The Bakken Magazine - February 2015

FEBRUARY 2015

Flare Tech Trends Service, Equipment Offerings For Increased Utilization Page 24

www.THEBAKKEN.com Printed in USA

Plus

Managing Crude Conditioning Page 30

AND

Breakeven, Production Predictions Page 36

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CONTENTS

FEBRUARY 2015

VOLUME 3 ISSUE 2

pg 40

Pg 30

PRODUCTS & TECHNOLOGY

Moving Toward Crude Conditioning Impending crude conditioning regulations have emphasized the need for well site heat-based technology.

Profire Energy represents one of many firms capable of exceeding the industry’s needs.

BY LUKE GEIVER

DEPARTMENTS

IN PLAY

36 The Numbers

See production estimates, rig counts and yearly well totals based on various oil price scenarios, graphically.

BY THE BAKKEN MAGAZINE STAFF

IN PLAY

38 Top US Energy Sources Through 2040

The American Petroleum Institute’s leader speaks on the current, and future state of U.S. energy production.

BY PATRICK C. MILLER

Pg 24

PRODUCTS & TECHNOLOGY

Targeting Flare Utilization As mandated reduction efforts continue, new approaches and technology aimed at flare capture are succeeding.

BY EMILY AASAND

6 Editor’s Note

Flare Reduction Direction

BY LUKE GEIVER

8 ND Petroleum Council

NORM: North Dakota’s Solution For North Dakota’s Challenge

BY TESSA SANDSTROM

10 Events Calendar 12 Bakken News ON THE COVER: A Torrent Energy Services gas compression unit on a Bakken well pad.

Bakken News and Trends

PHOTO: TORRENT ENERGY SERVICES

THEBAKKEN.COM

5

EDITOR'S NOTE

Flare Reduction Direction Oil prices, for better or worse, could be the main driver for Bakken growth this year. Flare-reduction targets—

Luke Geiver

Editor The Bakken magazine lgeiver@bbiinternational.com

recently overshadowed by constant price and future production speculation amidst low-price per-barrel numbers—should also be considered a major element impacting growth in the Bakken, again, for better or worse. As of November 2014, roughly 775 Bakken pool wells were awaiting completion. Low oil prices are considered the main reason for the huge number of uncompleted wells, but North Dakota-imposed flare-reduction goals are also a large reason for the massive well backlog. In an effort to meet the state’s overall flare-reduction percentages, many operators held off completing wells. Doing so eliminated the massive flare volumes associated with newly completed wells brought online and helped the operator community achieve the state’s flare reduction totals. The impact of well-completion hold-offs is yet to be determined.

These flare-reduction efforts, combined with a unique tax trigger environment that could further cloud the timeline for the completion of new wells (plus this current backlog of wells), will eventually bring the topic of flaring back to the forefront, however. This month, our team focused on the new perspectives, technologies and strategies associated with flaring in the Bakken. Our findings indicate that the state of flaring is heading in a positive direction, thanks to innovative technology and gathering options and that, for new or backlogged wells, processes are in place to help operators mitigate the difficulties of navigating the flare capture process.

The state of U.S. energy is in the midst of an unprecedented era, and is quickly becoming an energy producing superpower, according to Jack Gerard, president of the American Petroleum Institute. Gerard recently delivered his state of energy report, highlighting the mix of U.S. energy options and the role of oil and gas for the country.

His report was not bias toward his constituents, however, as evidenced by his inclusion of detailed updates on several other energy sources, including wind, solar and biomass.

Staff writer Patrick Miller wrote an in-depth summary on the state of energy, in “Top U.S. Energy Sources Through 2040,” on page 36.

Although our focus for February is on flaring, we couldn’t resist offering information on low oil prices and how they impact the Bakken. Armed with some incredible data from the North Dakota Department of Mineral Resources, we put our designers to work on an infographic that illustrates potential oil production outcomes at various oil prices. Sometimes, as most who have been to the Bakken can attest, it easier to understand the Bakken through visual experiences, so without a crystal ball filled with pictures from the future Bakken, we had to take a different approach.

For the Latest Industry News:

www.TheBakken.com Follow us: twitter.com/thebakkenmag facebook.com/TheBakkenMag 6

The BAKKEN MAGAZINE FEBRUARY 2015

www.THEBAKKEN.com

ADVERTISER INDEX

VOLUME 3 ISSUE 2

3

ABUTEC LLC

EDITORIAL

17

AE2S

Editor Luke Geiver lgeiver@bbiinternational.com

27

Alpha Capital LLC

Staff Writer Emily Aasand eaasand@bbiinternational.com

43

Bakken Conference & Expo

Staff Writer Patrick C. Miller pmiller@bbiinternational.com

42

Bakken Directory

Copy Editor Jan Tellmann jtellmann@bbiinternational.com

34

Bartlett & West

41

Bountiful Tanks

Chairman Mike Bryan mbryan@bbiinternational.com

21

Capital Lodge

CEO Joe Bryan jbryan@bbiinternational.com

11

CARBO

President Tom Bryan tbryan@bbiinternational.com

19

Convey-All USA

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com

20

Corval Group

Vice President of Content Tim Portz tportz@bbiinternational.com

33

Eide Ford Diesel Services

Business Development Manager Bob Brown bbrown@bbiinternational.com

35

Ferus CNG

Account Manager Ben Lester blester@bbiinternational.com

10

Hotsy Water Blast Manufacturing LP

Account Manager Austin Maatz amaatz@bbiinternational.com

23

iLevel Digital

Marketing & Sales Director John Nelson jnelson@bbiinternational.com

26

Miller Insulation

Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com

29

NCS MULTISTAGE

Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

22

PetroSkills, LLC

44

Quality Mat Company

PUBLISHING & SALES

ART

2

Art Director Jaci Satterlund jsatterlund@bbiinternational.com Graphic Designer Lindsey Noble lnoble@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.

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.

Rossco Crane

40

SBG Energy Services LLC

16

Suttner America Company

4

Tyco Fire Protection Products

39

Wells Concrete

28

Wood Group PSN

18

Zeeco

COPYRIGHT Š 2015

by BBI International

TM

Please recycle this magazine and remove inserts or samples before recycling

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7

NORTH DAKOTA PETROLEUM COUNCIL

THE MESSAGE

OILFIELD NORM NORM associated with oil and gas development includes silt, sediment, other particulates and water.

This NORM can become concentrated in tanks, pipes, and

These are brought to the surface during the drilling process.

Particulates

Sediment

Silt

Tank sludge

Pipe Scale

WHAT IT ISN’T

to catch sediment, silt, etc. Waste water can be injected into a disposal well.

X X Nuclear waste

Something put into the ground by companies

This concentrated waste is then called technically enhanced NORM, or TENORM, and requires special treatment and disposal.

NORM: North Dakota’s Solution For North Dakota’s Challenge

By Tessa Sandstrom

however, is just how common and disposal of NORM, but it has also natural radioactivity is, especially perpetuated the misconceptions They are terms that evoke a when we are discussing Naturally about radiation. certain sense of concern or anxiety Occurring Radioactive Materials, So what is NORM? Naturally among most. If you are a child of or NORM. In truth, it is everyoccurring radioactive materials are the 80s or 90s, we can’t help but where—our air, water, soil and radioactive substances that exist think of Teenage Mutant Ninja food.

