North Dakota’s top oil regulator estimates that producers have idled more than a quarter of the oil wells in the state since the start of March and says several businesses are considering building large tank farms to store oil while prices are low.
State Mineral Resources Director Lynn Helms said Tuesday that companies have shut in 4,600 wells, accounting for about 260,000 barrels per day of oil. Operators are temporarily idling wells that produce smaller quantities of oil, in addition to wells that flare large amounts of natural gas.
The magnitude of shut-in wells is a sign that the oil industry “is rapidly taking advantage of the regulatory relief” offered by the Industrial Commission last month as the coronavirus pandemic caused oil demand to plummet, Helms said. The commission, through the North Dakota Oil and Gas Division, is allowing companies to seek waivers so they can halt production from wells for longer than a year without having to make a decision about whether to permanently plug a well or start operating it again.
Speaking during his monthly press briefing Tuesday, Helms shared various oil industry estimates that indicate even more rigs will stop drilling for oil in North Dakota. The rig count could bottom out at 50% to 75% below pre-pandemic levels, he said. On Tuesday, 33 rigs were active in the state.
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“We’ve lost about 40% of our drilling rigs in just three or four short weeks,” Helms said.
Companies eye oil storage
Two businesses have inquired with the state about building large tank farms to store oil and sell it when prices rise again.
Helms said existing storage space is almost full at the heads of pipelines and rail facilities in North Dakota, and it’s a similar story further down the transportation and refining chain.
Companies looking to build storage tank farms might do so on land next to existing facilities they operate, such as a saltwater disposal well or a waste treating plant, Helms said. A tank farm such as the ones under consideration could hold more than 300,000 barrels of oil.
“We’re starting to see a great deal of interest,” Helms said.
The operators of those sites could later sell the oil for a profit when prices increase, he said. The price of West Texas Intermediate, the U.S. oil benchmark, remained in the low-$20s per barrel Tuesday, down from $60 per barrel at the start of 2020.
The companies considering building the facilities are looking for a quick turnaround on construction.
“They have a series of permits they have to go through,” Helms said. “I think within four to six weeks they could have a tank farm up and running if they hit the ground now.”
Among the state agencies likely involved in permitting the tank farms would be the Department of Environmental Quality, which as of Tuesday did not list any new applications for such a site on its website.
Oil storage tanks require controls for emissions of volatile organic compounds. The permit a new tank farm would likely need can be processed in less than six weeks, said Craig Thorstenson, manager of the department’s air quality permitting program.
Gas capture numbers improve
The latest oil and gas numbers the state released Tuesday reflect production in February, and they show that the percentage of natural gas flared at well sites has nearly come back in line with the state’s gas capture targets.
Companies burned off 13% of the gas they produced in February, just shy of the state’s goal of flaring 12% or less. Flaring hit a high of 24% during the summer of 2019 but has fallen, incrementally, in the months since.
Officials attribute February’s improved flaring numbers to more shut-in wells, in addition to new gas processing facilities ramping up and more wells connected to pipelines to transport the gas to those sites.
“There was a tremendous amount of investment that’s been made and put in the ground, in-service, over the last six months,” said Justin Kringstad, director of the North Dakota Pipeline Authority.
Oil production for February came in at 1.45 million barrels per day in North Dakota, about a 21,000 barrel-per-day increase over January’s numbers. While the pandemic had caused oil prices to drop some in February, they did not take a dramatic hit until the following month. As a result, oil production in future months is expected to be down in North Dakota, reflecting the significant uptick in idled wells that Helms reported Tuesday.
Coronavirus cases in the Bakken
While the oil industry navigates financial and production woes, it’s also making on-the-ground changes at drilling rig sites to try to prevent the spread of the new virus.
Helms said workers undergo “health checks” before they set foot on rigs, including having their temperatures taken.
He said he’s aware of one drilling rig where some workers developed COVID-19, the disease caused by the virus.
“As quickly as they could, they sent both rig crews home and replaced them with fresh, in-state employees,” Helms said. “It’s bound to happen here and there.”
While many oil patch workers live in North Dakota, some commute by flying in from other states several weeks at a time. Oil workers are considered “essential” in North Dakota, meaning they do not have to comply with the state Department of Health’s order requiring that people who enter North Dakota from other states quarantine for 14 days.
Reach Amy R. Sisk at 701-250-8252 or firstname.lastname@example.org.
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