Jim Halvorson

Peter Johnson of the Great Falls Tribune sat down last week for an interview with Jim Halvorson, Administrator of the Montana Board of Oil and Gas Conservation (BOGC). The conversation speaks to the current state of oil drilling in Montana, and Halvorson’s perspective on the future. It’s interesting to hear directly from the BOGC Administrator, and since public information from the BOGC is hard to come by, worth sharing. It’s also good to see that a Montana daily newspaper  continuing to cover statewide news.

Halvorson has been Administrator for the last 10 months after spending the most recent 25 years of his career as a petroleum engineer for the BOGC. His tenure has been marked by dramatic change, with oil prices plunging to new lows and drilling rig counts dropping correspondingly.

Related: Confirming Halvorson’s comments below, the Billings Gazette reports that Montana has been without a major oil rig since April, down from 14 a year earlier.

The interview:

Answer: Oil prices were relatively high and somewhat stable until the fall of 2014. Since then the rig count for Montana has dropped from around six or eight to the current count of zero. Rig crews, which drill wells, were as high as 30 to 40 in the peak Montana year of 2005 in the Bakken region. Each rig crew has 12 or more workers, plus support personnel.

Q: What’s happened in the Bakken area the last year? Have oil producers shut down a lot of existing wells or reduced exploration and drilling because of lower crude prices?

A: Drilling in the Bakken Formation in Montana has basically ceased at the current oil price, which fell dramatically last fall. There have not been many wells actually shut-in yet but there are some drilled wells that might not be put in production until the oil price improves.

Q: Have the Montana and North Dakota portions of the Bakken seen similar exploration and drilling reductions?

A: Montana’s active rig count has fallen from around six or eight to zero since last fall, while the active rig count dropped from nearly 200 to 80 in North Dakota, which has had a much greater production than Montana. For comparison, during the height of Bakken development in Montana around 2005, there were fewer than 40 active rigs in the state.

Q: How would you characterize the impact on Montana’s oil-industry and related jobs?

A: Service companies, including those responsible for well drilling and completion, have been hard hit. Loss of support companies is also significant, since there could be a shortage of equipment and workers that could hinder new drilling and well completion when oil prices do increase.

Q: The price of West Texas intermediate crude oil has risen from $45 a barrel in February to $60 more recently. Will that help restore oil drilling in the Bakken area?

A: Not yet. The price of crude oil produced in the Bakken is usually discounted about $10 to $20 a barrel from the West Texas price because of quality and transportation issues, and currently remains $35 to $45 a barrel. It’s been widely reported that the local Bakken prices must reach the $65 to $70 per barrel range for drilling operations to resume. When that happens, areas of higher Bakken production rates in North Dakota should see increased production sooner than in Montana, where wells are less productive.

Q: What areas and types of drilling look promising in Montana?

A: Since costs are lower for conventional vertical wells, it is likely we will see more activity of that type first. Historic producing areas such as the Sweetgrass Arch, including Shelby, Cut Bank and Pondera County, always will have some new drilling. We also are seeing interest in conventional exploration in Williston Basin in northeastern Montana and in central Montana near Roundup.

Q: Has there been much exploration or drilling in central Montana, the Rocky Mountain Front and Glacier County?

A: Interest and activity along the Rocky Mountain Front actually decreased prior to the drop in oil price. A number of test wells were drilled in Glacier County and farther south into Teton County, but only dry holes were drilled or uneconomic production rates encountered.

Q: Is there much drilling for natural gas in Montana?

A: Little drilling for natural gas will occur with current gas prices. Not too long ago the recovery rate for natural gas produced in Bakken-area oil wells exceeded 95 percent. But rapid development in North Dakota has temporarily saturated the gas gathering capacity in eastern Montana and western North Dakota.

As a result, Bakken Formation wells that are hooked to a gas pipeline sometimes are forced to flare gas since there is no available capacity. Companies are looking at a variety of solutions such as on-site natural gas liquids recovery systems and new pipelines.