It’s about as natural and in all natural media as mentioned.

Turtles or other mutations. Others organic as it gets, and it’s not likely NORM as it relates to oil and gas may think of Spider-Man, the to infuse anyone (or thing) with development includes sediment, Fantastic Four or the Incredible special powers any time soon. silt and other particulates that are Hulk—all superheroes who were But that hasn’t stopped brought from North Dakota’s transformed by radiation. Nearly concern over NORM as it relates formations up to two miles down every generation is familiar with to oil and gas development.

A few to the surface during the drilling Godzilla. Radiation is perceived high-profile cases involving illegal process. is notRefining something *Several factors influence source of a company’s crude oil imports.

Motiva, for example, is partially owned byItSaudi Inc. that is as something unnatural created by *Only company’s importing Persian Gulf crude are shown. Inof total, theresocks are 69elevated crude companies.put into the ground by humans; it dumping filter humans. *Persian Gulf includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia and United Arab Emirates the discussion for appropriate is simply bits of earth and water few people realize, SOURCE: What U.S. ENGERGY INFORMATION ADMINISTRATION

Radiation or radioactivity:

8

The BAKKEN MAGAZINE FEBRUARY 2015

taken out of the ground.

These particulates can become concentrated in pipes, holding tanks and filter socks. Because this concentration is done by human activities, it then becomes called technologically enhanced naturally occurring radioactive materials or TENORM. Again, it is not something that is added by the industry, simply rocks taken from below the surface, brought up, before being filtered out or settled into equipment.

If this radiation is concentrated, however, is it dangerous? The

NORTH DAKOTA PETROLEUM COUNCIL

HANDLING OF TENORM TENORM IN OTHER STATES

ON THE ROAD WITH TENORM

in excess of 5 picoCuries per gram (pCi/g), it cannot be Idaho, Colorado or Texas, illustrating the need for licensed disposal sites within our state.

short answer is no. Just because an object contains radiation does not mean it poses a risk. What matters is whether that radiation is absorbed.

This does not mean the industry does not want to properly dispose of its waste, however. In fact, it’s quite the opposite. Bad players that have illegally disposed of TENORM have given the entire industry a bad, undeserved reputation when it comes to NORM, and our hope is to level the playing field by putting clear, concise regulations in place that would allow for the proper disposal of TENORM from oil and gas development.

Currently, all waste above 5 picocuries must be hauled out of state to licensed facilities which actually may pose a greater hazard to the public because it requires a large number of trucks hauling this waste longer distances. This

Utah Washington Colorado California Idaho Illinois Michigan Wyoming Louisiana Minnesota Montana New Mexico Texas North Dakota

may increase the potential for accidents, not to mention the stress on our infrastructure. Having disposal facilities within the state would also help cut costs at a time when oil prices are low. It also means being responsible for our own operations and being a good neighbor.

This TENORM is generated in North Dakota and it should be safely and responsibly disposed of in North Dakota.

The North Dakota Department of Health has proposed rules that will increase the limit for disposal in special waste landfills from 5 to 50 picocuries. At public hearings held in January, there were some concerns about this, but they were based mainly in myth.

Just because the level is higher, does not mean the danger is higher. For starters, 50 picocuries is well below the level of radiation we might receive from everyday items, one of which may very

10,000 pCi/g 10,000 pCi/g 2,000 pCi/g 1,800 pCi/g 1,500 pCi/g 200 pCi/g 50 pCi/g 30 pCi/g

5 pCi/g

well be your own home. Second, radiation only poses a risk if it is absorbed. For this to happen, the TENORM associated with oil and gas development must be ingested or inhaled.

To put it into context, a donut contains 200 calories. Let’s liken that to radiation. Those calories cannot be absorbed by simply sitting next to the donut or touching it; it must be eaten. Once that donut is eaten, those calories are absorbed and you might gain weight as a result. This would be similar to radiation dose equivalent.

Oil field TENORM is the same way.

The chances of a person, especially from the general public to ever eat or inhale TENORM is very, very unlikely, but we want to prevent that possibility from occurring and that starts with proper handling and disposal regulations.

In-state disposal of TE-

Several other states have higher limits for the safe disposal of TENORM. North Dakota is moving in that direction, too, using thorough and careful new rules. These rules will help ensure that TENORM generated by the state can be safely and properly disposed of in the state.

NORM will be a major benefit to both the industry and state.

Trepidation about radioactivity still exists, however, primarily due to the misconceptions surrounding it.

We encourage you to help correct these misconceptions by sharing this and other information available at http://northdakotaoilcan. com/NDenergyfacts/NORM/ and encourage the North Dakota Department of Health to consider regulations that will allow for instate disposal of waste and thus, a North Dakota solution to a North Dakota challenge.

Author: Tessa Sandstrom Communications Manager, North Dakota Petroleum Council tsandstrom@ndoil.org 701-557-7744

THEBAKKEN.COM

9

EVENTS CALENDAR

The Bakken magazine

will be distributed at the following events: DUG Bakken and Niobrara March 31-April 2, 2015 Denver, Colorado Issue: March 2015 The Bakken magazine

Williston Basin Petroleum Conference April 28-30, 2015 Regina, Saskatchewan Issue: April 2015 The Bakken magazine

Unconventional Resources Technology Conference (URTeC) July 20-22, 2015 San Antonio, Texas Issue: July 2015 The Bakken magazine

The Bakken Conference & Expo

July 27-29, 2015 Grand Forks, North Dakota Issue: July 2015 The Bakken magazine

2015 North Dakota Petroleum Conference Annual Meeting September 21-23, 2015 Fargo, North Dakota Issue: September 2015 The Bakken magazine

Houston Oilfield Expo December 9-10, 2015 Houston, Texas Issue: December 2015 10

The BAKKEN MAGAZINE FEBRUARY 2015

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BAKKEN NEWS

BAKKEN NEWS & TRENDS

REPUBLIC, TERVITA E&P SITES IN MAJOR BASINS: BAKKEN

Marcellus/Utica

DJ Niobrara

Barnett

LEGEND RSG - LF (23) Tervita - LF (4) Tervita - TRD (4) Tervita - SWD (14) Tervita - Field Office/ Other (8)

Permian Haynesville

Eagle Ford

Republic Services buys Tervita’s Bakken assets An engineered landfill near Blue Buttes, North Dakota, capable of accepting nonhazardous solid waste from oil and gas exploration has caught the attention of Republic Services. The U.S.-based nonhazardous recycling and solid waste handler has purchased Tervita LLC, the U.S. subsidiary of Tervita Corp., in a $485 million deal that includes the Blue Buttes facility. Republic Services now has service offerings in every major U.S. shale play.

For Republic Services, the oilfield waste market has attractive long-term potential. The industry sector is valued at

12

roughly $14 billion, according to the company. The purchase of Tervita, along with its other oilfield waste assets will provide an annual growth of 6 to 12 percent.

