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North Dakota braces for extended downturn in oil production

North Dakota, second only to Texas in oil production in the United States, recorded its fourth straight month of sagging petroleum output as the price of crude remains in the tank and the state government prepares for a round of budgetary belt tightening.

Lynn Helms, director of the state’s Department of Mineral Resources, said Thursday that production in North Dakota oil fields was down by 10,000 barrels a day in March – the latest month with available figures – compared to February. Overall production in the state hovered around 1.1 million barrels a day, Helms said, and it’s been on a downward trend since November.

The number of exploratory rigs in operation dropped to 27 in May, he said, representing an 88-percent decline from boom times several years ago. The rig count provides an indicator of future oil production levels.

Helms expects to see further declines of 30,000 barrels per day in the coming months and he warned that oil production could decline below 1 million barrels per day by the end of the year. The price for North Dakota sweet crude stood at $33 per barrel this week, down from a record high of $136.29 in July of 2008, according to the state’s figures.

“The oil price is still below what we need in order to reactivate wells,” Helms told reporters Thursday.

Last week, North Dakota Gov. Jack Dalrymple directed state agencies to plan for 2017-19 budgets that are 90 percent of their 2015-17 appropriations. Dalrymple mentioned the sharp drop in oil and farm commodity prices as one of the reasons for the receding tax revenues.

Although some shale oil analysts see production ramping up once oil prices begin rising again, David Hughes, a fellow at the California-based Post Carbon Institute, takes a more cautious view.

“When prices go up, a lot of the best locations have already been drilled off,” Hughes told AMI Newswire.

About one-third of the oil in North Dakota’s Bakken Formation has already been removed, he said, and even though the fields will continue to produce oil for a couple more decades, well productivity will inevitably drop.

“In the long term, over 10 to 15 years, I wouldn’t count on it as a lasting bonanza,” said Hughes, who has researched all the oil shale regions in the United States. “Consider it a temporary lotto win and don’t get too addicted to the revenue.”

Tessa Sandstrom, communications manager for the North Dakota Petroleum Council, told AMI Newswire that prices may begin to recover by the end of the year, leading to more stable production, though probably not on the scale of the previous boom times.

"We do see it coming back for the long term," Sandstrom said.

North Dakota’s oil boom came about through advances in hydraulic fracturing technology, or “fracking.” In this process, liquids under high pressure are injected into rock formations to extract oil and gas.

The state’s oil industry has come under criticism recently after studies found that it was a contributor to both climate change and air pollution. A University of Colorado study released this week found that oil industry operations in North Dakota and Montana annually released 275,000 tons of methane, a greenhouse gas, into the atmosphere. And a University of Michigan researcher found that the Bakken Formation oil field was partly to blame for a global increase in atmospheric ethane, which can affect climate and harm air quality.

Helms downplayed those conclusions, noting that the data for those studies dates back to the spring of 2014, before the industry implemented a gas-capture program and reduced the release of volatile organic compounds. Current ethane and methane emissions are much lower, he said.

Canada’s reductions in oil production as a result of wildfires in the province of Alberta have not affected production in North Dakota, Helms said. That’s because Canada’s temporary cut has not significantly pushed up prices in the world market, he said.

A report by the state’s Department of Mineral Resources released Thursday stated, “Oil price weakness is the primary reason for the slow-down and is now anticipated to last into at least the third quarter of this year and perhaps into the second quarter of 2017.”

On the bright side, Hughes pointed out that production of natural gas in the state was up 1 percent in March when compared to February.