The Bakken magazine - April 2013

APRIL 2013

Standing on

Tradition

Mountainview Energy redefines its family production business Page 18

Plus:

Becoming a Leading Real Estate Developer Page 24

AND:

A Case Study in Entrepreneurial Vision Page 22

www.THEBAKKEN.com Printed in USA

What does the petroleum industry mean to North Dakota?

$30.4 billion economic impact

The oil and gas industry contributed more than $30 billion to North Dakota’s economy in 2011, including $7.4 billion in statewide retail sales, $1.1 billion in royalties, and more than $2.6 billion in direct and indirect state and local taxes.

60,000 new jobs

The oil and gas industry created 60,000 direct and indirect jobs in the state in 2011, and contributed an economy-wide personal income of $11.6 billion.

20 million barrels per month toward

North Dakota produced 243 million barrels of oil in 2012, making up 11% of our nation’s domestic oil and helping our nation reduce its dependence on foreign g oil.

energy independence $'9$1&,1* 7+( 3266,%,/,7,(6 www.northdakotaoilcan.com

CONTENTS

APRIL 2013

VOLUME 1 ISSUE 1

DEPARTMENTS

MAKING IT

18 Oil Tank Trailblazers

Diverse Energy Systems will streamline its impact at the Bakken play by offering welding automation and job-skill training.

ON THE MOVE

20 Trucking Transformation

Western North Dakota’s challenging needs spurred crude oil trucking company Red Rock Transportation Inc., to develop a suite of services.

IN PLAY

22 Flying Above the Bakken Business Crowd

Tanner Overland is an aerial photographer, jet center partner and pipeline patroller that exemplifies the level of skill and entrepreneurial spirit present in the region.

Q&A

24 Becoming a Bakken Believer

Joe Ryan was once a skeptic of the region’s commercial development potential. Today, his real estate development firm is active in seven western N.D. communities.

INTERVIEW BY TIM PORTZ

4 Editor’s Note PRODUCTION & EXPLORATION

Conquering the Play The Montalban family has proven what it takes to moprh a small operation into a big-time producer.

The Pulse of The Bakken

BY LUKE GEIVER

6 The Message

The North Dakota Petroleum Council Explains Economic Impact of Bakken

7 Bakken News

Bakken News & Trends

BY LUKE GEIVER

Pg 12 ON THE COVER: Mountainview Energy's Montalban father-and-son team at a well site near Fortuna, N.D. PHOTO: RENAE MITCHELL

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EDITOR'S NOTE

The Pulse of The Bakken Luke Geiver

Editor The Bakken magazine lgeiver@bbiinternational.com

The story of the Bakken oil and gas retrieval effort is worth telling, even if it is just beginning. By now, many of us know something of the Bakken, have some idea about an oil boom and job-creating mecca in western North Dakota, Montana and southern Saskatchewan. But, aside from what we think we know about the play, how long it will last, or what it is like, we do know this: the positive benefits of the oil and gas retrieval project have not even begun to be realized. Drilling efficiencies and the rush to secure leaseholds have eased the pace of drilling and leveled off the rig count below 200 rigs, but as Nancy Hodur, an economist at North Dakota State University, said during a recent press conference detailing the economic impact of the oil and gas industry on the region, this is just the start of the story.

Not a story of the Wild West, overnight millionaires or the Saudi Arabia of North America, sensationalized terms seen in some national and foreign media coverage intended for audiences who will never set foot in the Bakken. She was referring to the economic impact and link between the activity in the Bakken and the surrounding region. That link, an astounding, once-ina-lifetime opportunity and unique challenge, created $30.4 billion in economic activity in 2011, along with 60,000 direct and indirect jobs.

To bring those impressive numbers to life and illustrate the human and physical resources and investments required to responsibly provide services to the ongoing efforts and what it will take in the future, we at BBI International created our own place in this story, The Bakken magazine. Our efforts may just be starting as well, but the content in this inaugural issue—the images of a father-son oil producing team standing on their well site near Fortuna, N.D., during a blizzard—help to reveal what the magazine is about: the people, businesses, service providers and decision makers who are relentlessly developing and transforming themselves and the Bakken into an economic powerhouse.

The April issue also includes the tale of Tanner Overland, a Williston, N.D., native who has turned an aviation degree into several Bakken-based business, and Red Rock Transportation, a Fergus Falls, Minn., transport company that has transformed in only a few years to a housing management firm, taxi service and multi-liquid transport team, both reveal what is at the heart of The Bakken.

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The BAKKEN MAGAZINE APRIL 2013 

www.THEBAKKEN.com VOLUME 1 ISSUE 1 EDITORIAL Editor Luke Geiver lgeiver@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

PUBLISHING & SALES Chairman Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com President Tom Bryan tbryan@bbiinternational.com Vice President, Sales & Marketing Matthew Spoor mspoor@bbiinternational.com Vice President of Content Tim Portz tportz@bbiinternational.com Business Development Manager Bob Brown bbrown@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Senior Marketing Manager John Nelson jnelson@bbiinternational.com Advertising Coordinator Marla DeFoe mdefoe@bbiinternational.com

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com

Subscriptions Subscriptions to The Bakken magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www. thebakken.com or you can send your mailing address and payment (checks made out to BBI International) to: The Bakken magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising The Bakken magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about The Bakken magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to The Bakken magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgeiver@ bbiinternational.com.

COPYRIGHT © 2013

by BBI International TM

Please recycle this magazine and remove inserts or samples before recycling

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THE MESSAGE NORTH DAKOTA PETROLEUM COUNCIL

Regional

Impact

BY LUKE GEIVER

The North Dakota Petroleum Council wants the entire state to know the Bakken oil patch impacts more than just four counties.

