North Dakota officials know tough times are coming in oil gas industry

Officials in North Dakota, the second largest oil-producing state after Texas are bracing for cutbacks in oil rig activity and investments in the oil and gas industry because of the oil price war and the impact of the spread of the coronavirus. They know it will mean the loss of jobs across the state.

“We are in this for a protracted period of time,” Lynn Helms, head of North Dakota’s Department of Mineral Resources, said Tuesday. “We are looking at a situation very much like we saw in early 2015.”

In 2015, oil prices plunged partly because Saudi Arabia opened its production floodgates, turning the shale boom in North Dakota and the rest of the United States into a bust. The current oil crisis has somewhat similar origins, but with an even more destructive and unprecedented twist according to the Star Tribune.

Global oil demand has been socked by economic disruptions because of the coronavirus pandemic, while prospects of a huge crude glut have materialized after major producers Russia and Saudi Arabia failed to solve a production target dispute this month. Their taps are essentially wide open now.

 Oil prices this week have hit lows not seen in four years, with West Texas Intermediate (WTI) — the benchmark U.S. crude price — trading around $27 a barrel Tuesday, down from about $60 in January. The current price is simply not profitable for most U.S. shale-oil producers.

North Dakota is the nation’s second-largest oil-producing state after Texas. The state saw its oil output decline from December to January by 3% to 1.43 million barrels per day — still historically strong, according to data released Tuesday. And the state’s drilling-rig count stood at 55, roughly where it has been since December.

But “in today’s climate, that seems like ancient history,” Helms told reporters Tuesday during a monthly conference call.

Depending on the length of the oil rout, the state’s rig count could drop into the mid-20s, near the record low set in early 2016, he said. The free cash flow of North Dakota’s oil producers is expected to be cut by 50% to 60%.

Source: Star Tribune