“Tervita’s environmentally committed operations complement our core competency and expertise in waste handling, recovery and disposal,” said Donald Slager, president and CEO of Republic Services.

Tervita has mainly focused on the treatment and recovery of solids in its North American operations, followed by solids control, landfill operations, trucking and saltwater disposal (SWD).

The BAKKEN MAGAZINE FEBRUARY 2015

Along with the acquisition of the Blue Buttes facility in North Dakota, Republic Services will also acquire an SWD well in the same area as the engineered landfill, a treatment and recovery facility near Alexander and several onsite closed-loop systems designed for use on the well pad.

Tervita recently earned an innovation award from the American Petroleum Institute for its management and construction of the Blue Buttes landfill.

BAKKEN NEWS

Texas A&M policy brief calls for end to US crude export ban U.S. Field Production of Crude Oil 4.0 Billion Barrels

Ending the U.S. oil export ban should be a “no brainer” that both President Barack Obama and the U.S. Congress can agree upon, says a pair of scholars at Texas A&M University who co-authored a policy brief on the topic.

“They both claim that they support free trade. Here’s a really good example of a case where we’re not promoting free trade like we claim,” explains James Griffin, professor of economics and public policy.

Griffin and F. Gregory Gause, professor and head of the International Affairs Department at Texas A&M, believe that the Energy Policy Conservation Act of 1975 was poor policy when enacted and makes even less sense today given America’s status as an “energy giant.”

They contend that because energy security is a global problem, permitting exports of U.S. crude and natural gas would create a more shock-resistant world economy, counter Russian nationalism, help reassure America’s allies, and retain the strength of the U.S. energy industry.

“When oil supply disruptions occur anywhere, world oil prices spiral and worldwide recessions routinely follow,” they write.

Griffin says refiners generally oppose ending the export ban because they can buy crude at artificially low prices, turn it into gasoline or diesel fuel and then export it to global markets. He says it’s a circuitous and profitable way for the refineries to avoid the export ban.

“Why not be able to just export it directly?” Griffin asks. “The refineries are basically the gatekeepers. They don’t want to see this end. It’s worked to their benefit

3.0 2.0 1.0 0.0 1954 1956 1974 1984 1994 2004 2014

SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION

and they, as a group, are lobbying against the relaxation of the ban.”

Griffin argues that the export ban policy hurts crude and LNG producers in the U.S. “The people that ought to be rewarded here are not the refiners,” he says. “The people that ought to be rewarded are the risk-takers who have gone out and developed the Bakken and the Eagle Ford, the Wolfberry and the Permian Basin. They should reap the benefits of it. The existing regulations work against that.”

As the policy brief notes, the U.S. has the potential to add 8.7 million barrels per day to the global “crude oil bath tub” and compete in East Asian markets where the Saudis have increased prices.

“Returning American oil to the global

bathtub also gives the U.S. more leverage in the market with the world’s largest oil exporter, Saudi Arabia,” Griffin and Gause write.

Griffin says that lifting the export ban is by no means a panacea for world energy problems.

“If anything, what will happen is that it’ll bring in sharper competition between crudes like the Bakken and crude out of the Eagle Ford,” he explains. “These effects are of second-order importance. The big effect is that by eliminating the export ban, it will give a little more relief to the domestic industry.”

THEBAKKEN.COM

13

BAKKEN NEWS

Crescent Point Energy’s 2015 plans: $1.45 billion Dropping oil prices have many companies formulating more disciplined 2015 budgets.

One such company, Canadabased Crescent Point Energy Corp., announced a $1.45 billion capital expenditures budget for 2015 to generate an average daily production of 152,500 barrels of oil equivalent per day (boepd), totaling a 9 percent increase over 2014 guidance.

“In this commodity price environment, our 2015 budget plans are disciplined,” said Scott Saxberg, president and CEO of Crescent Point.

“We’ve reduced our capital expenditures from 2014 guidance by 28 percent and we have increased our 2015 oil heads to greater than 50 percent at prices averaging above CDN$90 per barrel. We’re forecasting nine percent production growth over 2014 and we are starting the year strong, as we exited December with produc-

tion ahead of our 155,000 boepd guidance.”

Crescent Point is taking a more conservative approach to 2015 production targets. The company says it is well-hedged for this year and is poised to produce reliable cash flows, even in a low commodity price environment. “The company has more than 50 percent of its 2015 oil production hedged, net of royalties, with an average price above CA$90 per barrel.

Crescent Point has additional hedges in place for 2016, 2017 and into 2018.”

The company has plans to manage its balance sheet and dividend if lower oil prices should persist. Some of those plans include strong inventory depth, which allows the company to continue high-grading drilling projects for additional capital efficiencies, the flexibility to further reduce capital expenditures in the second half

TORQUAY BAKKEN NEW PLAY >1 BILLION BARRELS

14

OOIP 4.6 BILLION BARRELS

The BAKKEN MAGAZINE FEBRUARY 2015

of the year, while still achieving annual average production guidance levels, and the option to shift more capital to its refrac inventory and production optimization initiatives and to reduce facilities spending, according to the company.

Along with improving its capital efficiencies, Crescent Point is also working on various drilling and completion technologies that can potentially add to production and reserves in a cost-efficient manner.

“When the prices fell dramatically in 2008 to 2009, we were able to realize a 30 percent reduction in our Bakken drilling and completions costs,” said Saxberg. “We’ll be working hard with our service providers and fully expect to see rates come down even more than they already have.”

Of Crescent Point’s $1.45 billion, approximately $1.27 bil-

lion is expected to be allocated to drilling and completions, including the drilling of 616 net acres. The remaining budget is expected to be put toward infrastructure, undeveloped land and seismic testing across all core areas, the company said.

Crescent Point also said it will continue to remain focused on technology this year, as it has the potential to both increase production and reduce costs.

“Our commitment to technology is a key value-driver for the company,” said Saxberg.

“Technological advancements such as our 25-stage cemented liner completion techniques, waterflood programs across all major plays, and the use of coil tubing units provide us with a clear advantage that has direct impact on our cash flows and, ultimately, our bottom line.”

North Dakota outlook

In Crescent Point’s Flat Lake oil resource play, which is located in western North Dakota, the company plans to spend $188 million (roughly 13 percent) of this year's budget, drilling approximately 44 net wells.

In the Torquay play at Flat Lake, Crescent Point is generating strong rates of return even at the current oil prices, the company said. It also, “plans to initiate its first waterflood pilot in the area targeting the Torquay zone in mid-2015.”

In 2015, Crescent Point plans to spend roughly $135 million of the capital development budget to the company’s other properties in Canada and North Dakota.

BAKKEN NEWS

CRUDE-BY-RAIL

1.1 MILLION BOPD BEING PRODUCED IN ND

2017 TRAIN ACCIDENTS

DECREASED BY 40%

CANADA & THE U.S. PLAN TO BEGIN

2/3 OF ALL

NORTH AMERICA

CRUDE-BY-RAIL

COMES FROM ND

BETWEEN 2004-2013 PHASING OUT RAIL CARS IN 2017

IHS releases report on crude-by-rail transportation IHS recently compiled a report regarding crude-by-rail in both the United States and Canada, as part of a series from the IHS Canadian Oil Sands Energy Dialogue. The in-depth report looks at the history and outlook for crude-by-rail, the safety of moving crude oil by rail and the evolving policies for crude-by-rail transportation.

