In July, North Dakota produced just over 1.2 million b/d of crude oil, down just over 9,400 b/d from the previous month and down nearly 26,000 b/d from the all-time high of about 1.23 million b/d the state set in December 2014.
The decline in Bakken production is hardly surprising considering the dramatic cuts producers have made in response to the sustained drop in oil prices, nor is it a particularly severe drop.
But state regulators are scrambling for options to sustain North Dakota production above that 1.2 million b/d level and prevent supply from falling along with the state’s rig count. The state is expected to unveil production figures for August this week.
Regulators recently approved a plan to delay new limits on gas flaring and are still weighing another plan to grant Bakken operators up to a year more to keep wells uncompleted in order to wait out the ongoing decline in oil prices.
Both are designed to keep production from plunging. (This episode of Capitol Crude: The US Oil Policy Podcast looks at how low oil prices can go before Bakken production falls off.)
“It sends a signal to the industry that we’re willing to work with them,” Lynn Helms, director of North Dakota’s Department of Mineral Resources, told reporters last month. “It also sends a signal to the world markets that the state is not going to force additional oil into an already over-supplied market. We recognize that everybody benefits from putting that oil on to the market at $60/b more than we benefit from putting it on the market at $35/b.”
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Last month, the North Dakota Industrial Commission unanimously approved a plan to delay and ease cuts to associated gas flaring, which it had originally approved in July 2014.
Under the new benchmarks, producers can flare no more than 23% of associated gas through March 2016 and 20% by April 1. Producers cannot flare more than 15% by November 1, 2016, 12% by November 1, 2018 and between 7% to 9% by November 1, 2020.
The commission originally ordered operators to reduce flaring to 15% by the first quarter of 2016 and to between 5% to 10% by the fourth quarter of 2020.
These changes were needed due to delayed gas capture and pipeline infrastructure and are expected to prevent, or at least delay, production curtailment penalties Bakken operators would face if they failed to meet these flaring reduction benchmarks.
Under the plan, state officials would be able to review flaring goals each December, every year, and to finalize a three-month rolling credits program that could allow certain operators to exceed limits without being in violation of the flaring reduction mandate.
Similarly, state officials are also considering a plan that would allow operators to keep some wells in non-completed status beyond the current one-year limit by granting temporary abandonment requests based on economic reasons. By essentially doubling the time operators would be allowed to keep a well drilled but uncompleted, it would allow operators to retain the rights to a well while not being forced to complete it when oil prices are low.
Under this process, the state’s petroleum engineer would be more lenient in granting temporary abandonment requests, a process state officials are already authorized to do, Helms said.
Helms said this additional leniency for operators will be particularly notable early next year when nearly 100 wells per month will have their one-year, non-completed status expire and operators will need to either abandon the well or drill it. With more leniency, these operators will be able to just hold on to the non-completed well and not drill for another year, keeping a Bakken supply surge off a likely saturated market.
The commission is expected to discuss the plan at a future meeting, “but nothing has been decided at this point,” according to Alison Ritter, a spokeswoman for the state’s Department of Mineral Resources.