During a one-day press tour, the NDPC team held two separate press conferences, one each in Bismarck and Fargo. The team was accompanied by a pair of economists, several business owners operating in the Bakken, and a Williston, N.D., city administrator. The purpose of the press tour was simple, to explain the results of a 2011 study that assessed the economic impact of the oil and gas industry on the state’s economy. Based on the numbers generated from the study, the NDPC has some impressive evidence to back

6

up its stance on the statewide impact of the Bakken.

In 2011, the oil and gas industry contributed more than $30.4 billion to the state’s economy while creating roughly 60,000 direct and indirect jobs. According to the study, for every dollar spent in the state by the oil and gas industry, another $1.59 in additional business activity was generated.

The study was completed

by Nancy Hodur and Dean Bangsund, both with North Dakota State University’s Department of Agribusiness and Applied Economics. The backdrop for the Fargo press conference included dark grey 400-gallon oil storage tanks, welding machines, cement floors and the absence of the fabrication team at TrueNorth Steel Inc.’s, Fargo facility that

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'I’ve talked to a number of people around the country through our association, and this is the best market to be in in the U.S. today.'

Dan Kadrmas, president of TrueNorth Steel

had to cease production for the event. Before introducing Hodur and Bangsund, Ness stood at a podium in front of

the presenters and business owners, smiled at the reporters and attendees and looked back toward the news cameras.

“The oil patch is more than just the four counties,” he said.

Expanding on Ness’s comments, Bangsund outlined the structure of the study, which recorded the economic impact of four sectors in the oil and gas industry: production, exploration, transportation and processing, and infrastructure buildout. “One of the key highlights of the study,” he said, “is that we

THE MESSAGE

IMPACT PLAYERS: People such as Dan Kadrmas (far left), Nancy Hodur, Brad Bekkedahl (podium), Dean Bangsund (right of podium) and Ron Ness (right of Bangsund), helped to explain the impact of oil and gas in N.D. PHOTO: BRETT REIERSON

were able to document the growth and expansion that has benefited the North Dakota economy.”

Although the impact numbers are big, Hodur, who spoke following Bangsund said, “I don’t think any of us are surprised.” The state has seen steady growth since 2005 when the NDPC first started funding the studies. “This clearly illustrates that oil and gas is part of the thriving economy,” according to Hodur. And, the economic punch put forth by Bakken-related activity has not

peaked or started a downward trend even with drilling efficiencies. “I think that this is just the start of the story, not the end of the story,” adding that, “there is an economic development opportunity that we have not seen in decades. We are standing right in the midst of that.”

Dan Kadrmas, president of TrueNorth Steel, helped to show just what Hodur was referring too. Since it began supplying the Bakken region with products ranging from corrugated pipe to oil storage tanks, the company has added employees, products

and sales. “The Bakken has allowed us to diversify,” he said.

And, as the president of the Central Fabricators Association, Kadrmas said he has also seen why the Bakken oil and gas play has such a great impact on construction and fabrication firms. Since 2009, other regions from Michigan to Texas were seeing significant contraction in construction, he said, but not in the Bakken. “I’ve talked to a number of people around the country through our association, and this is the best market to be in in the U.S. today.”

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BAKKEN NEWS

BAKKEN NEWS & TRENDS

The Pipeline Race Providing pipeline takeaway capacity for crude oil out of the Bakken isn’t a marathon effort, it’s an all-out sprint. The 2013 infrastructure capacity for crude pipelines is roughly 633,000 barrels per day, and both current and new companies are working to add their infrastructure to that capacity.

CenterPoint Energy Bakken Crude Services LLC issued an open season call for binding, long-term volume commitments from potential customers in Dunn and McKenzie coun8

ties. Alicia Dixon, spokesperson for CenterPoint Energy, says that although the company hasn’t signed any agreements yet, “we have been in active discussions with customers who have expressed interest in our project.” Customers must commit to 1,000 barrels per day in order to lock in long-term rates. Access to the 19,500 bpd pipeline could start by fourth quarter 2013.

Enbridge Energy Partners LP, just completed its third pipeline expansion effort, with

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a new 16-inch pipeline from Steelman, Saskatchewan, to Cromer, Manitoba. The company also expanded an existing line from Berthold, N.D., to Steelman. But for the pipeline giant, their expansion plans don’t stop there. The need to move oil from the region is so great, Enbridge has signed on with Trunkline Gas Co., a subsidiary of Energy Transfer Partners LP, to convert a natural gas pipeline to oil. The move will relocate Bakken crude to the Enbridge Patoka, Ill., hub.

From there, oil has a chance to enter the East Cost or the largest refinery in the world on the Gulf Coast by way of the Seaway Pipeline. Currently, pipeline capacity accounts for roughly 33 percent of the crude transported from the region, but with more announcements coming from established players and new hopefuls, the push for pipe should continue.

BAKKEN NEWS

Services of the Future

PERFECT PIPES: Nondestructive testing (X-ray) is needed to check the miles and miles of pipeline in the Bakken.

PHOTO: BRAUN INTERTEC

Rising oil and gas production has boosted demand for a range of services. More than 7,000-miles of pipeline currently exists in North Dakota. Add that to the increased expansion of crude oil, natural gas and water transport pipelines, and it is easy to see that pipeline expansion has created a new demand for pipeline testing services that will last well into the future. Each state requires pipeline owners to manage, check and patrol their strings at frequencies determined by the size and scope of the pipelines.

Braun Intertec, an engineering, consulting and testing firm, with offices in Bismarck, N.D., and West Fargo, N.D., has already established itself as a leader in pipeline X-ray testing used to check for cracked or compromised welds that connect one piece to the next. But Braun Intertec still needs to expand. The company has opened new offices

in Minot, N.D., and Dickinson, N.D., according to Steve Nagle, vice president. Busy with the demand for nondestructive testing, the company has opened new offices in Minot, N.D., and Dickinson, N.D. The need for such testing isn’t only about pipelines, Nagle says.

Gas plants, terminals, well sites and other infrastructure locations all need the testing done to stay in compliance.