Bakken production expanded nearly 500 percent— from 170,000 barrels of oil per day (bopd) to roughly 850,000 bopd—between 2009 and 2013, and by the end of 2014, production is expected to have exceeded 1.1 million bopd, the report says.

According to North Dakota calculations, those numbers issued

by IHS are correct.

“With limited access to pipelines and major refining centers, most of this incremental growth has ended up on the rails,” says the report. “In

2013, just over two-thirds of all North American crude-by-rail movements came from North Dakota.”

Although crude-by-rail transportation is on the rise, the report found that from 2004 to 2013, train accidents in Canada and the United States fell 40 percent from 4,462 to 2,660.

“Freight rail accounted for nearly three quarters of these accidents, with the remainder involving passenger trains and railroad equipment.”

IHS says it currently expects crude-by-rail movements originating in the U.S. to peak between 2015 and 2017, with volumes hovering around 1.1 million bopd before beginning to subside in 2018. This plateau would be a result of planned pipelines for the regions, including the Sandpiper, Pony Express, Line 9 reversal, and Energy East.

In July, the U.S. Department

of Transportation announced proposed rules to phase out rail cars in the form of a Notice of Proposed Rulemaking and a companion Advanced Notice of Proposed Rulemaking.

“Safety is our top priority, which is why I’ve worked aggressively to improve the safe transport of crude oil and other hazardous materials since my first week in office,” said U.S. Secretary of Transportation Anthony Foxx. “While we have made unprecedented progress through voluntary agreements and emergency orders, today’s proposal represents our most significant progress yet in developing and enforcing new rules to ensure that all flammable liquids including Bakken crude and ethanol, are transported safely.”

Both Canadian and U.S. governments have announced plans to phase out 72,000 tank cars currently in crude and etha-

nol service, set to begin in 2017.

The United States has proposed phasing out all DOT-111, including CPC-1232, for crude and ethanol service by packing group beginning in October 2017 for goods classified in Pack Group I (high-hazard goods). The phaseout of Packing Group II, where most crude and ethanol fit, is expected in October 2018, the report says.

“It is safe to assume the phaseout will not be without cost,” the report notes. “From the perspective of the shippers (crude and ethanol producers), it is uncertain who will bear these costs (whether tank car owners, shippers or the railroads, or all three to various degrees), as well as whether additional efficiencies could offset or even overcome any cost pressures.”

THEBAKKEN.COM

15

BAKKEN NEWS

North Dakota population reaches record high The U.S. Census Bureau recently announced that North Dakota’s population has reached an all-time high of 739,482 residents, an increase of roughly 15,600 from last year’s count, largely due to the increased activity in western North Dakota.

“Our economic growth over the last decade continues to keep North Dakotans home, and we are attracting new

residents who come for good jobs, a stable community and a quality of life that is second to none,” said North Dakota Gov. Jack Dalrymple.

According to the U.S. Census Bureau, the state’s population has increased 2.2 percent since last year, the largest percent increase in the nation.

North Dakota’s state population has become the fourth youngest behind Utah, Alaska

TOTAL POPULATION

739,482

GROWTH RATE

2.2%

MEDIAN AGE

35

and Texas. Census data shows that the median age of a North Dakota resident is 35 years of age, compared to the average age of 37 in 2008.

A recent KLJ study provided insight on the population increase and projected outlook for western North Dakota.

Based on predictions over the 2014-2019 period, the Williston region could have a total population potential of 97,000 at the end of 2014, which includes permanent residents, shift workers, seasonal construction workers, and dependents and spouses of workers living in nonpermanent lodging arrangements. The total population potential in 2019 could reach 130,000 in the Williston region “assuming housing is supplied and occupancy rates remain valid.”

The KLJ study projected that the Minot, North Dakota, region has a population potential of 137,000 in 2019 and found the Dickinson region to have an estimated population potential around 77,000 in 2019.

“Permanent population will be largely driven by the supply of permanent housing in the region,” the study says.

“Due to a lack of housing, the region will continue to have a total (service) population that is substantially larger than the permanent population measured by the U.S. Census.”

BAKKEN NEWS

ND proposes new TENORM limits North Dakota’s policy on technically enhanced naturally occurring radioactive material––TENORM–– could soon be changing. In January, the N.D. Department of Health proposed rule changes applicable to industrial and oilfield special waste landfills. The proposed rule changes would allow industrial and oilfield special waste landfills to accept TENORM containing up to 50 picocuries per gram. The state currently has a limit of 5 picocuries per gram, a limit that has forced many oilfield waste handling firms to move material generated in the North Dakota-portion of the Bakken out of the state to sites as far away as Idaho.

The proposed N.D. DOH limit changes were issued following the completion of an Argonne National Laboratory study commissioned by the DOH. The new rules would also require material to be tracked from cradle to grave, and companies that transport material would need to meet five requirements.

-Obtain a license from the state’s Radiation Control Program -Register with the Secretary of State.

-Acquire hazardous material endorsement.

-Keep a trained radiation safety officer on staff.

-Submit quarterly load reports that include waste manifest number, load weight, pickup and delivery dates.

Information would have to be signed at each step.

The new limits are based on the best available science, according to Dave Glatt, environmental health section chief for the DOH. The new rules would also prohibit landfills from accepting more than 25,000 tons of TENORM waste per year. TENORM would need to be buried at least 10 feet below the top of the landfill, and municipal solid waste landfills would be allowed to accept TENORM. PROPER DISPOSAL: The state's new requirements would require oilfield waste employees working in proximity to materials to obtain the proper certification.

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BAKKEN NEWS

Bakken Oil price tax trigger breakdown Oil tax incentives and price-induced triggers have become a prominent topic in the Bakken. In an unprecedented move in mid-January, Lynn Helms, director of the state’s Department of Mineral Resources, presented next to North Dakota’s State Tax Commissioner, Ryan Rauschenberger, to explain the basics of the state’s two main oil taxes and the accompanying tax triggers, which begin based on predetermined oil prices.

18

North Dakota has two oil tax types directed toward oil producers: the gross production tax (5 percent) and the extraction tax (6.5 percent). It also has what Rauschenberger calls a small and large tax trigger.

The small trigger was adopted in 2009 and has only been active once. With the decline in current oil prices, Raushenberger said, “It looks as if January will be our first one (small) trigger month because we will be well below the

The BAKKEN MAGAZINE FEBRUARY 2015

average of $57.50, so we are planning on that happening.”

When activated, the small trigger allows for a 4.5 percent reduction—from 6.5 percent to 2 percent—on the first 75,000 barrels produced or the first $4.5 million of gross value during the first 18 months after completion. Should January be the first trigger month, it would begin to impact state revenues in either March or April.

“This does sunset June 30, 2015, if the legislature does not take any action,” Raushenberger said. “Under current law, the small tax trigger would be in place February through June and applies to new wells drilled during that time.”

