(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, June 16 (Reuters) - North Dakota’s crude oil output has peaked, according to the latest production data published by the state government, as the slump in prices takes its toll.
The state produced 1.17 million barrels per day (bpd) in April, down from a peak of 1.23 million in December, the Department of Mineral Resources (DMR) reported on Friday.
The former rapid growth in production has stalled and current output is no higher than it was in September 2014(link.reuters.com/zeb94w).
In the seven months between February and September 2014, output increased by 233,000 bpd, while in the seven months from September 2014 to April 2015, output actually edged down 18,000 bpd.
Prices are by far the most important cause of the downturn, according to state regulators, followed by tax changes, tougher flaring rules and new regulations on oil conditioning to remove the most volatile components from the crude and make it safer to transport (“Director’s Cut” June 2015).
Falling production comes as no surprise: the number of rigs drilling for oil in the state has declined by more than 60 percent since September.
Unlike production numbers published by the U.S. Energy Information Administration and the Railroad Commission of Texas, North Dakota’s figures are based on well records rather than estimates and are subject to only small revisions in subsequent months.
North Dakota’s monthly production numbers provide the most useful snapshot into nationwide production trends.
They confirm that U.S. shale output is levelling off and even falling as the industry scales back drilling and completions in response to lower prices which are still 45 percent lower than this time last year.
The flattening of U.S. production represents an enormous change from 2014 and 2013, when output grew by 1.2 million bpd and 800,000 bpd respectively.
During 2013 and 2014, the United States provided almost all the marginal growth in global oil production, now the marginal barrels are coming from Saudi Arabia, Iraq and other Middle East producers.
U.S. shale producers have responded to the downturn by squeezing their suppliers: costs have fallen by 20 to 30 percent since the start of the year, according to the Federal Reserve Bank of Dallas.
Some shale executives and market analysts are optimistic about the industry’s ability to maintain and increase production at lower prices.
Continental Resources’ Chief Executive Harold Hamm has said that $70 per barrel is a price “that turns it on for us”.
So far, however, U.S. oil futures have been capped at around $60 and prices at the wellhead are generally a few dollars lower.
There are no signs of significant rig reactivations despite the $18 (40 percent) increase in prices since the middle of March.
The number of rigs drilling for oil across the United States continues to fall, according to oilfield services company Baker Hughes, though the decline has slowed from the plunge between December and April (link.reuters.com/gub94w).
In North Dakota, the number of active rigs fell to a new recent low of just 76 on Tuesday, according to the DMR, and has shown no sign of increasing.
The shale wells of North Dakota and Texas have become the marginal suppliers to the global oil market so it is unsurprising prices have been capped (at least temporarily) just below the level at which the industry might start adding production again.
There is an element of bravado in some of the predictions about a new surge in shale production. The same industry leaders insisted last September and October they would not cut drilling despite the drop in prices and would stare down OPEC.
In the short term, production from both North Dakota and Texas will probably continue falling for the next few months as natural decline rates on the wells and the slowdown in drilling and completions during the spring continues to filter through. (Editing by David Evans)