North Dakota and Montana producers avoid overreaction to world oil plight
North Dakota/Montana State Roundup
Published April 1, 1998 | April 1998 issue
Although western North Dakota went through the shattering boom-bust oil cycle of the 1980s, it appears that the current price fluctuations are not triggering instant responses in North Dakota or Montana.
According to Lowell Ridgeway, executive director of the North Dakota Petroleum Council, the reduction in drilling activity has been modest. Ridgeway cites three reasons for the wait-and-see attitude in North Dakota:
- the industry has simply learned to react more cautiously;
- most companies are more frugal in their operations than they were in the 1980s; and
- technological advances, such as horizontal drilling and seismic technology, provide information that offers better odds in finding oil and prevents dry-hole drilling.
North Dakota's rig count has dropped, but not dramatically: In January, 20 rigs were operating, compared to 14 in February and 13 in the second week of March, Ridgeway says.
The pledge by OPEC countries, and more importantly from non-OPEC members Norway and Mexico, to cut production will benefit North Dakota producers, if the pact holds, Ridgeway says. "Until five to 10 years ago OPEC totally controlled production and prices, but not now."
"I like to think that they have learned so much from the '80s crisis," Ridgeway says of the state's oil businesses, "that they'll all hold on." Then he optimistically adds: "Those that were making a living at oil in late '97 will be around in '98." Montana producers also appear cautious Montana's February rig count was 16, but it dropped to 10 in March, says Gail Abercrombie, executive director of the Montana Petroleum Association. State drilling permits targeting crude oil also have slackened. Although Abercrombie agrees that the new technologies lead to more successful drilling, the methods are also more expensive. And drilling is difficult to justify if the price isn't high enough, she says.
Some Montana operators are postponing chancier exploration projects and curtailing exploration budgets, Abercrombie says. But, production is high in northern Montana where a wildcat well came in and is producing 400 barrels a day, where 200 barrels a day is considered normal. "That's a lot for Montana," Abercrombie says.
Abercrombie says the following reactions from two independent producers sum up the darned-if-I-do/don't situation: One who experienced the last downturn says he didn't keep drilling then and had nothing producing when prices went back up, so this time he's continuing to drill. The other said he simply didn't have the cash flow to continue at the same rate with the prices so low.