Even Chicago-based investment firms are interested in, or excited, about industrial X-ray testing.

Sterling Partners invested in Desert NDT LLC, a Texas-based welding X-ray testing company. Then, Desert acquired Williston-based T&K Inspection, a nondestructive testing company. Alan Macksey, managing director at Sterling Partners said Desert’s acquisition mirrored its own investment strategy when it pursued Desert NDT.

The Record-Breaking State North Dakota is the fourth highest exporting state in the country. Credit mineral fuel and oil products for that. From 2011 to 2012, mineral fuel and oil exports rose by 60 percent, or $1.37 billion.

Canada receives 71 percent of the state’s total export volume of all products. In 2012, thanks in large part to Bakken crude shipped to Canada, export numbers reached $3.06 billion. Rail capacity and pipeline expansions could reduce the amount of oil shipped to Canada in the coming years, but consider this image an indication of the trend in oil production in barrels per day.

North Dakota Daily Oil Produced and Prices 1970

1975

1980

1985

1990

1995

2000

2005

2010

TODAY

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BAKKEN NEWS

Why Delta Went All-In for Bakken Delta Air Lines Inc., is an official player in the Bakken. The company has already railed its first shipment of Bakken crude to its Trainer, Pa., refinery.

And, starting in June, the airline will offer daily flights from Dickinson to Minneapolis. When the company announced its first Bakken shipment, Gov. Jack Darlymple offered his perspective. “More and more, U.S. companies and East Coast refineries are turning to North Dakota’s burgeoning energy industry as a solution for cost savings and saving jobs,” he said.

The governor couldn’t be more right. Delta believes Bakken crude, typically traded at a $20 per barrel discount to Brent crude oil, will lower the company’s all-in fuel costs from $3.24 per gallon to a price between $3.15 and $3.20 per gallon. A New Jersey refinery operated by Phillips 66 is also tapping into Bakken oil. Through a five-year contract, Global Partners LP will rail 50,000 barrels of crude to New Jersey per day.

$3.24

/gallon

$3.15

/gallon

All-in fuel prices before All-in fuel prices after Bakken Bakken crude=$3.24/gallon. crude usage=$3.15/gallon.

The Making of a ND Powerhouse The need for a new diesel refinery in North Dakota couldn’t be more obvious. The state may produce more than 750,000 barrels of crude oil per day, but it imports more than half of its diesel fuel. The current diesel demand of roughly 53,000 barrels per day, is expected to increase to 75,000 barrels per day by 2025. Diesel production capacity within the state is currently at 22,000 barrels per day.

In approximately 20 months, the diesel refining capacity will be 42,000 bpd, thanks to a joint venture that is adding more to the state’s oil infrastructure than just refining capacity.

Dakota Prairie Refining LLC, the joint venture between MDU Resources Group Inc., the Bismarck-based company with subsidiary firms in several fields of the oil and gas industry, and Calumet Specialty Products LP, a hydrocarbon refiner, will be built south of Dickinson, N.D. The state's Department of Health has already issued an air quality permit, meaning the 20,000 bpd, $300-million project can immediately begin construction.

When construction does begin, the refinery's impact will hit the state before a drop of diesel is produced.

At least seven major companies are already involved in the project, which during construction, will create 400 to 500 jobs, according to MDU Resources Group. Westcon Inc., will operate as the general contractor. Ventech Engineers International LLC, 10

Startup date in 2014

24 hours, 7 days per week operation schedule

318-acre site with a refinery footprint of 150 acres

Located near rail, pipeline, natural gas, water, highway, electricity and sewer

PHOTO: MDU RESOURCES GROUP INC.

(whose plant design is in the final stages,) will provide the equipment and technology. WBI Energy will supply natural gas to operate the plant. Montana-Dakota Utilities Co., will supply electricity, and Fidelity Exploration & Production will supply the crude oil from its Bakken production efforts. For construction materials, Knife River Corp. will handle the role.

Gov. Jack Darlympe calls the plant “good news for North Dakota and the entire nation.” David Goodin, president and CEO of MDU Resources says, “There is a strong

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400 to 500 employed during construction, 100 employed after startup

existing market for the plant’s production,” that will help long-term job creation. For the state, new energy-based jobs and new diesel capacity will only reiterate the state’s place among the nation’s leaders in economic growth. For MDU Resources, the refinery will be a significant accomplishment establishing the company as a regional oil and gas powerhouse, as WBI Energy, MontanaDakota Utilities Co., Fidelity Exploration & Production and Knife River Corp., are all subsidiaries of MDU Resources.

BAKKEN NEWS

Workforce Housing Profits

HOUSING PROFITS: The Bear Paw Lodge not only allowed Target Logistics to house oilfield workforce, it was a profitable asset.

PHOTO: TARGET LOGISTICS MANAGEMENT LLC

Providing workforce housing is a lucrative business. Look at the Bakken play’s largest housing provider, Target Logistics Management LLC, and the $625 million it took for Algeco Scotsman, a global remote-housing provider, to buy Target Logistics. And it’s not just the largest housing providers in the play that offer value. SST Bakken Properties LLC, recently acquired a 107-unit lodging facility in Bainville, Mont., from Blaze Enterprises.

According to AS, “Historically, the remote accommodation end-market has been the fastest growing and highest return on investment business segment in the Algeco portfolio.” SST Bakken Properties may not have anywhere close to the number of rooms Target Logis-

tics does, but the company is already planning for expansion at the Bainville Crossing Lodge it just purchased and opened. The site will gain 35 rooms immediately, and in the near future, the company will begin adding hotel quality buildings adjacent to the living units.

SST Bakken Properties investment plans and AS’s commitment to remote employee housing each help to reveal several elements of the business of workforce housing in the region. The extreme demand for housing continues making the investment in living quarters a profitable choice. And, no matter the size of a housing provider’s stock of rooms, the business of workforce housing supply is just as much about getting into the market, as it is in getting out.

