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 Although December's extraordinary chill gave way to relatively
warmer weather last month, Bakken output hovered just below 860,000
barrels-per-day, according to calculations by LCI Energy Insight, a
Texas-based energy intelligence firm.
In December, Bakken oil production fell by nearly 50,000 bpd from a
record just over 910,000 bpd in November, the largest drop since
state records began, according to North Dakota Industrial Commission
data this month.
The LCI figures, based on historical well production data and
natural gas pipeline flows in North Dakota and Montana, are the
first to show the full impact of winter weather on oil output, a
trend that brought new seasonal uncertainty to oil markets in recent
years.
Growth in the larger Eagle Ford shale in south Texas also ground to
a halt at around 1.1 million bpd, according to the LCI data, which
was made available to Reuters.
Parts of North Dakota had the third coldest December on record, so
frigid, according to local papers, that diesel fuel froze in truck
tanks. In January, it was the wind that forestalled the drilling and
hydraulic fracturing operations that are necessary to keep output
growing.
"December was very cold and January was warmer but windy," said Bill
Abeling, a meteorologist with the National Oceanic and Atmospheric
Administration in Bismarck, North Dakota. Peak wind speeds were
above 35 miles per hour for a third of the month in Williston, the
heart of the oil boom, Abeling added.
Although companies often cut back on fracking operations during the
winter months due to operational issues, the impact was greater this
year due to the severe conditions.
In addition, the weather in the northern Midwest state is wielding a
greater influence on the oil market, forcing oil traders to adjust
to a new dynamic. U.S. oil markets cannot overlook the loss of
50,000 bpd of Bakken crude just as winter heating fuel demand peaks,
traders say.
Still, it is likely to be a temporary lull in the otherwise upward
trajectory of the Bakken region, whose bounty turned North Dakota
into the country's No. 2 oil-producing state. Regulators expect the
backlog of wells waiting on completion, numbering 635 in December,
to be up and running by May.
"In spite of the weather declines experienced in January, oil
production from shale oil wells increased 30 percent from January
2013 after increasing almost 60 percent the year before," said
George Lippman, president of LCI.
FREEZING OIL
Bakken oil output has regularly dropped or stalled during the winter
months, only to race ahead until spring, when flooding sometimes
crimps it again.
Natural gas markets have long been accustomed to winter supply
constraints due to so-called well "freeze-offs", where frozen vapors
block the flow of natural gas from a wellhead.
It is a newer, and different, phenomenon for oil markets, one felt
far beyond North Dakota this year.
Oil production in the Eagle Ford of Texas, which was also hit by
unseasonably cold weather, was flat at 1.12 million bpd in January
versus the month before, after declining by a small 10,000 bpd in
December, the LCI data show.
That was only the second monthly decline since heavy drilling began
there. Output had been racing ahead by some 30,000 bpd per month,
LCI data show.
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By comparison, oil production in the Wolfcamp and Bone Springs shale
plays of the Permian basin were flat in December and rose by a
combined 11,000 bpd in January, according to LCI's projections.
The full effects of January's weather will not be clear until state
regulators release official monthly production figures in several
weeks' time.
LCI uses real-time natural gas pipeline flow data, modeled against
historical well-by-well oil output figures, to forecast liquid
production up to a month before official data is available. Big oil
producers only release their data on a quarterly basis.
Meanwhile, the weather problems have helped keep wholesale price
differentials for Bakken crude at a narrow discount against the U.S.
oil futures contract, weighing on the market incentive to ship the
oil to refiners on the East and West Coasts.
Bakken oil for delivery at Clearbrook, Minnesota traded between
$1.65 and $3.50 a barrel under the front-month U.S. oil futures
contract in January, compared with $15-a-barrel discounts against
futures in early November.
WARMER BUT WINDY
North Dakota was slammed with four snowstorms and five windstorms in
December, which slowed drilling and well completion work, the state
oil and gas regulator said.
Average temperatures in Williston were 6.4 degrees Fahrenheit (3.6
degrees Celsius) below normal in December, preliminary data from the
National Climactic Data Center shows. Temperatures that month
hovered at 21 to 31 degrees Fahrenheit below zero (-29 to -35
degrees Celsius) on many days, freezing the water that companies
pump into wells in the fracking process.
The snowstorms stalled traffic on roads and railways and rendered
remote wells inaccessible. That interrupted the transport of input
materials, such as water, sand and cement and products like oil and
salt water.
"It was one Alberta clipper after another," Lynn Helms, director of
North Dakota's Department of Mineral Resources, said on a conference
call earlier this month, referring to the weather system that brings
gusty winds and Arctic air from the Canadian Rockies to the northern
United States.
The northern Great Plains were warmer in January than the month
before, but North Dakota was hit by five blizzards, interfering with
drilling and well completion operations.
Fast winds also halted the operation of workover rigs, which are
used in the completion of new wells and to revive older ones.
The weather affected gas production and processing as well. Hess
Corp <HES.N>, one of the major oil and gas producers in the state,
postponed the startup of its Tioga gas plant to late February
because of "unseasonably cold weather," the company said during its
fourth-quarter earnings call in late January.
(Reporting by Selam Gebrekidan; Editing
by Jonathan Leff and Marguerita Choy)
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