North Dakota oil output slips again as outlook for industry gets bleaker

North Dakota oil pro­duc­tion fell 1.7 percent in Au­gust, slip­ping be­low 1.2 mil­lion bar­rels per day in the fifth month­ly de­cline since the state's out­put peak­ed last De­cem­ber.

The near­ly 21,000 bar­rel-per-day drop from July rep­re­sent­ed the first time in 12 years that the state's oil out­put fell in Au­gust, a month when the in­dus­try historically has a growth spurt thanks to fa­vor­a­ble con­di­tions, the state Department of Min­er­al Resources re­port­ed.

"Pro­duc­tion is down, and sig­nif­i­cant­ly down," Lynn Helms, the head of the de­part­ment, said Tues­day in his month­ly up­date on the in­dus­try.

The de­cline for Au­gust "is def­i­nite­ly not nor­mal," he add­ed. "This is a re­flec­tion of what's hap­pen­ing in the in­dus­try."

World oil prices sank to a six-year low in Au­gust de­spite an in­crease in de­mand, but the growth in de­mand is ex­pect­ed to end in 2016, the International Energy Agency said Tues­day. U.S. shale pro­duc­ers, like North Dakota's, face a big chal­lenge be­cause new shale wells rap­id­ly fall off in pro­duc­tion — an 82 percent de­cline in the first two years — for­cing con­tin­u­ous in­vest­ment in new wells to sus­tain pro­duc­tion, the IEA said. U.S. oil pro­duc­tion growth could be stopped in its tracks, IEA said.

North Dakota oil, which sells at a dis­count to the bench­mark crude, fell al­most $10 per bar­rel from July to Au­gust, but has since re­cov­ered slight­ly to $35 per bar­rel, ac­cord­ing to data North Dakota col­lects from the Flint Hills Re­fin­er­y in Rosemount.

Helms said pro­duc­ers are elect­ing to keep oil in the ground. He at­trib­ut­ed about half of the de­cline in Au­gust's out­put to re­duced pump­ing by com­panies facing prob­lems at a nat­u­ral gas com­pres­sion plant. With­out that cut­back, some com­panies risked ex­ceed­ing flar­ing tar­gets, he said. The cut­back is ex­pect­ed to last though Jan­u­ar­y, he add­ed.

Nat­u­ral gas pro­duc­tion in North Dakota also fell from the re­cord set in July, off 1 percent.

"I ex­pect a slow de­cline in pro­duc­tion," add­ed Helms, who said out­put could dip to 1 mil­lion bar­rels per day by the end of next year if con­di­tions wor­sen.

The num­ber of rigs drill­ing for North Dakota oil and gas also is down — to 67 rigs this month. That's less than a third of the rigs that were op­er­at­ing in May 2012, dur­ing the height of the state's oil boom. It's 10 to 15 rigs be­low the re­duced lev­els drill­ers pro­ject­ed this year, Helms said.

Fewer new­ly drilled wells are get­ting com­pleted, a cost­ly step called hy­drau­lic frac­tur­ing that in­jects wa­ter, sand and chemi­cals into shale to free oil and gas. That left a re­cord 993 un­completed North Dakota wells at the end of Au­gust, up 79 from July.

Helms said the num­ber of drilled, but unfracked wells is sure to rise as oil com­panies leave oil and gas tem­po­rar­i­ly un­tapped rath­er than sell it for low prices. Op­era­tors are sup­posed to fin­ish wells, and start pay­ing royal­ties, one year af­ter drill­ing a well, but can seek a de­lay for a year or more.

Two North Dakota op­era­tors, Tul­sa-based Sam­son Resources and Den­ver-based American Eagle Energy, have filed for Chapter 11 bank­rupt­cy this year.

The in­dus­try is "reef­ing its sails," Helms add­ed. "They are try­ing to weath­er the storm."

David Shaffer • 612-673-7090 Twitter: @ShafferStrib