The Start of a Flaring Trend Diesel Fuel Savings

18,000 Total Engine No. 1 Engine No. 2 Engine No. 3

16,000 14,000 12,000 10,000

Cumlative Diesel Saved, gal

Unused associated gas, natural gas produced with crude oil extraction, in the Bakken may be at the beginning of a declining trend. The Energy & Environmental Research Center at the University of North Dakota has completed a project to test the validity of a bifuel system that incorporates associated gas into a diesel engine to reduce the amount of gas flared on a well site, and the amount of diesel used for power generation. The system is simple and the results are impressive.

The system routes a gas stream through a pressure regulator to drop the pressure to 1 psi to 2 psi, and then through the air intake manifolds on the generator.

“By doing that you meet some of the Btu requirements that the engine requires,” according to Chad Wocken, senior research manager, who compiled the data on the project. With the right mix of associated gas and diesel fuel, the

8,000 6,000 4,000 2000 0 8/19

8/24

8/29

9/3

9/8

9/13

9/18

9/23

9/28

10/3

Date

SOURCE: ENERGY & ENVIRONMENTAL RESEARCH CENTER

engine will reduce its fuel usage without losing efficiency through engine knock.

On a two-well test over a period of 47 days, the bifuel system reduced diesel usage by 18,000 gallons for a cost savings of $60,000.

Wocken says this technology is not new, but it is typically used with a

clean stream of natural gas made up of methane. Associated gas contains only 60 percent methane, along with other higher-chain hydrocarbons.

Wocken believes the new technology is already catching on in the Bakken. “Several operators in the Bakken are making it a pri-

ority to install these on their rigs,” he says. The units attach directly to a drilling rig. “We have been in such a big hurry to get lease holding wells in place that it has been hard to do anything outside of what is absolutely necessary,” Wocken says.

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PRODUCTION & EXPLORATION

THE FAMILY BUSINESS: Joseph (left) and Patrick (right) Montalban have continued the family business of oil and gas production and exploration that started with Patrick's father.

PHOTO: RENAE MITCHELL

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PRODUCTION & EXPLORATION

Conquering THE PLAY Mountainview Energy combined big risk with family tradition to transform from small company to big-time Bakken producer.

By Luke Geiver

Joseph Montalban may have a college degree in business, but the oil production industry runs in his blood. For his father Patrick, president and CEO of Moun-

tainview Energy Ltd., that has turned out to be a good thing. Soon after joining the Mountainview Energy team three years ago, Joseph persuaded his father, a geologist by trade and 35-year veteran of the oil industry, to consider the Bakken shale play as the company’s next venture. Patrick’s boss, Joseph’s grandfather, had just retired from the company after 60 years in the business, Mountainview Energy had never drilled a horizontal well, and the company’s acreage position in the play was nonexistent.

What followed is a unique story, says Patrick, about a small producer from Cut Bank, Mont., that could increase its production from 200 barrels of oil per day to 1,000 bopd after one year in the Bakken by utilizing a son’s business degree, a father’s industry connections and a grandfather’s spirit to “take a small company and jump in with the big boys.” Talk with Patrick, Joseph or the consultants who spearheaded Mountainview’s Bakken well-drilling, fracking and completion program and one aspect of their story becomes crystal clear: Mountainview’s story is about more than just the Montalban family, it’s about the risk, reward and routes producers, large and small, are taking in the play to minimize one thing, and maximize another.

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PRODUCTION & EXPLORATION

Funding the Dream The average cost to drill and complete a well in the Bakken/Three Forks formation is roughly $8 million to $15 million. Land acreage costs will vary, but prices can range from $1,000 to $19,000 per acre. Due to the risk associated with drilling costs and hole uncertainty, most companies, aside from Continental Resources Inc., Whiting Petroleum Corp., and other large producers, will only own a portion of a well and its mineral rights even if the well success rate in the Bakken is one percentage point away from a guarantee.

“Some companies will only take a quarter of the well,” Patrick says, “because they don’t want to take on the risk of a failed well or an uneconomic well.”

Because of that tendency to practice risk reduction, finding funding or outside partners to complete a drilling program or buy acreage is the most important for most, Patrick says. To purchase acreage in the play, Patrick used his relationships in the industry to find ground for drilling. During a meeting with Carter Stewart, a geologist, industry expert and former college classmate, and Jim Arthaud, CEO of MBI Energy Services in 2010, Patrick learned of a project in the Williston Basin from Stewart. Patrick reviewed the geology logs of the acreage, and along with two other land purchases made possible by his relationship with Stewart and Arthaud, Mountainview established its presence in the region in less than seven-months by securing a bank loan and issuing stock in the company.

“At that point we had the property but we had no funding to drill the wells,” Patrick says. “That was when my son really got involved.” Three generations of oil drilling experience might sound impressive, but for the majority of the potential investors Joseph spoke with, it wasn’t enough. “We had a lot of interest in our company. They loved the company, they loved the project,” Patrick says, “but when it really came down to writing a check to drill the well for $7 million, it was hard.” Calls and meetings with groups in Houston, Denver and Toronto were unsuccessful.

Eventually, Joseph turned to a mezzanine financing approach through Wells Fargo in Denver. Through the successful deal, Joseph assisted in landed a total of $75 14

PROVEN PRACTICE: Although each well site is different, according to Jon McEvers, RPM Consulting Inc., has been able to drill, frack and complete more than 400 wells.

PHOTO: RPM CONSULTING INC.

million in funding, with a first draw of $19 million. “We are drilling on debt, but we were confident we could do this,” Patrick says.

Mountainview did, and their efforts reveal what it takes to minimize risk and maximize production. By the end of 2013, the company will have drilled and completed at least three wells, raised its penny stock value from an initial 10 cents to 65 cents and surpassed the 1,000 bopd threshold. For two of the wells, the company showed its confidence in its drilling team and geologists, taking 93 percent and 88 percent ownership respectively.

