Despite what some in the media are reporting – hell, despite what some in the media seem to want – there doesn’t seem to be evidence of a bust in North Dakota’s oil fields.
Oh, sure, there’s a slow down. Some marginal business models are proving untenable now that the boom period of the Bakken oil play is over, and even big companies are laying off employees due to falling oil prices. Yet the job markets remain strong, economic activity remains brisk, and oil production is proving to be remarkably resilient to falling oil prices.
This graph based on data from the North Dakota Department of Mineral Resources shows the most recent daily oil production numbers available (through May) and the rig count (through July 10). As you can see, despite a decline in drilling activity, oil production has remained stable. In fact, a slight increase in May had state oil production over 1.2 million barrels per day for only the second time in state history:
What you’re looking at is stable oil production despite a 57 percent decrease in the rig count since September.
Why is this happening?
“Oil companies are drilling faster and focusing on core areas of the Bakken, leading to a surprise increase in North Dakota oil production in May,” reports the Grand Forks Herald.
Also, this from a Reuters report in June: “Oil companies say they have recalibrated their operations to survive even if prices stay lower for a long while.”
In other words, competition breeds competence. American oil producers are being challenged by producers in the middle east and elsewhere, and the American companies are responding by getting better at what they do. That means leaner, more efficient operations.
Of course, there is also the issue of the oil glut in America’s markets currently. But we can address that in two ways. First, we need to lift the oil export ban to open up international markets to American oil producers.
Second, we may need to stop thinking in terms of oil scarcity, as we have since the 1970’s, and starting thinking in terms of oil abundance. Relatively cheap, abundant oil may be the new normal for the foreseeable future. That’s good for everyone, though it’s going to be hard to predict how the “new normal” energy markets will look. The federal Energy Information Administration recently told a gathering of lawmakers in Bismarck that they see “potential for prices to dip as low as $30 a barrel or exceed $100 a barrel, based on futures market prices.”
That’s not a prediction. That’s a dart board. It no doubt creates a great deal of unease in corporate boardrooms and government budget meetings, the one undeniable truth in all of this is that we know America has lots and lots of oil, we know how to get it, and getting it is becoming cheaper and easier all the time.