North Dakota Well Backlog Nears 1,000

The number of North Dakota oil wells that have been drilled but not fracked rose to an all-time high in August of almost 1,000, as producers delayed bringing them online as long as possible in hopes that crude prices would rebound.

It was the latest sign yet that the state's oil industry, the second-largest in the United States, has sharply curtailed spending amid the more than 50 percent drop in oil prices since 2014.

North Dakota now has 993 drilled-but-uncompleted wells, or DUCs, according to data released on Tuesday by the state's Department of Mineral Resources, which reports with a two-month lag.

"That reflects an attitude of leaving the oil in the ground and voluntarily reducing production," Lynn Helms, the DMR's director, said on a conference call with reporters.

Helms said he expects the number to eclipse 1,000 before the end of the year. The increase in DUCs is in part why output in the state is edging down as production from existing wells naturally declines. Only 51 new wells entered service in August, lifting the total well count to 13,016.

Producers have one year to drill, frack and start producing oil from a well. If that window passes, the DMR warns producers they have six months to plug the well or start producing oil. It then moves to confiscate the well if nothing has been done by the end of that six-month window.

Most of the delayed wells have one-year windows that expire in December, Helms said.

Helms said last month that he was open to granting extensions on the one-year timeline, though he would need approval from the North Dakota Industrial Commission to do so.

The commission, which comprises the state's governor, attorney general and agriculture commissioner, will next meet on Oct. 22, at which time Helms said he will ask permission for a blanket policy allowing for extensions.

Extensions for each of the 993 wells must be applied for and reviewed individually, and mineral and land owners have the right to object to any extensions. EOG Resources Inc and Exxon Mobil (XOM)'s have the largest number of DUCs, according to state data.

Objections to extension requests, Helms said, are rare.

OUTPUT DROP
The state's oil production fell slightly in August for the second month in a row, largely because of low crude prices .

North Dakota produced 1,186,444 barrels of oil per day (bpd) in the month, compared with 1,206,996 bpd in July, according to the DMR.

It was the first time since 2003 that output fell in August, normally a very productive month for the industry given warm weather and lack of precipitation.

"This (production drop) is definitely not normal and is a reflection of what's happening in the industry during this price downturn," Helms said, warning that output will continue to decline gradually unless prices rise soon.

In a sign of the industry's resilience, though, the 10 largest oil producers in the state can maintain existing production with U.S. oil prices at or above $50 per barrel, Helms said.

A small part of the decline, roughly 5,000 bpd, is due to voluntary and required curtailments to reduce flaring, the wasteful burning of natural gas.

Reporting by Ernest Scheyder