North Dakota weighs plan to keep some Bakken crude off market


North Dakota leaders are considering a move to turn off the oil spigot as the state and the rest of the U.S. face the likelihood of low oil prices for the coming months, something it did five years ago.

Faced with declining demand and potentially months of oil prices below most Bakken breakeven prices, the North Dakota Industrial Commission next week will consider new rules aimed at preventing operators from either bringing more unwanted crude onto the market or abandoning wells completely.

In January, the number of inactive wells in North Dakota climbed to 2,607, a new record for the state and an increase of 687 wells, or nearly 36%, from December. In a year, North Dakota’s inactive well count has climbed by 1,090 wells, an increase of nearly 72%.

The surge in inactive wells has left operators with a choice: allow it to fall into abandoned status, making its transfer to a new operator difficult; or bring it on production, a path that has made less economic sense as prices have fallen in recent weeks.

Currently, when a well has been inactive for a year it is moved by state officials into abandoned status. Once deemed abandoned, operators have six months to either put the well back on production, plug it, or post a bond to cover the costs of its ultimate reclamation. This process can take roughly three years and can delay production at the well and potential transfer of ownership.

On Tuesday, the Industrial Commission is expected to approve a policy that would allow operators to remain in inactive status through a waiver process.

“I think the commission needs to send a signal to the industry and to the markets that it doesn’t make good business sense to force North Dakota Bakken crude oil into a market that’s already priced well below breakevens and below really what long-term world demand says the market should be at,” Lynn Helms, the state’s top oil and gas regulator, said Tuesday.

The state approved a similar waiver policy during the 2015 oil price crash out of concern that some marginal wells in inactive status would get prematurely plugged and abandoned, hurting the long-term prospects for a rebound in prices of enhanced oil recovery, Helms said.

“What we don’t want to have happen is for wells that have potential for refracturing or something like that, ending up prematurely abandoned,” Helms said Tuesday. “We’ll just take it a month or a year at a time.”

Helms said the commission would need to determine the circumstances that would trigger termination of the waiver policy.

“If the commission implements it,” he said, “what’s the oil price where they should go away again?”

The trigger may also be a set amount of time, he said.

For wells that have been drilled but not completed, Helms said the commission would likely allow waivers for a stated time requirement for putting certain wells on production.

The commission, which includes North Dakota’s governor, attorney general and agriculture commissioner, is expected to consider the proposal on March 24.

Source: S and P Global