To drill and complete the wells, the Montalbans leaned on Denver-based RPM Consulting Inc. Since RPM formed in 2005, the consulting firm has drilled more than 550 horizontal wells and completed over 400.

The firm is paid on a daily rate. To understand why RPM has been so successful at horizontal drilling, fracking and well completions, and why the Montalbans entrusted their huge stake in their Bakken play to RPM, Jon McEvers, completion specialist for RPM, has a simple explanation. “If we do a good

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job, we keep working. We don’t need any kind of a contract,” he says.

The Job Well Done McEvers' take on RPM’s success may sound simple, but the process to complete a well for Mountainview or similar companies, he says, is a one-off, project-by-project approach that involves complex radiation read- LARGER VIEW: Jon ing tools, repetitive pro- McEvers, completion cesses performed 8,200 consultant for RPM Inc., looks feet below ground, and Consulting at more than bid price a bunch of experts with service providers. with big egos. “If it isn’t a good team that gets along,” Patrick says, “you can literally have fist fights on the job site.” None of the Mountainview Energy sites had such issues, but Patrick learned what all small- or medium-sized producers should know.

PRODUCTION & EXPLORATION

When Mountainview Energy first started its drilling program, rigs were at a premium. “The only way we could get a rig was to contract for a year out, or to do one well per month,” he says. The team landed a used Nabors Drilling rig, only after 15 new rigs were brought into the region. Like the demand for drilling rigs, oilfield services were also high.

“They charge for everything. You rent everything,” he says. “You don’t buy bits, you rent them. You don’t buy drill pipe, you rent it.” According to Patrick, in his father’s day, a drilling rig came with some supplies and fuel costs were included.

The most critical stage of the entire drilling process, and one not all producers or drilling teams are achieving, is drilling within a few feet of the target zone. “That is where a lot of people lose money and lose wells and don’t do a good job because they don’t have the expertise on location.” Patrick says the entire team held numerous planning meetings before drilling and everyone knew exactly what the geologists on site were shooting for and how the directional drillers were

COMING SOON: By the end of 2013, Mountainview Energy will have at least three wells producing.

PHOTO: MOUNTAINVIEW ENERGY

going to drill the horizontal leg and stay in the target zone.

To establish and maintain the targeted zone, geologists will use gamma ray reading tools on the drill bits. Shale produces high amounts of radiation. If a geologist understands where the high- and low-level amounts of the shale are that indicate the top- and bottom-level of the rock formation, the geologist can direct the directional driller if he or she is or isn’t in the appropriate range by monitoring the gamma readings. The directional driller, however, is constantly fighting the natural tendency of the bit to push

towards the surface, and although he or she may think the bit is in the zone, it may have moved up and out. “You would be amazed at the teamwork of the geologist and the directional driller,” Patrick says.

Luckily for Mountainview Energy, the drilling team did not encounter any problems and the process for the first of three wells was completed in 14 days and the bit never left the target zone. Drilling costs totaled roughly $2.5 million for the first well. Sanjel Corp., performed the fracking process, in part because Patrick says it was the only company willing to take on the work with such

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PRODUCTION & EXPLORATION

'As consultants, we work for operators both big and small, so we know the prices for each service. ... With volume comes discount.'

Jon McEvers, completion specialist for RPM

a small producer. Relationships formed with the company from years past helped land the job for Patrick. Fracking the well cost roughly $1.5 million, but it was the completion stage where the majority of the company’s money was spent. The stage involves cleaning out the fracking plugs, or milling, and also cleaning out the well before flowback can occur.

Unlike most CEOs, Patrick was onsite for the majority of the work. “Don’t think I wasn’t puckered up during the process,” he says. “I was knocking on a lot of wood.” The first well produced an initial production (IP) of 440 barrels per day, and the next two wells are expected to IP for more.

The Takeaway

STANDING TALL: Mountainvew Energy, led by the Montalban family, will have drilled and completed at least three wells in the Bakken by the end of 2013.

PHOTO: RENAE MITCHELL

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The ability of the Montalban’s to find the acreage and funding needed to form a drilling, fracking and completion team that could keep costs-per-well below $9 million while yielding wells with production levels over 400-bopd-per-well is unique. Add in the family tradition woven into the history of the company and the story becomes even more compelling. But, there are elements of the story that anyone not named Montalban can duplicate.

Because the Bakken play has gone from an exploration play to a resource play, keeping costs down and improving logistical efficiencies are the most important aspects for producers, according to McEvers. “Anything from handling water to shipping oil out,” he

PRODUCTION & EXPLORATION

TAPPED IN: The Mountainview Energy team owns 93 percent of one well and close to 90 percent in another.

PHOTO: RENAE MITCHELL

says, “anything will help to reduce costs.”

The Montalbans achieved success because they were able to reduce costs by having the right people on their team. Not all drilling teams, frack operators and service providers are created equal. “You really have to have a good relationship with these services companies to get good products and good services,” McEvers says. “The lowest bid isn’t always the best bid.”

Along with the right people, McEvers looks for fair product pricing to help clients reduce costs. As an example, he points to water and pipeline volume purchases. A frack job may take 50,000 to 60,000 barrels of water, at a cost of $5 per barrel. But, if a producer can lower those costs to $2 per barrel, it could save up to $150,000 on water alone.

To do that, a producer has to buy the product in bulk, and for that, the producer may need a consulting firm like RPM. “As consultants, we work for operators both big and small, so we know the prices for each service,” he says. In order to secure a fair market price for an order of water or pipe, McEvers will try to pool his client’s

product lists to generate a greater product volume. “With volume comes discount,” he says.

Cutting costs through volume ordering is one option for RPM to help clients. Following trends or practices of other companies, however, isn’t. “I don’t like to chase other people’s tails. Just because a company is doing something doesn’t mean we have to. We try and make our own theories, our own ideas,” he says. “When it comes to fixing problems and troubleshooting, if you don’t know the theory behind something (a frack job or region he cites as an example), you won’t know where to start to fix the problem.”

