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NEW YORK Oil production in North Dakota's Bakken shale stayed flat in January after falling sharply the month before, according to independent data that illustrate how this winter's bitter cold put a freeze on the world's fastest-growing oil patches.
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 (56 kph) 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.
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 vapours 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.
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, modelled 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, one of the major oil and gas producers in the state, postponed the start-up 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)