North Dakota, which yesterday became just the fourth state to record oil production above 1 million barrels a day, could see even stronger growth over the summer as improved weather makes life easier for drilling crews.
Output increased to 1,001,149 barrels a day in April, the state’s Department of Mineral Resources reported yesterday. Texas, California and Alaska have crossed the million-barrel mark. Only Texas remains above the state, at almost 3 million barrels a day.
April oilfield work was hampered by heavy rain that shut roads and strong winds that closed down operations. Crews completed 200 wells during the month, and another 600 are already drilled and just waiting on hydraulic fracturing, or fracking. Better weather in the summer months should allow more new wells to start gushing oil.
“As the weather improves, operators should have full utilization of all their rigs, and possibly additional completion crews to whittle down the backlog,” Jonathan Garrett, an upstream analyst at Wood Mackenzie Ltd. in Houston, said in a phone interview today. “I wouldn’t be surprised to see quite a bit of production growth over the summer. It should be pretty impressive.”
Oil and gas from the Bakken and other shale formations helped the U.S. produce the equivalent of 87 percent of its energy needs in 2013, the highest level since 1985, according to data from the Energy Information Administration. The U.S. imported 7.7 million barrels of crude a day in 2013, the least since 1996.
Most oil produced in North Dakota comes from the Bakken and Three Forks shale formations, layers of hydrocarbon-rich rock more than a mile beneath the Earth’s surface. High crude prices and improvements in drilling technology have helped companies like Continental Resources Inc. (CLR) and Whiting Petroleum Corp. (WLL) tap into the previously inaccessible shale.
Creating wells in the Bakken is a two-step process. Drillers make horizontal bores along the shale, and then completion teams inject a high-pressure mixture of water, chemicals and sand to create micro-fissures in the rock through which gas and oil can seep.
Output from shale wells declines by 60 percent to 70 percent in the first year, according to Austin, Texas-based Drillinginfo Inc., faster than traditional wells. Because of the steep decline rate, companies need to finish new wells constantly. Bad weather can slow the completion process, curbing production growth.
In April, roads were shut for three days because of heavy rain, and there were nine to 11 days of wind blowing faster than 35 miles per hour, too strong for completion work, Lynn Helms, the director of the state’s Department of Mineral Resources, said during a conference call with reporters yesterday. The weather in May and June has been much more benign.
“Permitting and drilling activity indicates that we’ll continue to see production grow and build well above 1 million barrels a day,” he said.
Producers are also drilling better wells, Garrett said. They’re increasing horsepower and using more water and sand in the fracking process, which is helping to increase initial production and slow decline rates.
Bakken crude priced at Enbridge Inc. (ENB)’s pipeline hub at Clearbrook, Minnesota, traded at a discount of $6.50 less than West Texas Intermediate in Cushing, Oklahoma, at 8:59 a.m. New York time, according to data compiled by Bloomberg.
About 30 percent of North Dakota’s oil left the state by pipeline and 63 percent by rail in April, according to the state’s pipeline authority. It’s the lowest percentage of rail transportation since September.
It costs $9 to $10 a barrel to transport oil by train to East Coast refineries, and $6 to $7 a barrel to rail crude to Washington plants, Tesoro Corp. (TSO) said in a February presentation to investors.
The discount of Bakken crude priced at the wellhead to Brent crude, the benchmark for global waterborne crude, is about $20.71 a barrel, according to data compiled by Bloomberg.
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