BISMARCK — After several years of steady growth, oil production in North Dakota may level off in the next five years, a state official told lawmakers on Tuesday, Feb. 11.
Mineral Resources Director Lynn Helms said he expects companies to drill up what remains in western North Dakota's "core" oil-producing area within the next two to five years.
"At that point, say five years from now, the drilling has to move out into the non-core areas, and that will yield lower producing wells," Helms told legislators on the interim Government Finance Committee. "It will become much, much more difficult to grow production at that point in time. ... We can now see that horizon from here."
After the core area is depleted, Helms projects that production will plateau for about 10 years before slowly declining until the end of the century. Helms, the state's top oil and gas regulator, said that 20% of oil production already takes place outside of the traditional core area.
North Dakota is the nation's second-leading oil producer behind Texas. The state set a production record of 1.5 million barrels per day in November, but Helms said December production figures are slightly down.
Oil prices have steeply fallen in the last month, which Helms attributes to the coronavirus outbreak in China and a resulting pause in cargo shipping.
North Dakota Petroleum Council President Ron Ness said the recent end of the 2010s prompted him to look at the state's production when the decade began. Ness, whose organization represents more than 650 oil and gas-related companies, said North Dakota has changed so dramatically since producing only 214,000 barrels of oil on the first day of the last decade.
Ness emphasized to the committee that the state should plan for the not-so-distant future when oil tax revenues plateau and eventually begin to fall.
"If you base your spending levels on today and growing for the next half decade, the day will come when we're got to either reduce our spending, change our philosophy, encourage investment ... or we've got to begin tapping into those reserve funds," Ness said.
30% of the state's oil and gas tax revenue is dedicated to the voter-approved Legacy Fund, which contains more than $6.7 billion as of Jan. 31 and continues to grow at an average of $56 million a month, state budget director Joe Morrissette said.
The Office of Management and Budget estimates the state will receive more than $4.8 billion in oil and gas tax revenue during the current two-year budget cycle. Ness noted that sales tax revenue, another major source of income for the state, is also tied to oil and gas production.
Revenues to the state's general fund are beating the Legislature's forecast for the current budget cycle by 7.6%. This is due, in large part, to high-volume oil production and better-than-expected sales tax revenue.