BISMARCK — Department of Mineral Resources director Lynn Helms painted a bleak picture for North Dakota oil during a press conference Friday morning, July 17, suggesting a barrage of recent hits to the industry has created the worst crash for the state oil economy in 20 years.
An unprecedented confluence of factors has brought the state's oil production to a near-standstill as a price war between Russia and Saudi Arabia, the COVID-19 pandemic, the imposition of a northern border tariff between the United States and Canada, and the recent Dakota Access Pipeline ruling all synced up.
"In my opinion, the second quarter of 2020 was a five alarm fire for North Dakota's oil industry," Helms said of the last few months.
In his reading, this year's oil collapse is among the worst crises for the North Dakota industry in a lifetime. Helms called recent developments "significantly worse" than the market crash of 2015 and 2016, when OPEC producers flooded global oil markets in an attempt to kill the American industry, and about on par with the crash of the late '90s, when offshore oil discoveries cratered global prices and took every drilling rig in North Dakota offline.
While Helms said the current collapse doesn't quite measure up to the crisis of 1986, which devastated U.S. production for nearly a decade, he warned that the pandemic isn't over yet and suggested things may get worse for Bakken producers.
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In a wide-ranging report published by DMR before the press conference, the department laid out the latest damage. North Dakota's oil production dropped by 858,000 barrels per day in May, a more than 40% cut from a peak in November of last year. The state's operating rig count is down to 10, a number that held in the mid-50s through the second half of 2019 and first months of 2020. There is only one frack crew working in the entire Bakken region.
Helms noted the rig count could dip even lower if demand for oil remains low. The operating rigs are not actually producing right now; they are staying online to avoid high start-up costs when drilling begins again.
For now, North Dakota oil prices are too low to justify ramping up production. The state's oil is selling at $31.75 per barrel, while $40 per barrel remains the sweet spot needed for most oil companies to get back online.
Even if the country begins to climb out of the pandemic recession soon, Helms sketched a shaky future for North Dakota oil.
"I'm not sure that the world is going to come back to pre-COVID-19 demand numbers," he said, predicting it will take a year, even in an optimistic outlook, for state oil production to return to pre-pandemic levels.
"What do we call them? Black swans?" Helms asked. "I think we had a whole flock of them land this year."
Readers can reach Forum reporter Adam Willis, a Report for America corps member, at awillis@forumcomm.com.