If the trigger takes effect from February (revenue month of March) to June, assuming 650 wells currently waiting for completion are completed—excluding new wells— it would total more than $120 million. On top of that, oil producers, as a whole, would be saving another $85 million on new wells if 100 wells per month are completed from February to June, or, an estimated impact of $170,000 per well if a company is getting 75,000 barrels at $50 at a 4.5 percent rate savings.

The large trigger begins after a five-month period during which West Texas Intermediate trades at or below $55.09 per barrel on NYMEX. If the pricing standard is met, all wells— both existing and new wells completed during the lifespan of the tax trigger—would receive a tax break. Wells drilled within 24 months of the tax trigger would pay a zero percent tax rate on the oil extraction tax. Wells completed 24 months prior to the start of the trigger would pay 4 percent. The full oil extraction tax exemption (zero percent) will only be granted for 24 full months. “If you had a well completed three months before the trigger kicked in, you’d still have 21 months left of full exemption of the extraction tax,” Rauschenberger said. The large trigger is turned off when WTI trades above $55.09 per barrel for five consecutive months.

According to both Rauschenberger and Helms, the triggers could create a unique situation with the Bakken. Operators, they said, could be faced with a decision to drill and, or, complete wells within a time frame offering the most advantageous tax incentives.

BAKKEN NEWS

THE TAX TRIGGER SCENE Small Tax Trigger: 1 WTI < $57.50 average for single month.

2 Takes effect first day of following month.

3 Ends first day of month following a single month with average price of $72.50 or more.

4 Only applies to wells completed after incentive is triggered.

5 Oil Extraction Tax decreases from 6.5 percent to 2 percent on first 75,000 barrels or $4.5 million of gross value.

Large Tax Trigger: 1 WTI < $55.09 for 5 consecutive months.

2 Takes effect first day of month following five consecutive months below trigger.

3 Ends first day of month following five consecutive months of pricing above trigger.

4 Applies to all wells, even if drilled prior to tax trigger turning on.

5 Wells completed after April 1987 but 24 months prior to trigger start receive 4 percent OET reduction.

6 Wells completed within 24 months of tax trigger start receive OET rate of zero percent for up to 24 months.

THEBAKKEN.COM

19

BAKKEN NEWS

SM Energy selling Mid-Continent assets to focus on Bakken SM Energy’s sale of assets in Oklahoma, east Texas and northern Louisiana are part of the company’s ongoing efforts to focus on the Bakken and Eagle Ford shale plays.

The Denver-based company made its largest monetary acquisition by purchasing $330 million worth of Bakken/Three Forks acreage in Divide County, North Dakota. The acreage was located adjacent to SM Energy’s own acreage block known as the Gooseneck.

“We just picked up a fair amount of acreage in Divide County in the fall,” said James Edwards, manager of investor relations. “That’s really the reason for selling that piece.”

The nonoperating assets produced roughly 3.4 net mmboe in 2014, 98 percent of which was gas. If acceptable bids are received by the exploration and production company, the sale of the assets could be complete by mid-2015.

“We’ve spent a lot of time in the last seven or eight years trying to focus the company,” Edwards said “We had a smattering of assets around the country—small non-op type stuff. We spent a lot of time trying to quarter those up into a few big assets. The two big ones that have landed are the Eagle Ford and the Bakken.”

Edwards said it’s too early to predict SM Energy’s level

of activity in the Bakken in the coming year because the company’s budget hasn’t been finalized.

“It’s more of trying to core up the company and get rid of some of the small non-op, noncore assets so that we can continue to focus the strategy,” he says.

Tony Best, SM Energy CEO said “We had a strong 2014 driven by outstanding well results across the company. This was particularly true in our core Eagle Ford and Bakken/Three Forks development areas where, as previously disclosed, we have economic drilling inventory equating to over 20 years of current company production

and 10 years of gross locations at our current pace.”

“Our balance sheet is strong, we have ample liquidity, and we are confident that after costs adjust to the current commodity pricing environment, we will continue to generate strong, industry-leading returns on capital employed,” Best said.

SM Energy is an independent energy company engaged in the acquisition, exploration, development and production of crude oil, natural gas, and natural gas liquids in onshore North America.

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PRODUCTS & TECHNOLOGY

24

The BAKKEN MAGAZINE FEBRUARY 2015

PRODUCTS & TECHNOLOGY

TARGETING

Flare Utilization As mandated reduction efforts continue, new approaches and technology aimed at flare capture are succeeding

By Emily Aasand

Bakken producers may have met the first of several North Dakota-issued flare-reduction targets, but the challenges of continued crude production in the midst of impending new state-imposed, flare-reduction targets remain. Failure to comply with the state-issued flare regulations will result in restricted production volumes of 200 barrels per day.

To remain in compliance with current goals while working to meet future restrictions, exploration and production firms, midstream gas gatherers, and flare-capture technology providers continue to deploy unique and innovative solutions, well development timelines and gathering methods.

Torrent Energy Services is well-versed on the Bakken gas capture opportunity and challenges. The company offers modular gas processing equipment and services that allow oil and gas producers along with midstream companies to recover valuable natural gas liquids (NGLs) while reducing overall flare volumes, intensity and emissions.

Torrent Energy Services has found success in a short time span. After forming in 2012, it became fully operational in 2013.

The core management team came from a company called Zephyr Gas Services—a gas treating company that specialized in amine plants focused on removing carbon dioxide from natural gas streams.

While in development stages, the Torrent team realized that the oil and gas liquids market was underserved. Mike Chiste, executive vice president of Torrent, says the underserved market became Torrent’s initial focus, and it began to focus on ways to provide gas processing solutions to oil companies. To do this, Torrent established a gas-processing rental fleet that would not only have low-maintenance operations, but have increased run times to maximize profitability.

Torrent’s primary piece of equipment is a mechanical refrigeration unit (MRU).

Natural gas is gathered and sent from the well head through a compressor into the MRU, where the gas is chilled to roughly 20 degrees Fahrenheit below zero. The NGLs are recovered or captured from the gas stream. The NGLs are then taken out of the plant and stored in NGL storage tanks until trucks come to remove the NGLs from the well site.

VALUABLE SERVICE: Torrent offers modular gas processing equipment that allows companies to recover and remove valuable natural gas liquids that would otherwise be flared.

PHOTO: TORRENT ENERGY SERVICES LLC

THEBAKKEN.COM

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PRODUCTS & TECHNOLOGY

â&#x20AC;&#x153;The stripping of the liquids greatly reduces the volatile organic compounds,â&#x20AC;?

Chiste says. Doing so helps to reduce the total volume of flared gas and the amount of harmful components released.

In addition to its MRU, Torrent has natural gas-powered generators that utilizes the processed residue gas stream that comes off the back of the MRU to power various pieces of production equipment needed at well pads.

Hot Business

HARVEST SEASON: Torrent specializes in harvesting NGLs which can save oil producers between $5 and $10, which is an incremental value amid declining oil prices.

