Forum News Service
While greeting oil industry leaders on May 25th of this year, North Dakota’s governor passed along a request from his budget director:
“Right now, she would like you to please begin completing some more wells,” said Gov. Jack Dalrymple. “So if you could just tell your CEOs that if they would just get out there and complete a few more wells, my OMB (Office of Management and Budget) director would really appreciate that.”
Though Dalrymple’s tone was joking as he spoke to the Williston Basin Petroleum Conference, the growing number of wells companies have drilled but not fracked is a major contributor to North Dakota’s budget shortfall. “He was kidding about it, but it really is the issue with state tax revenues and state revenue forecasts,” said Director of Mineral Resources Lynn Helms.
Every oil well contributes $300,000 in sales tax revenues. But low oil prices prompted many companies to cut fracking crews and postpone well completions until prices recover. When the number of drilled but uncompleted (or DUC) wells began to grow, state officials realized that two-thirds of the sales tax revenue from an oil well comes during the completion stage, Helms said.
At the end of March, North Dakota had 920 of these DUC wells – the equivalent of $184 million in sales tax revenue in the bank. “We simply can’t predict when that $200 million is going to come,” Helms said. Oil company executives have signaled during the conference that they’re beginning to see the slowdown in the industry turnaround. “We are going to complete more wells this year,” said Jim Volker, CEO of Whiting Petroleum, North Dakota’s largest oil producer.
Volker prompted applause from the crowd when he said the price of West Texas Intermediate oil had increased 50 cents to above $49 a barrel. “Many of us will watch and make sure that prices are stable in that $50 to $55 range before shifting, putting a lot of rigs back to work,” Volker said.
Don Hrap, president of the lower 48 for ConocoPhillips, said he believes the recovery is coming, and companies will be stronger coming out of it. “I think in terms of innovation, technology, development, the kind of entrepreneurialism that’s been going on in our business, I think we’re going to be coming out of this downturn smarter, better and more efficient,” Hrap said.
Hess Corp. has taken a different approach than some companies and is continuing to complete wells as they are drilled. Hess plans to drill 75 wells this year in North Dakota and complete 100 wells. Gerbert Schoonman, Hess vice president for onshore Bakken asset, said the company has significantly improved efficiencies, but those gains would be lost if they postponed completions.
“If you just stop your entire operation, you send all your contractors home, you lose all your completion supervisors and you end up in a situation where you have to start all over again,” said Schoonman, who will be among Thursday’s featured speakers.
Helms cautioned industry leaders that one of the concerns as oil prices recover is whether companies will be able to attract the workforce back to North Dakota. “They’ve packed their bags and many of them have gone home,” Helms said. “What will it take to attract them back? Will you be able to maintain the drilling efficiencies and the cost efficiencies and still be able to attract that workforce back? That remains to be seen.”