The number of oil wells in North Dakota that have been drilled but not fracked eclipsed 1,000 for the first time in September, as producers delayed turning them on in hopes crude prices will soon recover.
The milestone, which was widely expected around the second-largest oil producing state, highlights the immense cost pressure companies have come under in the past year as crude prices have dropped more than 50 percent.
Fracking alone can account for nearly two-thirds of a well’s cost.
Today more than 8 percent of oil wells in the state are sitting idle, storing their crude and natural gas in rock miles underground until prices rise.
The delay harms the industry’s ability to grow production, a metric closely watched by investors. Daily output in the state fell 2 percent in September.
“That’s sending a definite signal to the market that oil and gas operators are not willing to do a lot of drilling or hydraulic fracturing or production at these low prices,” said Lynn Helms, director of the state’s Department of Mineral Resources (DMR), the oil regulator.
State officials last month said they would consider, on a case-by-case basis, allowing oil producers additional extensions to bring new wells online. The change was widely perceived as a cost-saving favor to the energy industry and has helped fuel the jump to above 1,000.
The DMR doesn’t expect that backlog to be worked off until next year at least and only if oil prices rise, Helms said.
Helms released separate data showing the breakeven price for oil production now sits above current prices for two of the state’s four main crude-rich counties.
Producers “are shutting some wells in and producing only as much oil as they need to make the stockholders and the bankers happy,” Helms said.
North Dakota produced 1,162,253 barrels of oil per day (bpd) in September, compared with 1,187,631 bpd in August, according to the DMR, which reports on a two-month lag.
The number of producing wells fell by six to 13,025, though state officials permitted one more well in September than in August.
Helms acknowledged the state has experienced far more pain in its oil price battle with OPEC than initially expected when the cartel decided to maintain production last year.
Many in the state had said at the time that OPEC’s strategy would ultimately fail, an expectation that, so far, has proven premature.
(Reporting by Ernest Scheyder; Editing by Meredith Mazzilli)
This article was from Reuters and was legally licensed through the NewsCred publisher network.