PHOTO: TORRENT ENERGY SERVICES LLC

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The BAKKEN MAGAZINE FEBRUARY 2015

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With North Dakotaâ&#x20AC;&#x2122;s flaring regulations now in place, the Torrent team says it has more than doubled the size of its business in the past two months. By the end of February, Torrent expects to have 23 units deployed. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve recently raised private equity capital to accelerate our manufacturing program because we had more demand than we did inventory,â&#x20AC;? Chiste says. â&#x20AC;&#x153;We have embarked on a fairly ambitious program to build two to four units every month for the foreseeable future so we can meet current demands.â&#x20AC;?

Torrent rents its equipment to oil companies, which helps decrease overall capital expenditures incurred by the operator. Provision of operations and maintenance services also eliminates the operator having to operate additional equipment. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ll put a unit on the well pad, rent it out for a year and then as the gas volumes decrease, weâ&#x20AC;&#x2122;ll rent them a smaller unit and move the larger unit to a different location for them or rent it to a new customer altogether. This saves them from having to go out and buy equipment that, over time, will be oversized for their location,â&#x20AC;? Chiste says.

Flaring Niche

The Dallas-based company is focused on the higher-flowing well pads, according to Chris Czuppon, CFO of Torrent. The companyâ&#x20AC;&#x2122;s units can handle 4 to 6 times more gas than its competitors, Torrent believes. Competing companies tend to be more focused on serving the under-500,000 Continued on page 26

PRODUCTS & TECHNOLOGY

Flare-Tech Integrator

“The ability to make the con“We have a really huge job to do version and pay for the methane in terms of reducing and eventushould be very attractive for oil ally eliminating flares. We need as companies who have suffered dra- many people as possible to figure While some companies are matic declines in the value of their out how to do this profitably,” focusing on harvesting natural gas product,” Bragg says.

Bragg says. liquids (NGLs) at the well head The company says its target cliBy April, the company will and flaring the remaining methents are those with well pads with deploy its first Dresser-Rand LNGo ane, U.S. Flare Management, a absolutely no access to pipelines. unit, offering the client the opHouston-based startup with an It has to come up with a mobile portunity to reduce flare volumes, office in North Dakota, has taken a system that goes to the well head, utilize the methane portion of the new approach to reduction efforts, captures the methane, and turns it flare and create an LNG end-prodcalling itself a technology integrainto LNG, the team says. uct suitable for power supply. “I tor focused on finding the best Although competition for those think we will easily deploy 15 units solution to capture the methane focused on methane capture for this year,” Bragg believes. stream present in all Bakken flares LNG production is small, Bragg befor use as feedstock for liquefied lieves the market is large enough natural gas (LNG). for multiple service providers.

To do that, U.S. Flare Management has begun marketing Dresser-Rand’s LNGo portable natural gas liquefaction plant, a system that cools the methane from the well site, filters it through a JoulesThompson valve all in combination with a heat exchanger that turns the methane into LNG form.

The specialized approach has drawn interest from several prospective clients, according to Mark Bragg, CEO and founder, even in the midst of low oil prices and reduced CAPEX budgets. In fact, the U.S. Flare Management team Take the Fast Lane to Business Financing: says it has seen a huge increase * Accounts Receivable Financing in interest to potentially implement * Invoice Factoring these units into the field. * Inventory, Equipment & Purchase Order Financing The reduced price of oil means that revenue coming from an Alpha CAN when Banks Can’t! otherwise wasted product could * Easy 1-page applica on - Credit issues not a problem be very useful to the producer—no matter how small the revenue Apply today - 92% Approved in 24 Hrs. stream—but it can be significant 208-263-4199 in terms of converting something Alpha-CapitalLLC.com that was once wasted into something profitable, Bragg adds.

Financing Alternatives for Growing Businesses

THEBAKKEN.COM

27

PRODUCTS & TECHNOLOGY

AT THE SOURCE: Torrent's well site units are monitored and serviced by the company within 2-hours of any issue.

PHOTO: TORRENT ENERGY SERVICES

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cubic feet of natural gas per-day customer, whereas Torrentâ&#x20AC;&#x2122;s single unit can process up to roughly 3 million cubic feet of gas per day.

Torrent has the ability to process significantly higher volumes int the 10.0 to 20.0MM million cubic feet of gas per day range by stacking multiple units. â&#x20AC;&#x153;Our competitors are focused on a very different market than we are,â&#x20AC;? says Czuppon. â&#x20AC;&#x153;So, while we address similar issues at the well sites they just donâ&#x20AC;&#x2122;t have the ability to take the larger gas streams that are more prominent in the Bakken and other resource plays across the country.

With more than 1 million barrels of oil per day produced from the Bakken shale play, Torrent has found prime business opportunities in western North Dakota.

Torrent has been in the Bakken for two years, and understands that having people, service and viable operations is critical. The company has staff on call 24 hours, seven days a week and has a less than two hour on-site report time. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve battled through the winters and we have folks on the ground and at our plants every single day,â&#x20AC;? Chiste says. â&#x20AC;&#x153;Having a strong operations team and providing them the service for our equipment has been very well-received by our customers, especially when itâ&#x20AC;&#x2122;s in a resource constrained environment like North Dakota,â&#x20AC;? Chiste adds. â&#x20AC;&#x153;Our equipment does greatly differentiate us from our competition, but really our experienced personnel and responsive 24 hour, seven days a week service is what sets us apart and keeps our customers happy,â&#x20AC;? Czuppon says.

In this low crude price environment, Torrent believes its services arenâ&#x20AC;&#x2122;t just about flare reduction targets. Its technology package also offers a valuable, cost-saving product. Operators are able to market and sell liquids similar to how they market and sell oil. If oil prices are at $50 per barrel, there are liquids that Torrent can recover and then sell for another $5 to $10 per barrel, which is an incremental revenue stream. â&#x20AC;&#x153;People are not only looking at cutting costs, but theyâ&#x20AC;&#x2122;re looking at optimizing revenue and our plants help them do that,â&#x20AC;?

Chiste says.

Author: Emily Aasand Editor, The Bakken magazine 701-738-4976 eaasand@bbiinternational.com

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PRODUCTS & TECHNOLOGY

Moving

Toward Crude

Conditioning New regulations spotlight the role of burner management systems

By Luke Geiver

For Utah-based Profire Energy Inc. the Bakken offers incredible potential for the burner management company. The

future of Profire—and other firms capable of managing heating elements on well pads and tank battery sites—is linked to the play’s ongoing push to better control flaring and to condition all crude prior to rail transport. Although the company has operating facilities in Texas, Canada, Utah and the East Coast, it is the Bakken that has the team excited for the future. “We call the Bakken our sleeping giant,” Andrew Limpert, CFO says. “We are just getting started there. Our presence there is more a function of our ability to get there than our opportunities that exist there.”

Profire’s major entrance into the Bakken represents the start of a new era for the shale play. In late 2014, the North Dakota Industrial Commission implemented new crude conditioning rules that will take effect April 1. The new rules require all crude set for transport to meet certain pressure and temperature limits. The limits, the state believes, will ensure that Bakken crude transported via rail matches the volatility levels of gasoline used in car engines or lawnmowers and ensure all entities involved in the movement of the commodity that the crude in the cars is safe and within average volatility levels. Prior to shipment, oil will need to be stored at or below 13.7 Reid Vapor Pressure and at a temperature of 110 degree Celsius.

