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Oil production growth slowed by costs, but things look to change 2013

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WILLISTON -- North Dakota oil production increased at a more moderate pace in October, according to numbers released Monday, but operators have ambitious plans for 2013.

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Preliminary numbers show that North Dakota produced 747,239 barrels of oil per day in October, a 2.5 percent increase since September and another all-time high for the state, said Lynn Helms, director of the Department of Mineral Resources.

Previous months saw production increases closer to 4 percent, Helms said.

Some of that slowdown is because the cost of drilling and completing a well rapidly escalated in 2012 and consumed budgets faster than many companies anticipated, he said.

But shortly after Jan. 1, Helms said he expects the rig count to begin climbing again from the current level of 182 and level off around 200.

A growing number of those drilling rigs will be higher efficiency rigs, which allow companies to drill more wells in less time. Currently, companies expect to drill 12 wells per year with one rig, but they're striving to increase that to 14 by the end of next year, Helms said.

Companies anticipate that some of their increased costs will start coming down, he said.

"They're expecting to be able to budget the same amount of money for 2013, but actually be able to drill and frack and get more wells on production," Helms said.

Major oil producers have indicated they either plan to drill the same number of wells in 2013 or increase their activity, Helms said. Continental Resources, one of the leaders in North Dakota oil exploration, has indicated it plans to drill 310 to 320 wells in 2013, compared with approximately 275 wells completed in 2012, Helms said.

Helms said he doesn't expect the rig count to exceed the record of 218 that was set May 29.

"That stressed our infrastructure probably beyond the maximum that it could handle," Helms said.

Hydraulic fracturing crews are going to be busy with the amount of drilling activity in addition to catching up with a backlog.

The number of idle wells that is waiting for fracking crews grew from 300 to 340 in October, according to the Department of Mineral Resources.

Helms said he believes companies are using their budgets to drill and are postponing fracking because it's costly. A Bakken well costs between $9 million and $11 million to complete, including about $5 million for fracking, Helms said.

He expects crews will be active after Jan. 1 to catch up with the backlog.

In addition to the greater efficiencies companies are using, the cost to complete a Bakken well is starting to come down, Helms said. Factors that are affecting the cost include better supplies of guar, a bean grown primarily in India that is a key ingredient in hydraulic fracturing, as well as a reduction in the cost for directional drilling services, Helms said.

By the middle of 2013, Helms said he expects North Dakota will produce about 830,000 barrels of oil per day. He anticipates production will hit 850,000 barrels per day in the second half of the year.

"We expect those barrels to keep marching right on up," Helms said.

As production increases, adding pipeline capacity will continue to be crucial, said Justin Kringstad, director for the North Dakota Pipeline Authority.

Two pipeline projects, the Enbridge Bakken Expansion and the Plains Bakken North, are expected to be complete in 2013, Kringstad said.

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