BISMARCK — North Dakota oil regulators are relaxing requirements to give operators flexibility to determine whether to complete wells or keep them producing at a time when the collapse in oil prices makes some wells uneconomical to operate.
At the direction of the North Dakota Industrial Commission, the Department of Mineral Resources is to immediately reinstate guidelines that “promote the prevention of waste of the state’s natural resources of oil and gas during the current economic climate.”
The action means oil producers can apply for waivers granting inactive well status or suspension of drilling, steps that can allow operators to temporarily idle a well without having to go through the costly process of shutting down a well, a major undertaking that could lead to a permanent shutdown.
North Dakota petroleum regulators granted the waivers during other periods of sharp plunges in oil prices, including 2015, 2009 and 1999, said Ron Ness, president of the North Dakota Petroleum Council, who welcomed the regulatory flexibility.
“You don’t want to force people into bad economic decisions,” he said on Wednesday, March 25. “This is something the Industrial Commission has historically always done.”
U.S. oil companies are reeling from a downward spiral in prices caused by an abrupt fall in demand because business and travel is shutting down due to the coronavirus pandemic, and because Russia and Saudi Arabia are waging a price war, slashing prices to try to capture market share.
Ness said he is tracking production levels of refineries to see if they “throttle down throughout,” something he fears could happen.
Oil prices for producers in North Dakota’s Oil Patch recently have been ranging from $13 to $18 per barrel — far below prices of $60 per barrel or more that were reached during the boom years before the last price collapse in 2015, he said.
Decisions about whether to seek waivers to idle wells or to keep producing will vary, depending on a well’s productivity and the operator’s financial situation, Ness said.
“Some will need the cash flow,” he said. “Fifteen dollars is more than zero. Others are going to be in the position of not wanting to sell for $15.”
The most productive wells are located in the core of the Bakken Formation, much of which is located in western North Dakota, where it can still be economical to produce, Ness said.
Temporarily shutting down an oil well can be costly and complex, so it will take several weeks for the wind down, he said.
“You don’t just turn these things off over night,” Ness said. Still, he added, “We’re going to see a significant retraction.”
As of January, the most recent figures available, North Dakota was producing more than 1.4 million barrels of oil per day. The state’s revenue forecast, which is heavily dependent on oil, predicted daily production would remain at 1.4 million barrels.
Because of the drop in demand and prices, Ness predicts oil production will dip to a range of approximately 1 million to 1.3 million barrels per day and natural gas production will remain at about 3 billion cubic feet.
“This is going to be a big challenge,” Ness said of the financial squeeze confronting oil producers. They will be forced to find more cost efficiencies and new technologies, as they did following the price drop in 2015.
“They know how to hunker down and find their niche,” he said.
Each waiver is good for one year and operators will be allowed to apply for renewal until the price of West Texas Intermediate crude, $23.25 per barrel as of Thursday, exceeds $50 per barrel for 90 days.
Guidelines will be posted online at https://www.dmr.nd.gov/oilgas/policies.asp.