Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

North Dakota oil production in February 2020, before dropping due to pandemic and OPEC flooding market

Night sky in Williston, N.D. Long exposure photo by Joe U. Look at all the stars.

In February 2020, crude oil production in North Dakota averaged 1,451,029 bopd (preliminary), up 20,518 bopd from 1,430,511 bopd (revised) in January.  This is the 4th highest level of output, behind the high water mark of 1,519,032 bopd in November.

Production is going to drop rapidly. Drop will be at least 20% of current production. I’ll make a not-so-wild guess decline will be a quarter or more (>25%).

Prices have collapsed due to a double black swan. The COVID-19 pandemic has caused a demand side shock.

There is also a supply side shock to the market.

Saudi Arabia and Russia started a price war which flooded the market. Although OPEC has reached an agreement to cut production by 9.3M bopd, the pull back doesn’t affect the large number of tankers at sea carrying the increased sales.

As a result, West Texas Intermediate has dropped from $59.86 a barrel in December 2019 to $22.41 now. Estimate of price realized in North Dakota has dropped from $52.92 in 12/19 to $17.96 in 4/20.  See graph of prices in previous post.

The logical result is lots of producers are temporarily stopping production of wells, called ‘shutting in.’

4/14/20 – Williston Herald – Helms:  North Dakota’s oil and gas industry has shut in at least 260,000 barrels of oil production – Mr. Lynn Helms, Department of Mineral Resources Director, estimates 260,000 bopd of production has been shut-in.

Storage facilities downstream are almost full, as are the storage facilities in the state. Seems to me that will accelerate the shut-ins, since there may soon be no place to store production.

Based on what he is hearing, Mr. Helms thinks the rig count could drop into the 20s. There were 55 rigs in January, 52 in March, and 34 now.

Article indicates there were recently 10 or 12 fracking crews in the state.  Currently there about 9. Count could drop to 5 or 6.

So, currently producing wells are being shut-in, rig count is dropping, and number of frac crews is dropping.

Looks like production is going to drop fast and far. The 260K bopd is just for starters.

For a summary of the starting point for the drop, see previous post for graphs of production, prices of oil, and value of crude oil production in the state.

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