One trend the company is following however, is the push for multi-well pad sites.

The company currently doesn’t operate with any producers looking to drill multiple wells on a single site, but that could change. It won’t happen right away with Mountainview however, and as both McEvers and Patrick point out, it all goes back to funding. “A small operator can’t really invest all the money involved to drill all four wells without seeing

one drop of oil back,” McEvers points out.

Patrick agrees.

“Multi-well pad sites are a fantastic thing for big companies. But you have to be very well-funded,” Patrick says. And as Joseph’s role in Mountainview’s development shows, funding, like every facet of the oil retrieval effort, is all about the people involved in each project.

“Being able to see beyond the five acres of that drilling and completion process on a well,” McEvers says, is what the play comes down to. For some companies that may mean partnering with a consulting firm to pool resources, receive bulk pricing, or have access to industry experts. For others, it may mean bringing on a geologist and directional driller who can work together. And for one company from Cut Bank, it just means maintaining the family business, and listening more to the business major with oil in his veins.

Author: Luke Geiver Managing Editor, The Bakken magazine lgeiver@bbiinternational.com 701-738-4944

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MAKING IT

PREVENTATIVE MEASURES: Each tank system is installed with environmental keep-safe containment systems, and each tank is also lined with steel walls.

Oil Tank Trailblazers Photos by Diverse Energy Systems

A 400-barrel steel oil storage tank is simple in design, singular in purpose and exemplary of the innovation and execution it takes for a company to succeed in the Bakken. Diverse Energy Systems has it all, the tanks, the trailblazing attitude that turned a zero-profit company into a $20 million company in one year, and the streamlined manufacturing model that is changing the way producers think about equipment.

To find its niche in the Bakken, Texas-based DES analyzed production numbers. When the

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The BAKKEN MAGAZINE APRIL 2013 

company first started supplying its main product, oil storage tanks, daily oil production was near 625,000 barrels per day, but takeaway was only 285,000 barrels per day. “You don’t have to be a math wizard to figure out there was a need for oil storage,” says Scott Muster, spokesman for DES. But to make it in the play, the company didn’t focus its efforts solely on storage tanks.

“The model was to actually treat the oil patch, infrastructure and equipment needs like one business,” Muster says. Tracing the steps used to do that, and execute on that model proves why DES has succeeded.

MAKING IT

THE ULTIMATE SKlLL: Scott Muster, spokesman for Diverse Energy Systems says the need for welders in the region is so great that after school and training, welders could have a guaranteed job for life.

LARGE PRESENCE: The demand for 400-barrel storage tanks was big when DES first started, and now the demand is for 750- and 1,000-barrel tanks for both oil and water.

First, DES invested in a town that could provide a talented workforce and a place for workers to live. In Grafton, N.D., DES found both and proceeded to purchase and renovate an entire city block of houses. The company then customized a product line that transformed it into a big-box supplier of well pad production essentials. The line includes 400- to 1,000-barrel tanks, a crude-oil measurement system called a lease automatic custody transfer (LACT) unit, heater treaters, generators and more.

Muster was tasked with not only staffing the workforce, but also creating a training structure that would allow new and existing workers to improve their skills and increase their pay.

“We wanted to provide a means to the welder so he could work for us for quite a few years and get better at his craft and be paid accordingly,” Muster says.

For staffing, he formed relationships with training schools in Minnesota and North Dakota and even allocated space for training rooms and instructors to teach at the location in Grafton. And most recently, to stay ahead of the competition for oil and gas equipment supply, the DES team has upgraded its manufacturing process for the tanks to include an automated system. “The welding of tanks is hard,” Muster says. “The side welds on the tanks themselves can be done easier in an automated process.”

And, even with the crude

THE HOT ITEM: Although the demand for storage is steady, the demand for oil measuring units, or LACT units, is extremely strong right now.

takeaway numbers rising, Muster and his team aren’t concerned. “Just a couple of years ago, we were looking at charts that showed oil was going to run out by 2057, now we don’t have any idea when that will be.

Who is to say where this will end up going?” he says. One thing he does know, however, is that once an oil well starts producing, there is no slowing down. DES has something for

the continued need for products. Products like 1,000-barrel steel storage tanks for oil and water that are already made and waiting for transport, LACT units designed for individual wells that can measure the amount of oil that is going into the tanks, all of which the company makes at its state-ofthe-art manufacturing facility in Grafton.

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ON THE MOVE

THE SHOP: Supplies fill the shop, while an engine re-haul happens.

PHOTO: RED ROCK TRANSPORTATION

Trucking Transformation

Laurel Nelson, co-founder of Red Rock Transportation Inc., a crude and saltwater carrier based in western North Dakota’s oil fields, never planned on running a taxi service or managing a housing operation. When the company formed in 2007, the goal was to operate 20 trucks in the region, hauling crude and saltwater for oil production companies. “We surpassed that goal relatively quickly,” Nelson says, and today the transportation company employs over 75 people, runs 41 trucks and houses workers in an RV park at the company’s shop outside Watford City, N.D. To meet the chal-

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The BAKKEN MAGAZINE APRIL 2013 

lenge faced by so many service providers in the region, Nelson and her team have found a way to staff their continuously growing outfit. “We have drivers,” she says, “who do nothing but drive our drivers out there.”

The vision for Red Rock Transportation came from two men who both have extensive experience in oil field transportation services. One worked in the oil retrieval effort in the 1980s, and the other spent several years working for Cargill Inc.’s transportation unit. Both men help to manage the on-site operations at the facility. Their vision, realized in part from the financial support of Laurel and Brent Nelson, who operate a car dealership, Nelson Auto Center, out of Fergus Falls, Minn., has reshaped the company into a Bakken-based transportation carrier that exemplifies how success is made and challenges are overcome.

