Monday, April 12, 2021

North Dakota shale outlook looks bleak after gold rush

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Almost ten years ago, Clint Hacker traded the Arizona sun for the sub-zero temperatures of North Dakota winter, migrating north with thousands more to join a rush. modern gold as oil production exploded in the Bakken Shale.

This year he was forced to lay off two-thirds of the workers at his oilfield services company as the Covid-19 pandemic pushed the state’s oil sector into an unprecedented recession in terms of speed and performance. magnitude.

“I think these are probably the worst times the Bakken has seen – or maybe the oil and gas industry in general has seen,” said Mr. Hacker, now managing director of Nodak Oilfield Services.

The price drop triggered by the pandemic has been brutal for the oil industry in the United States, but nowhere more than in North Dakota. Here, the explosive growth of Bakken – the first major oil field to emerge during the shale revolution – placed the sector at the heart of the state’s economy.

Today, as North Dakota emerges from recession, the outlook for the oil industry looks far less certain. Investments have dried up, political support is waning, and the future of a key state crude pipeline is at stake.

The pain of this year came quickly. North Dakota entered 2020 at record production levels. Production was second only to Texas, as it pumped nearly 1.5 million barrels of oil per day, or 12% of the country’s total. “March changed everything,” said Lynn Helms, director of the North Dakota Department of Mineral Resources.

This is when a Saudi-Russian crude price war erupted and stay-at-home orders were imposed across the country to stem the spread of Covid forced cars off the roads and planes on the ground, crippling demand for oil. American oil traded in negative territory for the first time.

Operators in North Dakota have shut down nearly a quarter of their wells, four out of five rigs have been laid and production has fallen 40%. By most indicators, said Helms, “the numbers for 2020 are the worst they’ve ever been”.

“The industry was basically grounded in the first 45 days of Covid,” said Ron Ness, chairman of the North Dakota Petroleum Council. Operators have reduced capital spending and work has dried up for service providers. Oil whiting, one of Bakken’s largest producers, was the first nationwide big name to file for bankruptcy.

Line graph of rig count showing drilling in North Dakota collapsed to levels last seen in 2004

North Dakota is no stranger to commodity cycles. The 2014 recession hit it hard, sending much of its migrant workforce in its luggage. But this year’s crash is different. Not only has this been faster and more brutal than anything in the history of the state, but it comes as the industry to which the state has staked its fortune is under fire from all angles.

The shale slab was already struggling to attract investment before this year’s crash, as Wall Street was fed up with its debauchery and poor returns. Now, environmental concerns make it even less attractive. The cash on hand tends to be directed to the Permian Basin of Texas and New Mexico, which a growing number of companies consider to have the best growth potential.

Meanwhile, Joe Biden, President-elect of the United States, has vowed to “switch off the oil industry” and ban further drilling on federal lands – on which a third of North Dakota’s wells are located. find.

Things can get worse. The future of the Dakota Access Pipeline, the primary route through which oil leaves the state, is at stake. almost closed by a federal judge this year after discovering that the Trump administration had rushed to secure a key environmental permit. Its closure, sought by activists and indigenous groups, would force much of the state’s oil exports to expensive railcars, jacking up the price needed to get producers back to drilling from $ 7 to $ 60- $ 65. / barrel, according to the DMR, a level well above average prices this year.

Kamala Harris, Mr Biden’s elected vice president, has expressed support for the pipeline shutdown. And Deb Haaland, the president-elect’s choice for Home Secretary, whose department is responsible for infrastructure, has seen protests against her, bake green peppers and tortillas for the demonstrators.

As unrest escalates for the sector, new calls have been made to diversify the state’s economy away from its dependence on “soil and oil”.

“The energy industry, speaking specifically of oil and gas development, has become the backbone of our state’s economy,” said David Ripplinger, professor of economics at North Dakota State University. Diversification efforts have been around for years, but they could now be on the agenda, he said.

“I think there are certainly concerns about the medium to long term use of oil,” Professor Ripplinger said. “If oil consumption stabilizes and then starts to decline, we’re in a bit of a sticky situation.”

The state’s woes contrast with the booming growth of the past decade. Between 2009 and early 2020, oil production in North Dakota increased from less than 200,000 barrels per day to nearly 1.5 MB / d. Oil and gas became its largest industry, providing more than half of the state’s general fund revenue.

The boom sparked an influx of workers from across the country, like Mr. Hacker, as Americans left unemployed in the wake of the financial crisis smashed tools and headed north in search of a life better. After seven decades of decline, North Dakota’s population has reached record levels, shifting it from the state with the highest proportion of seniors to the highest proportion of millennials.

“It was just a different place, a different world,” Mr. Hacker said.

These days seem to be a distant memory. But there is optimism that despite the challenges, the sector is seeing another recovery.

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“We will bounce back,” said Mr. Ness of the North Dakota Petroleum Council. “It will depend on price and investment, but the Bakken is certainly a world-class resource and there is still a lot to be gained from it.

Production has started to climb again as Bakken’s inventory of “drilled but unfinished” wells comes online, supported by federal grants. But with a minimum of new drilling, production will decline next year. Only a significant increase in the price of oil will see operators deploy again many new platforms.

When growth returns, according to the DMR, it will be at a much slower rate, increasing slightly to a peak of 2 mb / d by 2035.

“We are striving for a slower, more sustainable rate of growth where the infrastructure holds its own,” said Helms of the state’s mineral resources department. “The high-profile glory days of extreme and rapid growth are behind us.”

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