UPDATE #2 March 19: S & P Global Platts reports in North Dakota weighs plan to keep some Bakken crude off market:
Faced with declining demand and potentially months of oil prices below most Bakken breakeven prices, the North Dakota Industrial Commission next week will consider new rules aimed at preventing operators from either bringing more unwanted crude onto the market or abandoning wells completely.
In January, the number of inactive wells in North Dakota climbed to 2,607, a new record for the state and an increase of 687 wells, or nearly 36%, from December. In a year, North Dakota's inactive well count has climbed by 1,090 wells, an increase of nearly 72%.
On Tuesday, the Industrial Commission is expected to approve a policy that would allow operators to remain in inactive status through a waiver process.
"I think the commission needs to send a signal to the industry and to the markets that it doesn't make good business sense to force North Dakota Bakken crude oil into a market that's already priced well below breakevens and below really what long-term world demand says the market should be at," Lynn Helms, the state's top oil and gas regulator, said Tuesday.
The state approved a similar waiver policy during the 2015 oil price crash out of concern that some marginal wells in inactive status would get prematurely plugged and abandoned, hurting the long-term prospects for a rebound in prices of enhanced oil recovery, Helms said. . . .
The North Dakota Industrial Commission meets next on March 24. The agenda for the meeting has not yet been posted. [end update]
Our readers' emotional mileage may vary at the news in Tuesday's report in the Bismarck Tribune, Low oil prices 'extremely brutal' for North Dakota's oil industry, given the recent history of brutality associated with the state's oil and gas shales.
The paper's energy beat reporter Amy Sisk writes:
The spread of the new coronavirus has halted travel and prompted a price war between two of the world’s biggest oil producers, putting many in the Bakken on edge as the outlook for the oil industry turns bleak.
“It’s been extremely brutal,” said Ron Ness, president of the North Dakota Petroleum Council. “We’re going to see a reaction to this. There’s no ifs, ands or buts about it.”
Low oil prices are already causing companies to cut workers’ hours in the Bakken and will likely lead to layoffs as the state braces for a drop in oil tax revenue. One company, MBI Energy Services, told the state this week that it plans to cut at least 200 jobs. . . .
Then, prices tanked, dramatically, in the matter of just a couple days earlier this month when Russia refused to join OPEC in a plan to curb production to keep the world’s oil supply closer in line with sliding demand. OPEC leader Saudi Arabia responded by indicating it would ramp up its oil output. Those moves sent oil prices plummeting.
The WTI price has hovered around $30 per barrel for the past week. It sank even lower Tuesday into the upper $20s.
“The bottom has just dropped out,” North Dakota Mineral Resources Director Lynn Helms said Tuesday at his monthly press briefing.
As prices drop, drilling for oil can become unprofitable. Ness pointed to Tuesday’s announcement by Hess, a Bakken producer currently running six drilling rigs in North Dakota, that it would stop operating all but one rig in the state by the end of May.
Ness said the price at which oil is profitable depends on a number of factors and can differ for each company.
“I’m guessing $29 oil is not it, which you can see from one of our largest producers today,” he said, referring to Hess. “You would see a similar reaction at $39 oil.”
Usually when prices drop, the demand for oil is still high, Ness said. That’s not the case now, as countries enact travel restrictions and airlines ground flights that use jet fuel made at oil refineries. . . .
Sisk also reports that although gas prices at the pump are falling, consumers aren't saving much if they're not going anywhere.
Read the entire article at the Bismarck Tribune (a fine regional newspaper-we've subscribed to it).
Update, 3/19: Environmental Health News reports Financial fallout from coronavirus could devastate the fracking and plastics industries. We posted about the potential consequences to Minnesota's industrial agriculture sector on Thursday in Will ethanol industry go the way of oil?[end update].
We hope our readers are staying calm, washing their hands, and staying home.
Photo: A Marathon Oil drilling rig works in the Bakken Shale of North Dakota. Marathon Oil photo, via the Houston Chronicle, 2018.
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