After New Fracking Regulations Imposed, ND Drilling Rig Count Hits Lowest Point In A Year
To be fair, this is still a feverish pace, but rig counts in western North Dakota seem to be in decline with a spokeswoman from the State Department of Mineral Resources blaming “the increased costs to operate them.”
What increased costs? Mineral Resources Director Lynn Helms blames a shortage of fracking crews and an increase the cost of supplies needed for fracking:
Helms said most of additional expense comes during hydraulic fracturing, a process that uses pressurized water, chemicals and grit to break open oil-bearing rock. Competition for hydraulic fracturing crews adds to the cost, as well as an increase in the price of proppants — tiny ceramic particles that prop open rock and provide a pathway for oil to flow.
About 350 wells were awaiting hydraulic fracturing services in June, state records show.
These are certainly valid factors, but I don’t think we can ignore the impact of North Dakota’s stringent new fracking regulations imposed earlier this year which, according to one industry spokesman, add approximately $400,000 to the cost of each well.
Earlier this month Mr. Helms reported that the cost of drilling a well in the Bakken had gone up an estimated 29%. That price has undoubtedly increased even further.
Some might be tempted to look at this slow down in activity with satisfaction, but keep in mind that a big slow down in oil activity in western North Dakota could be disastrous for the state given how quickly we’ve bloated the budget based on oil revenues. Back in July concerns were being expressed in the industry about falling oil prices tamping down production in the Bakken and Texas. Couple that with a dramatically increased cost of drilling, not to mention North Dakota’s confusing and arduous oil extraction/production tax structure, and it spells trouble.
The legislature shot down an effort to “fix the tax” led by former Governor Ed Schafer, deeming the proposal too oil-friendly. The new and expensive fracking regulations were imposed by Governor Dalrymple at the beginning of an election year in which his opponent was vowing to make an issue out of the impact of oil production.
But we may live to regret these decisions. If oil production falls off, oil revenues fall off with it, and not just revenues from direct taxes on oil. When the workers leave the area that’s going to hit sale, income and other taxes/fees as well.
I’m not predicting doom here by any stretch, but rather saying we need to exercise some restraint going forward. Far more restraint than our spend-happy political leaders have shown in the past several years.
Tags: North Dakota News, oil