The Bakken magazine spoke with Limpert the day the NDIC issued its ruling on crude conditioning and it was clear then why the

THE SLEEPING GIANT: Profire Energy, a Utah-based company, believes the Bakken shale will create several clients due to the need for burner management systems on the well pad.

PHOTO: PROFIRE ENERGY INC.

30

The BAKKEN MAGAZINE FEBRUARY 2015

PRODUCTS & TECHNOLOGY

THEBAKKEN.COM

31

PRODUCTS & TECHNOLOGY

FROM THE PATCH TO THE NASDAQ: After starting as a small operation in Canada, the Profire Energy team has grown its employee base and shale play reach.

PHOTO: PROFIRE ENERGY INC.

team—and others that offer similar services—has such high hopes and plans for its service offerings in the Bakken.

Burner Management Background

Prior to the final ruling on the crude conditioning order, the NDIC had held several hearings on the subject. In September, a packed house offered several hours of testimony opposing, supporting, and explaining new technology and commenting on the NDIC’s reasoning and plans for conditioning. Before the initial hearing on the subject, the NDIC received 1,114 pages of testimony from 33 groups or individuals. Roughly two months, later, the NDIC held another hearing and re-opened the call for testimony on the subject. The call created another 141 pages of testimony submitted by 25 various groups.

Armed with more than 1,200 pages of 32

testimony, the NDIC arrived at its decision to implement crude conditioning regulations despite calls from the exploration and production community calling the regulations unneeded. According to the N.D. Department of Mineral Resources, the ruling would impact only 15 percent of the existing operators in the Bakken. But, all new well pads and tank batteries would have to meet the requirements for temperature and pressure standards. Failing to do so will result in a $12,500 fine for every day the oil is out of compliance. DMR field representatives will check pressure and heat gauges during site visits. Transload facilities also need to ensure oil moved onsite is under the 13.7 Reid Vapor Pressure threshold.

Although the Profire team believes it can play a major role for the operations of those looking to ensure compliance, it also has another reason for optimism.

The BAKKEN MAGAZINE FEBRUARY 2015

After forming the company in the mid-2000s, Harold Albert and Brent Hatch learned that the oil industry is constantly in need of evolution to remain profitable and safe, Limpert says. Albert, a former field service operator who worked on burners in Alberta, Canada, was once tasked with maintaining and relighting burners in the field. “He learned then that they could be hazardous,” Limpert says. The hazardous nature is best linked to the home BBQ. Imagine when you attempt to light the unit and the only reaction after pushing the ignition button is the sound of propane hissing.

Eventually, Limpert says, when it lights you get a big boom. Inspired by his negative field experiences with that hissing sound, Albert formed Profire to offer a burner management system to the oil industry. His work to offer a safer tool for lighting burners in the oilpatch was also one that would open his

PRODUCTS & TECHNOLOGY

team up to a massive market. Nearly every well pad in North America has some form of heating element present on the pad. Profireâ&#x20AC;&#x2122;s main burner management tool has evolved and now includes the ability to not only reignite a failed burner but also manipulate the amount of desired temperature needed for any application. Manipulating temperature in the oil patch is the main reason for optimism amongst the Profire group, according to Limpert.

Conditioned Crude

To keep Bakken crude properly conditioned to state-set standards, the use of heater treaters or heated liquid emulsifiers must be used. The systems use heat as the main method to strip out natural gas liquids that cannot be transported with the liquid crude under the new standards. The need for heat is the variable that Profire believes it can better manage.

Once installed for roughly $4,000, the system can maintain a given temperature for a certain application and detect and reignite a low flame if needed. It can also help to mitigate downtime created when oil tanks are not heated appropriately before transport trucks arrive. In North Dakota, weather causes the viscosity of oil to change, Limpert explains. When weather is cold and oil viscosity is low, a truck driver will have to wait to fill until the oil is heated and flowing at the appropriate level.

In the case of flaring, pilot lights do go out, he says. â&#x20AC;&#x153;Our technology makes sure they stay consistently lit.â&#x20AC;?

While the new crude conditioning rules for North Dakota mean the Bakken is officially entering a new era, Limpert hopes the new era isnâ&#x20AC;&#x2122;t seen as a negative or inefficient, uneconomic hassle to oil producers and well site servicing firms. Implementing a burner management system can also help save money in low crude price times, he says. â&#x20AC;&#x153;We have the ability to measure the amount of temperature that a tank can arrive at,â&#x20AC;? Limpert says. â&#x20AC;&#x153;Most people that have some kind of minimum requirement overheat their tanks and they run the burn-

NEW SAFETY STANDARDS: Reigniting failed burner systems doesn't have to include old, hand-based methods with electronic systems such as Profires.

PHOTO: PROFIRE ENERGY INC.

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THEBAKKEN.COM

33

PRODUCTS & TECHNOLOGY

er almost around the clock. If you run it all day you are wasting money and overheating your oil.”

The Profire technology allows a user to manage and tweak temperature ranges. “Heating your tank all day is like leaving your car idling all day long. Sure it will be plenty warm, but it isn’t the most efficient way to achieve your goal,” he says.

The state’s new conditioning regulations, in combination with the cost savings related to remote, instant temperature manipulation, has made Limpert keen to talk of burner management systems. “Burner management technology is going to be coming to the board room,” he says, “either from a regulator or a safety issue.” When it does, Limpert believes the work of company founder Hatch and the rest of the team over the past eight years will pay off for more than just the boardroom.

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

ALL-DAY ASSURANCE: The burner management unit allows for remote monitoring and can safely relight a system should it blow out.

PHOTO: PROFIRE ENERGY INC.

34

The BAKKEN MAGAZINE FEBRUARY 2015

The BAKKEN MAGAZINE FEBRUARY 2015

$65

$55

155

140

120

90

$35

$45

40

Rig Count

$25

$/BO

4,200

3,800

3,200

2,400

1,100

New Wells

7-1-16 7-1-17

0 0 00 ,00 , 0 5 72 77

Barrels of oil per day 0 00 0 0 0 0, 0, 0 0 0 7 1,

7-1-15

80 0 , 00 0

$

For oil and gas industry leaders and related-parties, speculating on oil price bottoms, rebounds, short-term impacts and hedging has become a daily activity.

The North Dakota Department of Mineral Resources is helping with that process, and recently released some analysis to the N.D. House Appropriations Review, addressing the facts regarding North Dakotaâ&#x20AC;&#x2122;s current situation.

PRODUCTION PROJECTIONS

1

1

Production projections show that as the oil prices decrease, the number of rigs 0 0 ,0 00 will too. But, the review showed that by 0 the third quarter of 2015, if oil prices 15 0,0 , 1 20 reach $25 per barrel, the stateâ&#x20AC;&#x2122;s bopd 1, will still be around the 1 million bopd mark. If oil prices were to reach $25 per day by the third quarter of 2016, the 0 0 state would still be able to produce ,0 000 000 0 800,000 bopd, and 700,000 bopd by , 20 25 50, , third quarter 2017.

