North Dakota throws a two-year lifeline to oil 'ducks'

WATFORD CITY, N.D. (Reuters) - North Dakota regulators approved a plan on Thursday to give oil producers an extra year to bring a new well online, a change designed to give the energy industry breathing room during the crude price downturn.

Companies will now have up to two years to hydraulically fracture, or frack, drilled-but-uncompleted wells, or DUCs, under changes approved unanimously by the North Dakota Industrial Commission (NDIC), which is comprised of the governor, attorney general and agriculture commissioner.

Previously, firms only had one year to bring wells online. Many companies have delayed completing wells after a 50 percent plunge in crude since last year.

The rule change means the oil industry would not be forced to spend billions of dollars come January to frack an estimated 1,000 DUCs, most of which hit their one-year deadlines in December. Some price bears had feared a new glut in output if the DUC backlog was cleared.

For the state, the change means delayed, but higher tax revenue.

“The state would prefer to tax the oil at a higher price in the future,” said Lynn Helms, director of the state’s Department of Mineral Resources and a key lieutenant to the NDIC.

Producers must still apply for an extension on a well-by-well basis, and Helms warned that any objection from mineral or land owners would likely scuttle extension requests.

Under prior rules, firms had a year to drill, frack and start producing oil from a well. If that window passed, the state would give them six months to plug the well, start producing or face confiscation.

Helms said he expects roughly half of the 1,000 DUCs to be granted delays, which likely will affect statewide oil output by roughly 100,000 to 150,000 barrels per day (bpd) next year.

The state currently produces about 1.2 million bpd.


Separately, the NDIC approved a credit system for oil producers who are collecting more natural gas than required from their wells in order to curb flaring, the wasteful burning of such gas.

Producers will now have a rolling three-month window to build up credits that can be used to offset any future declines in gas collection due to weather or other issues.

Exxon Mobil’s XTO Resources has been granted the largest number of temporary exemptions to flaring restrictions, followed by privately held Zavanna LLC.

Helms said he hopes the credit system prods XTO, Zavanna and others to “get some credits in the bank.”