“It certainly wasn’t what we anticipated having to do at the start,” Nelson says of the company’s evolution. In addition to building the RV trailer park for staff, Nelson has tapped into Fergus Fall’s workforce. Every week, an Econoline van or Ford Expedition transports five to six fresh

ON THE MOVE

SERVICE FRIENDLY: Service trucks can help in the field when the big-rigs can't make it back to the shop.

PHOTO: RED ROCK TRANSPORTATION

DAILY ROUTINE: Break jobs and shock replacements happen daily.

PHOTO: RED ROCK TRANSPORTATION

drivers to Watford City where they will work a two-week shift.

When that shift expires, the drivers make the commute back to Fergus Falls in the van or Expedition. The trek from Fergus Falls to Watford City happens multiple times per week.

Since establishing the housing units and the shuttle service, Nelson and her team have begun to focus on operating costs and future expansion. “Sometimes rapid growth can get you a little sloppy in terms of your expense

structure,” she says. “We put in our own fuel source so we can have a little more price competitive fuel out there,” she says. The team currently hauls crude to rail sites or pipelines, and saltwater to disposal wells. Long-term contracts, roughly one year, are typical for the company, but Nelson says they work on a spot basis as well. Although crude transport was responsible for the company’s early success, Nelson says now the fleet is heavily involved with saltwater transportation.

“We want to adapt to whatever needs that our customers have,” she says. To do that, most of the fleet may be fitted with new computer software to improve efficiencies. The software will help track driver time for the Department of Transportation, and will also allow dispatchers to minimize wait time at rail heads or pipelines.

Brent and Laurel travel to Watford City once or twice a month in addition to weekly conference calls with Thompson and Pfiefer. To continue the success of Red Rock’s operations, Nelson believes combining quality and timely service with safety will be crucial. In addition to mechanic and driver safety training, the

crew has a constant eye on the changing infrastructure of the oil patch.

“We want to keep our finger on the pulse out there and what the need will be in the next year or two,” she says. “We want to know where the oil fields are and what is happening with the liquid transportation, and, we want to constantly redesign ourselves around that.” The team monitors new technology or spinoff services that will help Red Rock remain a dependable service provider that can haul a few loads on short notice or enter a long-term agreement. “Our goal is to try and stay open to the next thing that is going to be out there,” she says.

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IN PLAY

Flying above the Bakken business crowd Photos by Overland Aerial Photography

Tanner Overland is probably in the air right now, soaring over a well site near Williston, N.D., or a pipeline string in the southern Badlands. He’s an aerial photographer, an aerial pipeline patroller, a jet center partner, and above all, a case study in what skill, an entrepreneurial spirit and opportunity look like in the Bakken. He gets paid to document new building construction or well-site status, and he does it 150-feet in the air traveling at 110 miles per hour.

When he first started Overland Aerial Photography in 2010, he was living in a Grand Forks, N.D., apartment and working in Williston. “I would get a call from a client and drive all the way back (to Williston).

I would rent a plane and a pilot to go up with me.” His clients are real estate firms from Denver building hotels in places such as Williston or Dickinson that need imagery for investors, or oil production companies in Houston requesting visual proof of drilling progress at a well-site near Tioga.

Starting this spring, his client list will expand to include pipeline owners needing patrolling services and business owners or prospective investors arriving at his Williston Jet Center, slated to open this summer.

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ORGANIZED OPERATION: A Sanjel Corp., fracing job south of Williston, N.D.

Last year, he spent 2,000 hours above the North Dakota landscape. “I got the opportunity to watch it evolve into the oilproducing powerhouse that it is,” he says, “and I’ve captured most of it on my camera.”

There is one image Overland remembers specifically that he says helps to tell the emergence of the region. “I can remember the mobile home parks northwest of Williston.

They were completely barren. It was a desolate area of concrete

The BAKKEN MAGAZINE APRIL 2013 

streets that kids would go in and use for skateboarding,” he says.

After he moved back in 2009, that scene was different. “I remember the first time up over it. The park was full again, and there were hundreds and hundreds of mobile homes there.”

Through his experience working in the Bakken, Overland has learned the best route to a successful business. “I look at things to increase efficiency,” he says. To do that, and stand out from other pipeline pa-

trol services, he’s upgraded his photo and report capabilities.

The North Dakota Department of Transportation mandates all pipelines to be monitored for corrosion, rust, intruders or in some cases, an unknown home builder or fence post digger working above a pipeline string.

Overland’s job is to photograph any instances and provide a report, or call the appropriate company. And, when he does, he does it in real time.

While most patrolling ser-

IN PLAY

ULTIMATE VIEW: Tanner Overland not only photographs the Bakken region, he’s also playing a large role in the development. He now offers pipeline patrol services.

vices provide paper reports with the longitude and latitude of an incident, Overland sends a GPS’ed image via a link created on his iPad moments after he snaps a shot. “I can send a message to a pipeline company, and say this just happened here,” he explains. And he says, in addition to an aerial photo that is sourced with a GPS coordinate, “you click on a link and it pulls you to Google Earth and it pinpoints the location.” The link recipient can then forward the message on to patrol personnel who can then drive, ATV or snowmobile to the exact spot to speak with anyone near the area and let them know where the pipeline is.

Real-time pipeline patrolling isn’t the only service Overland has tried to improve. Using

SAFETY FIRST: A Sanjel Corp. fracking crew safety meeting held south of Williston, N.D.

his relationships formed during aviation training at the University of North Dakota, he has partnered with the Fargo Jet Center, one of the best general aviation facilities in the nation, according to Overland, to open the Williston Jet Center. The facility, opening this summer, will give prospective or current business owners easy access to the region. The center will provide fueling, maintenance and other general services, Overland says, all in the same way the Fargo facility does. There are roughly 5,000 general aviation facilities in the U.S. (and 500 commercial sites), and Overland says, the Fargo Jet Center is rated in the top 10.

