North Dakota crude output rises to 1.19mn b/d

OREANDA-NEWS. North Dakota crude output was up slightly in March, gaining by 12,501 b/d, or about 1pc, to 1.19mn b/d, according to data from the state's Department of Mineral Resources (DMR).

The increase in crude output was unexpected, said DMR director Lynn Helms, as the agency had forecast declines from February through May and a gain in June as a new tax break kicked in. Instead, there was a fourfold increase in completions in March — the most recent month for which data was available — up from 42 in February to 189.

Helms said the gains in crude production could be the effect of a small tax break that went into effect earlier this year. The rise in production could also have been driven by the need for some operators to maintain cash flow.

North Dakota offers tax breaks based on crude prices. A cut in the oil extraction tax from 6.5pc to 2pc already went into effect in February. A larger tax break kicks in when prices average less than \$55.09/bl for five consecutive months, which could happen in June. When the larger tax trigger kicks in, the state eliminates the oil extraction tax for all new wells and wells within 24 months of production. Oil prices would have to average \$52.25/bl in May in order for the big tax trigger to kick in come June.

Signs of a slowdown are still evident in the state. Permitting activity continues to fall, with 197 drilling permits issued in February, 190 issued in March and 169 issued in April. The rig count is also sharply down at 91 in April, compared to 108 in March and 133 in February.

The slower activity is because producers are holding back, waiting for a number of things, including the big oil extraction tax triggers, better oil prices, or efforts to get in compliance with natural gas capture requirements and new oil conditioning rules, Helms said.

About 11pc of producers have not been in compliance with the new crude conditioning rules, which require crude be at a Reid Vapor Pressure of 13.7psi or less before shipping. They were given 48 hours to come into compliance. The new conditioning rules likely helped keep the latest fiery crude train derailment near Heimdal, North Dakota, from being more severe than it was, Helms said.

At the end of March there were an estimated 880 wells waiting on completions, a decrease of 20. To maintain production near 1.2mn b/d, 110-120 completions much be made per month.

The amount of crude being moved by pipeline rose by 2 percentage points to 40pc, while the amount being moved by rail fell by 1 percentage point to 54pc of all crude leaving the Williston basin.