North Dakota Oil Production Up Slightly In March

North Dakota’s Department of Mineral Resources is out with their monthly oil and gas report (see below) and obviously given all the hand-wringing in the state over oil prices everyone is concerned about the oil production number.

And, despite the oil price rout, production in the state was up slightly in March. In fact, oil production in the state is proving fairly resilient as this graph showing the trend in production since January 2014 shows:

This is a lagging indicator, of course, so the recent uptick in oil prices has nothing to do with it. The trend for oil prices in March was still downward.

One thing that will have a major impact on production is the likely failure of the “big trigger” oil tax exemption to hit. Ron Ness of the North Dakota Petroleum Council says a lot of oil companies were holding off on development until that trigger hit, and will likely continue to hold off if it doesn’t hit:

North Dakota Petroleum Council President Ron Ness said operators “are realizing it’s not going to hit,” and some who were waiting for the exemption to complete wells will likely put them off until 2016.

The state had an estimated 900 wells waiting on completion services at the end of February, according to the Department of Mineral Resources. An updated figure is due out today.

“I think most of those are going to sit,” Ness said.

If the trigger doesn’t hit, then the next major change in the tax environment for the oil producers will come on January 1st when reforms passed by the Legislature go into law. That will lower the top oil extraction/production tax rate from 11.5 percent to 10 percent when oil is under $90 per barrel. It’s probably worth it for many of these companies to put any progress on those wells until then.

What that means for oil production in 2014 is probably more fall off. All oil wells see a decline in their production over their lifespans. The only way to keep production growing, or even just at a consistent level, is to keep drilling new wells.

So absent new well activity, this uptick in daily production numbers isn’t likely a return to the growth we’ve seen over the last year or so. More than likely we’re going to see a gradual decline in production numbers throughout 2014. Especially with many saying that this oil price rally we’re seeing right now is likely to be replaced by a return to falling prices in coming months.

But then again, it’s not likely anybody really knows what the markets are going to do.