November 7, 2008

Mountrail poised for continued oil production

Mountrail poised for continued oil production



As crude oil prices continue to fall, people are beginning to wonder if we may be headed into another bust cycle such as western North Dakota experienced in the early 1980s.

After peaking at around $140 a barrel in July, oil has dropped to the $60 range and futures were trading on the New York Stock Exchange on Election Day at $63.91 a barrel.

Lynn Helms, director of the state Department of Mineral Resources says oil activity in northwestern North Dakota, especially in Mountrail, McKenzie and Dunn counties, will continue indefinitely. Helms said those three counties hold the most promise in the Bakken Formation.

As an example, Helms uses a break-even price scenario, much like grain markets, to determine where oil production would taper first.

It turns out that Mountrail County has the lowest bottom price of any oil-producing county in North Dakota right now. What it means is, the price of oil would have to drop to somewhere between $15 and $20 per barrel before drilling would no longer be feasible. The last time oil traded at that level was in 2002.

In comparison, oil would be a losing proposition in McKenzie County if it dropped to $40, while Williams County is $50 a barrel, Divide County is $55 and Burke County is $95.

According to Helms, 30 rigs are currently drilling in the county with 121 new wells drilled this year.

"Our economic model indicates that each rig supports 120 jobs and each well puts $50,000 per year into the local economy through wages," Helms said. "There’s an estimated 3,600 people associated with oil."

Thus, if there’s 121 jobs associated with each rig, and each rig generates $50,000, that’s an annual input into the county’s economy of $6 million.

Helms added those rigs through August have extracted 1,548,705 barrels of oil and each barrel contains 42 gallons of crude oil.

The Weather Network