increased slightly, the number of barrels of oil produced per day declined slightly, approximately 29,500 barrels/day.

An additional notable decline can be seen in the rig count – the drilling rig count in North Dakota for the months of November and December 2015 was 64. However, the rig count declined to 52 in the month of January and currently sits at 41 as of today.  The Director’s Cut reports that today’s rig count is the lowest since July of 2009 and that the statewide rig count is down 81% from the high.  The Director’s Cut also reported an estimated 945 wells waiting to be completed.

The price of oil rebounded and recovered slightly today, as reported by an article featured in the New York Times entitled “Market Rises on Gains in Oil Prices and Earnings.”  Bloomberg Business confirms that WTI Crude Oil closed at $30.92 per barrel, a 6.47% increase, and that Brent Crude closed at $34.60 per barrel, a 7.52% increase.

Today, I spent some time comparing the North Dakota Department of Trust Lands (“Department”) oil and gas lease auction summary results.

The Department is tasked with, among other duties, the responsibility of managing the mineral leasing of North Dakota state lands.  Part of this obligation includes holding oil and gas lease auctions.  More information on the oil and gas leasing process can be found here.  The monthly summaries can be found here.

Curious about the February 2016 auction, I reviewed the most recent oil and gas lease auction summary, provided below, and was surprised with what I saw:

Feb 2016

https://land.nd.gov/minerals/mineralapps/auctions/auctionsummary.aspx

One year ago, in February 2015, the oil and gas lease summary looked a little different:

Feb 2015

https://land.nd.gov/minerals/mineralapps/auctions/auctionsummary.aspx

When these two summaries are compared, acreage in McKenzie and Williams Counties are bringing in sizable bonus amounts per acre – in fact, since last year, the increase in the bonus/per acre amounts are significant for these counties.

However, acreage in Bottineau County and Burke County is not in the same boat.  The bonus per acre in these counties has decreased substantially.

Out of curiosity, I also looked at the summary from November of 2015:

Nov 2015

The bonus per acre paid in Mountrail and Dunn Counties in November 2015 were real doozies. McKenzie County’s bonus amount was also significant.

In deciphering what this all could potentially mean, the first thing that emerges is that these are not “apples to apples” comparisons. There are many factors that could affect the amount of bonus per acre paid, including, but not limited to, the number of acres sold and the locations being auctioned.  Conclusions are difficult to make.

Despite that, one thing is notable – the areas that are considered the sweet spots, despite volatile commodity prices, do end up sticking out.

 

For months, I have been telling people that while we all love paying less at the pump for our gasoline, lower oil prices will have significant consequences in the broader economy.  North Dakota’s budget process this week provides a prime example.

On Monday, North Dakota Governor Jack Dalrymple ordered most state agencies to cut their budgets by a little more than 4% in an effort to cover a $1 billion revenue shortfall that the Williston Herald characterizes as “unprecedented.”  The consensus opinion is that the decreased revenues from the production and sale of oil in the state, stemming from lower oil prices, is responsible for the bulk of the revenue deficit.

North Dakota’s state agencies will have to make their budget cuts by February 17, and those cuts are said to be the largest in raw dollars in the state’s history.  Furthermore, the state is planning to draw $497.6 million from the state’s Budget Stabilization Fund, leaving only around $75 million “in the rainy day fund for what [the Governor] called the ‘unlikely event’ that the July revenue forecast would be even worse.”

In addition, some North Dakota officials have speculated aloud that the budget shortfall will put pressure on the legislature to tap into the state’s $3.5 billion trust fund for oil taxes.

There can be no doubt that the budget cuts for state agencies are going to have material impacts on some of the state’s services and we fear that those affected often are the one most dependent on those services.  There also is no doubt that North Dakota is not the first state or local government struggling with decreased revenues as a result of lower oil and natural gas prices; nor will it be the last.

Lower prices for consumers are nice but we all should be aware of the unpleasant consequences associated with lower commodity prices.  Lower prices don’t just mean lower profits for oil and gas companies, but also raise material concerns for real people.  We think the industry should do a better job of making people aware of those issues.