Every state that relies heavily on oil and gas production for government revenue has been slapped in the face by the dramatic plunge in oil prices.
North Dakota is no different than Oklahoma. It has the Bakken oil fields, a play where Oklahoma City-based Continental Resources is one of the dominant players. As the Bismarck Tribune reported, the collapse in oi. prices sent shock waves all the way to the Bakken oil fields.
Oil prices hovered in the range of $50 to $60 per barrel during 2019, high enough to send North Dakota crude production climbing to 1.5 million barrels per day.
Then, as the new coronavirus began to spread throughout the world early this year, came a global drop in oil demand. Travel declined and businesses in China closed while people stayed home to prevent the spread of COVID-19, the disease caused by the virus that originated in the country’s Wuhan region in late 2019.
The world had an excess supply of oil as a result, which meant that oil prices started to fall.
By mid-February, there were rumblings within North Dakota about the potential impact to the oil industry here. State Mineral Resources Director Lynn Helms said to keep an eye on what OPEC does when it meets in March.
But Russia threw a curveball late last week when it refused to cut production again amid the virus outbreak, and oil prices plummeted Friday. In wake of that development, OPEC leader Saudi Arabia decided it will ramp up its own oil output. Those moves shocked the industry — and the stock market — and prices spiraled downward even further on Monday.
“There’s a lot of great concern today,” North Dakota Petroleum Council President Ron Ness said Monday. “Every producer and everybody in the industry is contemplating ‘what ifs.’”
West Texas Intermediate crude, the U.S. benchmark in oil pricing, bottomed out Monday around the $30-per-barrel mark, a level not seen since early 2016 following a yearlong collapse in prices during 2015. At their peak the year before, oil prices topped $100 per barrel.
“This is not like 2015,” said Ness, whose group represents North Dakota’s oil industry. “In 2015, we were coming off a very long-term, healthy price range, and there were a lot of efficiencies companies were able to implement.”
North Dakota’s oil industry learned to drill faster and make other changes to bolster production from wells to stay profitable amid lower prices.
Since the start of 2020, the oil industry had already experienced a 25% drop in prices by the middle of last week amid the coronavirus outbreak, Ness said. The new developments with Russia and Saudi Arabia have caused prices to fall almost the same amount all over again in just the past couple of days.
“Now you’re looking down at somewhere in the range of 40% to 50%,” Ness said. “The best-case scenario is we’ve got to hope for a blip.”
It’s unclear how long the volatility will last and at what level prices will stabilize.
Regardless, many in North Dakota will watch these events closely. Various facets of the state’s economy hinge on oil production, including jobs and tax revenue.
Meanwhile, oil companies will evaluate their own plans amid the uncertainty.
“It will have a dramatic impact if it continues,” Ness said.
Unless prices rise within the next two months, production and activity in North Dakota’s oil fields will likely be affected, Helms said in a statement. It took two years for prices to fully recover when the industry experienced similar price drops in 2008 and 2015, he said.
The state makes budget forecasts based in part on the price of oil and how much revenue it anticipates collecting via oil taxes, which are based on production amounts.
“It is never a good time for such a significant price drop, but the timing of this drop does allow the state to plan ahead for the next legislative session and will allow lawmakers to adjust priorities in preparation for the next biennium,” Helms said.
Source: Bismarck Tribune
