As Oil's Slump Continues, This Is How North Dakota Measures The Bakken's Pulse
Every month, the director of North Dakota's Department of Mineral Resources, Lynn Helms, unveils a series of indicators that paint a picture of the overall health of the oilfield — and the numbers [.pdf] given at the January 2016 meeting weren't so good.
As oil prices continue to slide, these are some of the measurements that North Dakota uses to gauge the industry – similar to how other boom states look at their producers.
Oil prices are at their lowest since 2004. On Jan. 15, 2016, they were $27.85. That's what a barrel of oil was worth in Cushing, Oklahoma, where the national benchmark price is set. It's known as the WTI Cushing benchmark.
In North Dakota, oil is worth a lot less. On Jan. 15, Williston Basin Sweet crude oil was selling for $20 a barrel.
That's because North Dakota is in the middle of nowhere. The oil has to travel thousands of miles to be refined. So when you hear someone say the "price of oil," know that companies in North Dakota are actually making less than that.
When oil companies make less money, they also spend less money. One way to do that is to drill fewer new wells. Helms' next indicator shows that — there are currently only 49 drilling rigs operating in the state. That's the lowest in North Dakota since 2009, and down from 187 just two years ago.
Producing Well Count
Another way to save money is to stop the flow of oil from existing wells. This is called "shutting-in." Companies shut wells in for a number of reasons: it's harder and more expensive to operate them in the winter, the wells aren't economical at low prices, or they're legacy wells from the 1970s and 80s that barely produce any oil.
In November 2015, oil companies shut-in more wells than they drilled new ones. So the overall number of producing wells in the state dropped to 13,077, down from 13,190 the previous month.
Now, you might think with all of this, oil production would be plummeting, right?
Oil production was actually up 5,195 barrels a day in November 2015 over the previous month.
Here's how this works. At low prices, companies will only drill wells in the hottest of hot spots in the Bakken, where wells produce tons of oil. Even though drilling has slowed way down, because the new wells are in the best areas, overall oil production has remained fairly steady at just under 1.2 million barrels a day. But lest you are left thinking North Dakota's oilfield is doing just fine, there's one more mark to consider.
Why are so many oil companies are in dire financial straits going into 2016? Basically, it's a combination of making bad bets on where oil prices would be in the future, too much debt and owning too many low-producing wells.
Because of factors like these, mineral resources director Lynn Helms said he wouldn't be surprised if another five companies that operate in the Bakken oilfield go belly up before the end of 2016.
"We're down in the bottom of the bottom of the tank in terms of capital and cash flow to maintain activity," he said.
To illustrate his point at this particular meeting, Helms pulled out a piece of paper with what looked like a poem. But it wasn't a poem.
"Some of you will remember it, it's called 'https://youtu.be/zdHg4QEmBvk">Running on Empty,'" he said, visibly delighted, as he started to read Jackson Browne's lyrics.
"I look out at the road rushing under my wheels. I don't know how to tell you all how crazy this life feels. I look around for the friends I used to turn to to pull me through, and I look into their eyes and I see them running, too."
Inside Energy is a public media collaboration, based in Colorado, Wyoming and North Dakota, focusing on the energy industry and its impacts.