As reported by Amy Dalrymple in The Dickinson Press, the NDIC "adopted a new policy" allowing operators to have wells drilled but not completed for a year after the date of the well permit to be placed "on temporary abandoned status, giving them another year to store the oil in the ground. Royalty owners, land owners and non-operating interest owners would have the opportunity to object." According to an email from the North Dakota Petroleum Council to its members, technically speaking the NDIC merely clarified the process to temporarily abandon a well and did not formally change any policy.
The paper further noted that Lynn Helms, Director of the Department of Mineral Resources, said he expects about 500 wells will be designated as temporarily abandoned and that he expects those designations to "prompt a gradual decline in oil production from 1.19 million barrels per day to 1.1 barrels per day at the end of the biennium in June 2017."
Then comes the kicker: "Most experts anticipate that oil prices will recover in 2017, Helms said." And now we have questions.
We accept the premise that reduced production could have a positive impact on prices. But when the wells that were put on temporarily abandoned status are completed, won't production increase? To the extent the decrease in commodity prices was triggered (in whole or in part) by supply – demand issues, couldn't increase production from the year-long delayed wells, send supply back ahead of demand, triggering another round of downward price adjustments?
This morning, an article on UPI.com notes that the number of rigs running in North Dakota held steady for the third straight week, and quotes Mr. Helms for the proposition that "the state-wide rig count [is] about a dozen less than it would be if oil was priced at $65 per barrel." Again, that suggests to us that with improved pricing will come more active rigs which will lead to more production. Will this increased production upset the delicate supply-demand balance and precipitate another downturn in prices? How much of an impact will foreign nations and conditions have on WTI pricing before and during this expected expansion in production?
Frankly, we don't know the answer to these questions. Further, we speculate with a fair amount of confidence that we could find several experts to opine both for and against any premise we would set forth. What we are convinced of, though, is that the price recovery we all are expecting (at some point) is likely to be susceptible to many influences making both its timing and form far from certain.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
