North Dakota's crude oil production fell 2.5 percent in December, and the state's top oil regulator expects a steady decline in output this year because of low oil prices and scaled-back drilling.
Oil fields in the state's western counties pumped 1.15 million barrels per day in December, down from 1.18 million barrels in November, the North Dakota Mineral Resources Department said Wednesday. December's output was off 6 percent from the peak of 1.22 million daily barrels in December 2014.
"That is a very significant drop," Lynn Helms, the department director told reporters. " … We are seeing actual production declines begin to kick in."
Over the past year, oil production has jumped up and down in North Dakota. Helms said various factors caused those movements, but now the conditions point to a long-term decline in output that could drop below 1 million barrels per day in early 2017.
Echoing concerns of a major accounting firm, Helms said up to seven of North Dakota's 22 Bakken oil drillers are ripe for bankruptcy if oil prices continue to hover around $30 per barrel, less than one-third of the mid-2014 price. Bakken producers get less than the midcontinent benchmark price because of the limited pipeline takeaway capacity, which reduces what refiners will pay.
The accounting firm Deloitte on Tuesday projected that 35 percent of U.S. oil exploration companies — about 175 operators — are at high risk of slipping into bankruptcy this year. For the 18 months through December, 35 U.S. oil exploration companies with cumulative debt of $18 billion filed for bankruptcy protection, Deloitte said. That includes two Bakken operators.
Helms said other Bakken companies could hang on until June, when banks are expected to make "debt redeterminations" based on the reduced value of the companies' crude oil assets. If crude prices don't rise by then, "we are going to see bankruptcies and financial problems from some of our smaller and more leveraged Bakken operators," he added.
Helms said crude oil prices need to be around $45 per barrel before operators will step up drilling and resume production growth. For now, drillers break even in only two of the 12 counties of the Bakken in western North Dakota, according to state data released Wednesday. The number of drilling rigs fell to 40, less than one-fifth the number four years ago.
With the fall in production, the amount of crude oil being shipped by railroads also has declined for the third month in a row, accounting for less than half of exports, according to North Dakota data released Wednesday.
Meanwhile, Enbridge Energy on Wednesday told analysts that its Sandpiper crude oil pipeline from North Dakota through Minnesota to Wisconsin won't be in service until early 2019. The company earlier had said that regulatory delay in Minnesota could push back the start of construction to late 2017.
That project is intended to carry 225,000 barrels per day, or about 20 percent of current North Dakota production. Enbridge also said its replacement of a Canada-to-U.S. crude oil pipeline, partly along the same alignment as Sandpiper, also will be delayed until 2019.
Justin Kringstad, director of the North Dakota Pipeline Authority, said it is unclear what the Sandpiper delay means for the North Dakota crude-by-rail industry. Shippers that intended to supply Midwest and other oil refineries via the Sandpiper will be impacted the most, he said. Oil trains mostly supply coastal refiners that are not necessarily served by pipelines.
"Those barrels will have to be shunted around and we will have to see how the dynamic changes over time," said Kringstad.
David Shaffer • 612-673-7090 • @ShafferStrib