Oil patch should see rebound this year

Oil patch should see rebound this year

LAUREN DONOVAN Bismarck Tribune

Mar 26, 2017

TOM STROMME, Tribune

The oil patch can expect more rigs, more trucks and more traffic this year as oil development follows a price trend that’s slowly ticking upward, according to Lynn Helms, director of the state Department of Mineral Resources.

His forecast is positive in light of the past two years that have seen a precipitous drop in the number of rigs drilling and a gradual decline in daily oil production

Helms thinks starting June — once road restrictions are fully lifted — activity will noticeably pick up.

“The industry is talking about really turning this thing on in the second half of the year,” said Helms, who expects the number of rigs drilling — now at 44 compared to an all-time high of 218 — will pick up to about 50 to 55. In addition, he said about 20 to 25 hydraulic fracking crews will be brought on, up from a low of five.

New wells will be drilled and the current inventory of wells that are drilled, but not fracked, will be reduced from more than 800 to around 500, he predicts.

“That means a lot of truck traffic in the second half of the year, the rigs, the water trucks, the frack sand trucks,” he said.

A noticeable rise in truck traffic will be related to the increased number of frack stages now employed to bring wells into production. Drillers run as many as 50 to 60 separate fracks per well requiring 10 million gallons of water and 8 million pounds of sand, in many cases delivered to the well by water tanks and semi.

“The fracks are now more and larger,” Helms said of the process that utilizes pressurized water and chemicals to create small fissures in the shale rock formation to allow the oil to flow. The sand, or small ceramic beads, injected with the water serve to hold the fissures open.

He said he is hoping that, by late summer, overall oil production begins to stabilize and that, by the fourth quarter, production once again reaches the 1 million-barrel-per-day point. That benchmark was achieved in mid-2014 and then sagged below it starting the second half of 2016.

“The fact that we now have West Texas Intermediate at over $50 a barrel, producers are excited about the return on their investment on those unfracked wells. They will add rigs at $50 a barrel, but, at $60, they would add a lot more. But that’s not likely by the end of 2017 or well into 2018,” he said.

New rigs will be added into the core production area, essentially the four to five counties of Dunn, McKenzie, Williams, Mountrail and southern Divide. Oil production on the Fort Berthold Indian Reservation has remained steady and has even seen a slight rise. Marathon Oil sees the reservation as a prime area for growth and expects to increase drilling rigs there from one to six or seven, he said.

In the low-price scenario, along with heavy winter weather, oil companies shut in low-production wells and the inventory of those wells now exceeds 1,100.

“Oil at $50 a barrel will help and so will summer weather. That means trucks and lot of workover rigs — the wells will require a workover rig to get back into production,” Helms said.

One sticking point could be attracting workers back into the oil patch. The ramp-up that Helms expects to happen will require an additional 2,200 workers.

“I’m hearing there are challenges. Initially, companies were getting a good response from former employees, especially companies that were good to their employees in the downturn. Others are going to the Permian Basin (in Texas) and they’ve found employment and will be difficult to attract back. Companies may have to go back to some nationwide recruiting like they did before,” Helms said.

Dean Bangsund, North Dakota State University researcher, said there were 48,000 direct jobs from oil development and another 24,000 indirect ones in 2015, amounting to about 15 percent of all jobs in North Dakota. He said every well adds two jobs in the long term.

On the flip side, there is plenty of available housing for oil workers, unlike earlier years.

While prospects for increased oil development look positive in the near-term, they don’t yet add up to the boom-scale development prior to 2014, Helms said.

“The ability of the world to produce shale oil is much higher than it was even in 2012 and 2013, and we don’t have the overheated oil prices of $90 a barrel. Long-term, moderate growth over five to seven years will bring the rig count into the low 100s,” Helms said. “We still have an enormous number of wells to drill.”