ND's top oil regulator: Oil price drop could slow drilling, alter state's budget forecast

Energy Associated Press

Recent oil price drops could halt drilling in several North Dakota counties and force the state to reevaluate its budget, the state's top oil regulator said Wednesday.

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North Dakota oil prices have been slipping over the past few months, from about $90 a barrel in June to as low as $66.25 in one market on Wednesday, said Lynn Helms, director of the state Department of Mineral Resources.

"That's going to put a lot of pressure on the North Dakota oil and gas industry," Helms said after announcing that the state produced a record 35 million barrels of oil in August.

The current price is below the break-even point in Burke, Mclean, Bowman and Slope counties, Helms said. It still is far above the break-even point of $28 a barrel in McKenzine County, the state's top oil-producer, he said.

Up to 10 of the 190 oil rigs drilling at present in North Dakota could stop if prices continue to tumble, Helms said.

"We're talking less than a 10 percent impact," Helms said. "But still, if it's your county, it's a significant impact."

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Ron Ness, president of the North Dakota Petroleum Council, said falling oil prices always has an impact on drilling, just as it does when prices climb. It's uncertain what impact current prices will have on drilling activity in North Dakota but lower prices force companies to look more closely at "costs and available capital," he said.

North Dakota budget writers historically have based their budget forecasts on prices paid by Flint Hills Resources in Kansas. However, most of the state's rich Bakken and Three Forks formations fetches prices similar to either West Texas Intermediate — the U.S. benchmark — or to Brent crude, the global benchmark used in pricing oil imported by U.S. refineries, said Justin Kringstad, director of the North Dakota Pipeline Authority.

WTI was trading at $81.56 on Wednesday, while Brent crude was fetching $83.70.

Pam Sharp, the state's budget director, said a preliminary budget forecast done in June projected North Dakota oil at $90 a barrel, which would mean about $9 billion in tax revenue over the next two years. Budget officials will revamp the projects later this month and again after the Legislature begins in January based on trends in oil prices at those times, she said.

"It goes up and it goes down," Sharp said. "That's all we really know about oil. It's really hard to call."

The state's current two-year budget based oil prices on $75 a barrel for the first year and $80 for the second year. Oil prices have mostly outpaced projections during the current two-year budget cycle, she said.

Gov. Jack Dalyrmple in May asked North Dakota agencies to stick with their present spending plans when crafting new budgets for the next two years, but he left open options to meet "the dynamic needs that come with growth."

The Republican governor's guidelines are being used by North Dakota departments to write spending plans for the next two-year budget cycle. Dalrymple will use the proposals to craft his own spending recommendations to the Legislature when lawmakers meet in January.

Jeff Zent, a spokesman for Dalrymple, said the governor is still crafting his budget plan and is considering all factors, including oil price swings.

"The governor hasn't completely formulated a budget yet," Zent said. "The governor does not believe in spending money that isn't projected to come in."