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Helms: Oil production could decline by third quarter

BISMARCK -- November oil production in North Dakota barely hit an all-time high, but low oil prices could lead to too few rigs to maintain current production levels, the state's top oil regulator said Wednesday.

BISMARCK -- November oil production in North Dakota barely hit an all-time high, but low oil prices could lead to too few rigs to maintain current production levels, the state's top oil regulator said Wednesday.

The state produced an average of 1,187,206 barrels a day in November -- just a few thousand more than in October. But Lynn Helms, director of the state's Department of Mineral Resources, was more focused on the future during his monthly update.

Helms said drilling is further concentrating on the Bakken's core area: McKenzie, Williams, Mountrail and Dunn counties, where it's less expensive to operate because the oil is easier to get.

"Get outside that core area and it's starting to be pretty quiet," he said.

The number of rigs is down approximately 25 over the past month to 158, with all but about 10 in the core counties, Helms said. Oil prices have dropped by more than 50 percent since the summer.

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He estimated the state needs 130 rigs operating to maintain production, but that the rig count may hit as low as 120 by the third quarter of 2015.

"If we see these kind of prices stick around through the first quarter, then we're gonna drop below that production maintenance rig count for a brief period of time," he said, adding that he expects oil prices to recover by the year's end.

As the legislative session gets under way, lawmakers have their eyes on oil prices as they draft budgets and are aware of two oil tax exemptions -- one expected to take effect Feb. 1 and a much more ominous one still a possibility.

For the larger tax incentive, the West Texas Intermediate monthly average must be below $52.59 for five consecutive months.

"That is a high standard to meet," said Ryan Rauschenberger, the state's tax commissioner.

If that occurs, the extraction tax drops to 0 percent for all wells during their first two years of production, even if they're drilled prior to the exemption kicking in. The tax rate drops to 4 percent on most older wells.

For what is now as the “small trigger” to get pulled, the WTI price must average less than $55 a barrel for a single calendar month. That will reduce the oil extraction tax from 6.5 percent to 2 percent for a set amount of production, and applies only to wells completed after the trigger is pulled.

That possibility, which is expected my most officials, is leading to an increasing number of wells awaiting completion, as companies wait for the incentives to take effect. Helms said he was "stunned" to hear 775 wells were awaiting completion as of the end of November.

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"That blows any previous number completely out of the water ... because of low oil prices, because of the potential for little trigger and big trigger, folks are just sitting and letting those wells wait for completion through these cold winter months and planning those completions for down the road," he said.

Flaring up

The percentage of natural gas captured dropped from 78 percent in October  to 75 percent in November.

"We did lose some ground," Helms said, adding that the next North Dakota Industrial Commission-instituted goal is for January numbers to reflect 77 percent capture. November numbers stayed above the October goal of 74 percent.

Helms said the Department of Mineral Resources will send letters to two operators this week, telling them to curtail production because they're not up to speed on gas capture.

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