As North Dakota considers oil waste, only Continental urges state output limits

Washington — Bakken driller Continental Resources was the lone producer voice Wednesday in favor of North Dakota regulators declaring oil produced at certain levels as waste and then potentially imposing state curtailments.

Analysts expect the North Dakota Industrial Commission to ultimately decide against declaring surplus production as waste or mandating lower production. The recent bump in crude oil futures and significant shut-ins already taken by producers lead them to expect North Dakota to follow Texas' lead in letting the market decide cuts.

A Continental executive testified that excess production right now is "obviously waste" as defined by a North Dakota statute. He urged the commission to take action to help individual producers make level cuts and ensure that they curtail efficiently and then return production efficiently when the market allows.

"We're clearly producing over reasonable market demand," said Blu Hulsey, Continental's senior vice president of government relations. "The market is working from a reduction standpoint. We are reducing. But is it being done in an efficient way? We believe the efficiencies that can be gained by the injection of the commission in those processes benefits the state overall."

Hulsey added that the oil market cannot be considered free, after Saudi Arabia and Russia launched a price war in March as global demand was free-falling in the early weeks of the coronavirus pandemic.

Major shut-ins

On the other side of the issue, the North Dakota Petroleum Council, whose members pump 98% of the state's output, urged the commission to let producers continue to respond to market dynamics when deciding how much production to shut in.

"Less government involvement allows them to make their free-market, free-enterprise decisions, which ultimately will hopefully allow a return to economic times in which we can capitalize on and stimulate exploration and production in the Bakken," said Ron Ness, president of the council.

About one-third, or 510,000 b/d, of North Dakota's production has been shut in response to the oil price collapse in recent weeks. Current output is estimated at 950,000 b/d, down from 1.45 million b/d in February.

The state's rig count has plunged to 12 as of Friday, down from 55 in January. A single fracking crew is operating in the state, compared with 25 before the recent market turmoil.

North Dakota has already taken some regulatory steps to make it easier for producers to restart wells and drilling programs once market conditions allow.

In March, the state implemented a waiver program allowing oil and natural gas drillers to keep wells in non-completed or inactive status longer than regulations typically allow. The policy was designed to prevent producers from either bringing more unwanted supply to the market or being forced to abandon wells completely.