When the jet center opens, Overland will continue his photography services in addition

SEEING DOUBLE: Two drilling rigs east of Fairview, Mont., during the summer of 2012.

to day-to-day operations at the center. Although he advocates any entrepreneur new to the region to remain determined, he also highlights the workforce issue. “Any store you open, any service industry you are in,

more than likely will succeed, but the big thing is employees.

You have to treat your employees the way you would treat yourself.”

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Q&A

Becoming a Bakken Believer Joe Ryan retraces his journey from skeptic to one of the region’s most active commercial real estate developers.

Joe Ryan, president of Oppidan Investments Co., first set foot in the Bakken oil and gas play in December 2011. At the time, he had no commercial dirt or development options under his control and no immediate plans to do so. But, what he observed quickly changed his mind. The region was struggling to accommodate the influx of workers. RVs cluttered parking lots. Lines of customers snaked outside restaurant doors, and developers, who should have been racing to catch up to housing, food and retail shopping demands, were curiously absent. Following Ryan’s first experience in the region, Oppidan Investment Co., made its move and now has nearly one dozen properties under development in seven different communities. The investments, approaching $150 million, will provide much needed retail and residential space to the region.

With spring construction season looming, Ryan reflects on the all-of-a-sudden nature of Oppidan’s entry into the vibrant real estate market.

You mentioned initially being skeptical of the potential for you and Oppidan in the Bakken. Why? I was concerned about the boom and bust cycle of the oil fields in North Dakota.

Additionally, it is a new frontier and that is not our sweet spot to pioneer in a market.

Also, as merchant developers, I was very convinced that we could build it. But, the question I was concerned with, was could we then sell it?

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The BAKKEN MAGAZINE APRIL 2013 

What did you see or experience that ultimately changed your mind?

I visited the Bakken in the early part of December 2011, and saw all of the activity and demand for services that just weren’t there yet. There were trucks everywhere; no food on grocery stores shelves, RVs parked in parking lots, restaurants with lines out the door including a one-hour wait at McDonald’s. City planners looked at us with their eyes glassed over as they were so overworked and underserved by guys like us. So, many people were saying they could deliver the goods, grocery stores, apartments, and general services, but not many were delivering on their plans.

I was convinced there was a need and decided to study the resource. Was it sustainable?

I determined that it was and was convinced this was due to the fracking technology primarily, and secondarily, the resource was so vast and growing every day as they identify more shelves of oil and refine the technology to extract even more of it. I quickly became convinced that this was more than oil and economics, but national security and energy independence. Even Obama could not stop it.

What role is Oppidan looking to play in the area?

We hope to assist in making the overall area more livable for families and help to generate stronger communities. When I started Oppidan 22 years ago we developed a tag line, “Builder of Towns, Creator of Value,” and in this new venture in the Bakken we are truly executing our mission statement. Our hope is that through our development efforts the area becomes more inviting to sustainable living and therefore strengthens communities.

Q&A

Interview by Tim Portz

Why is commercial real estate development vital as the region develops?

Without commercial development, these communities are not livable and sustainable long term. This is a 100-plus year run. Sustainability is critical to its success. A transient economy will not work long-term for the area or the resource. These communities that serve the Bakken region need the services that commercial development delivers: food, housing, entertainment, shopping and more.

Oppidan is active in N.D. towns such as Watford City, Stanley, and Tioga. How are these towns able to keep up with the very real infrastructure demands being placed on them to support the explosive growth they are experiencing?

It has not been easy for these cities, but they possess strong financial and human assets. The state of North Dakota and the federal government realize the importance of this region and are assisting them along the way.

Guys like Curt Moen in Watford City, Wade Elder in Tioga and Stanley are smart, hardworking guys that really make a difference and get things done right.

After your first investments in the area, you received some counsel from folks familiar with the area to slow down. Very recently, you’ve heard just the opposite from those same folks. Why were professionals with very intimate knowledge of the area and the resource having such a hard time understanding the size of the opportunity for everyone involved?

It amazes me how little people know about how significant this find really is. As more people truly try to understand the potential of this oil-find and the technology around it they become believers. These are smart guys questioning its viability and after I tell them to study it they become believers.

different apartment complexes with over 200 individual units. A few of these projects are already underway, but the majority of them kick off this spring.

Commercial real estate investments need long-term tenants to realize their profit potential. Clearly your investors are convinced this is a long-term play. What is the most convincing aspect of the region to build confidence in the investment community?

We really have not had trouble finding trades and materials for our delivery. I do think this is somewhat overstated and therefore allows a greater spread for the contractors. Our model helps us to keep price and schedule in-line as we use our longstanding strategic partners to assist us in the delivery.

As we continue to deliver in the Bakken for our clients, we are able to attract the best of show in terms of the required trades. I think the biggest issue for the trades is to identify how they are getting paid, not their ability to perform. There are many development companies that have big ideas but little to show and the trades get hurt in these situations.

As I mentioned previously, this is more than a 100-year opportunity and once it is objectively and intellectually studied, the service providers, lenders and buyers buy into the long-term viability of the region. With oil production at almost a million barrels per day, and consumer spending up over 62.8 percent on average year-over-year for the past four years, confidence is being built in the investment community. At the same time, the resource is growing as the oil companies are identifying more oil reserves every day.

Can you talk briefly about the active projects you have in the area?

Oppidan is actively working on projects in Dickinson, Minot, Stanley, Tioga, Watford, Williston and New Town. Collectively, we have nearly a dozen different projects in various phases of development. Our projects are a mix of commercial real estate sites and residential apartment complexes. We have nearly 1.5 million square feet of commercial real estate under active development and five

Have you and your team found it difficult to find subcontractors, materials or skilled laborers for your projects?

How important is the region and the opportunity there to the next decade of Oppidan’s growth?

From Oppidan’s perspective, the Bakken will have a positive impact on its future but only in part. We are active in 26 states, so this opportunity in the Bakken gives us more diversity to our growth as we continue to expand around the country.

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