1 ,2 ,2

0 00 ,00 ,000 0 5, 50 00 7 9 1,0 1,1

1, 0 0 0, 0 00

36

THEBAKKEN.COM

37

SOURCE: DEPARTMENT OF MINERAL RESOURCES

190

170

5,000

4,600

Slope $75

Stark $37

Dunn $29

Mountrail $41

Burke $62

SOURCE: DEPARTMENT OF MINERAL RESOURCES

Bowman $75

Golden Valley $52

Billings $44

McKenzie $30

Williams $36

Divide $73 Renville $52

cLean McLean $77

Bottineau $52

According to the DMR, breakeven price points—at which new drilling would cease—vary across the Williston Basin. With McKenzie County in the heart of the Bakken, new drilling wouldn’t cease until oil prices dropped to $30 per barrel. Counties on the outer edge of the Bakken—such as McLean and Divide—would be the first to discontinue drilling new wells with breakeven prices at $77 and $73 per barrel, respectively.

00 000 00 0 0 0, 50, 0, 0 0 4 2 1, 1,5 1,

Breakeven costs reflect a price at which new drilling would cease. The price at which production from existing wells would be shut-in is $15 per barrel

COUNTY-BY-COUNTY BREAKEVEN COSTS

$85

$75

0 00 000 00 , 00 00, 0,0 2 1, 1,3 ,40 1

IN PLAY U.S. Energy Consumption by Sector, 2012 Total Energy Consumption by Fuel

Renewable Energy 9%

Primary Energy Consumption by Sector and Fuel Type Transportation

Nuclear Power 8%

92% 3% 5%

Industrial

Oil 37%

Coal 18%

40%

43%

7% 10%

Residential and Commercial 17%

76% Natural Gas 28%

6%

Electric Power 41%

Oil

Natural Gas

21%

Coal

25%

Renewable Energy

12%

1% Nuclear Power

SOURCE: AEO 2014, TABLES A2 AND A17, MAY 2014

Top US energy sources through 2040

By Patrick C. Miller

Presenting the State of American Energy 2015 address in Washington, D.C., last month, American Petroleum Institute President and CEO Jack Gerard noted that the U.S. is the world’s top producer of natural gas, the world’s leading refiner of petroleum products and could soon be the leading producer of oil.

“The United States is in the midst of a new era in domestic energy abundance characterized by rising use of renewable energy and increased oil and natural gas production that is strengthening our economic outlook and enabling America to emerge as a global energy superpower,” Gerard says. ”It is a remarkable transformation that has been made possible because America is uniquely rich in energy resources, a talented workforce and cutting-edge energy technologies.”

Despite falling prices, oil “represents the lifeblood of the U.S. economy” in

38

meeting more than a third of the nation’s energy needs, a statistic that’s not expected to change markedly in the next 25 years, according to the report.

The report forecasts that the consumption of oil and gas will move in opposite directions from 2012 to 2040. Oil accounted for 92 percent of transportation fuels in 2014, but by 2040, that is expected to fall by 5 percent with natural gas and renewable fuels making gains. The use of natural gas for residential and commercial purposes is projected to rise from 76 percent in 2014 to 81 percent by 2040. Changes in energy consumption for industry and electric power generation are expected to be small.

The U.S. surpassed Russia as the world’s largest natural gas producer and is projected to become a net exporter within the next decade, a development made possible by advances in horizontal drilling and hydraulic fracturing. According to the Energy Information Administration, natural gas repre-

The BAKKEN MAGAZINE FEBRUARY 2015

sented 28 percent of U.S. energy consumption in 2012 and is expected to grow to 30 percent by 2040.

The API reports stresses the importance of infrastructure—pipelines, railways, ports, waterways and transmission lines—to promote the development of diverse energy sources for reliable delivery to consumers and businesses. In the next 12 years, oil and gas industry infrastructure development alone is expected to contribute up to $120 billion annually to the economy while supporting 1.15 million jobs.

“A diversified portfolio of fuel and technology to supply power is fundamental to a reliable and affordable electricity system, and low-carbon sources will become ever-more valuable,” the report says. Other sources of energy including coal, nuclear, hydro, solar, wind, geothermal and biomass, are either forecast to expand or continue to meet significant portions of America’s energy needs.

Although the nation’s consumption of nuclear energy is forecast to fall from 21 percent to 19 percent by 2040, it will continue to be part of the mix. Currently, 100 nuclear energy facilities in 30 states produce nearly 790 billion kilowatt hours of electricity each

IN PLAY

year. Because one nuclear power plant can provide electricity for 690,000 homes while emitting less carbon dioxide than one hybrid car, the report says it will play an important role in helping the U.S. Environmental Protection Agency in reducing CO2 emissions by 30 percent by 2030.

Hydropower, a source of renewable energy with no carbon footprint, could potentially expand from the current level of 100 gigawatts of electricity annually generated.

A study found that 60,000 megawatts of new hydropower capacity could be added in the next 15 years, much of which could occur without the construction of new, large water infrastructure. About 10,000 MW of new capacity could be added with upgrades to existing hydropower plants.

2014 was the best year ever for solar energy in the U.S. as 7.4 GW of new capacity was installed, a 42 percent increase over 2013. Solar power became the fastest growing source of renewable energy in America, accounting for a record 53 percent of all new electric generation capacity installed during the first half of 2014. The current installed solar capacity of 20.2 GW is expected to nearly double by 2016. The International Energy Agency says solar energy could be the worldâ&#x20AC;&#x2122;s largest source of electricity by 2050 if policymakers provide â&#x20AC;&#x153;clear, credible and consistent signals.â&#x20AC;?

U.S. Energy Consumption by Sector, 2040 Total Energy Consumption by Fuel

Renewable Energy 12%

Primary Energy Consumption by Sector and Fuel Type Transportation

Nuclear Power 8%

7% 6%

87% Industrial 39%

Oil 32%

12% 5%

44%

Residential and Commercial

Coal 18%

14%

81% Natural Gas 30%

5%

Electric Power 38%

Oil

19%

Natural Gas

Coal

25%

Renewable Energy

16%

Nuclear Power

SOURCE: AEO 2014, TABLES A2 AND A17, MAY 2014

In geothermal energy, the U.S. today accounts for 3.6 GW of the worldâ&#x20AC;&#x2122;s 12.1 GW in nameplate capacity. Geothermal power capacity is expected to increase 4 to 5 percent each year for the remainder of the decade. Oil and gas production represent an important potential source of geothermal power in the western U.S. According to the API report, the industry produces 25 billion barrels of hot water annually, which could be used to generate up to 3 GW of electricity.

Although the EIA says the U.S. has the worldâ&#x20AC;&#x2122;s largest recoverable coal reserves, this source of inexpensive, reliable energy that provides 40 percent of the nationâ&#x20AC;&#x2122;s electricity needs is in jeopardy because of EPA regulations. The Government Accountability Office estimates that 13 percent of coalfired generating capacity will be retired by 2025, and warned that â&#x20AC;&#x153;some regions may face reliability challenges.â&#x20AC;?

Biomass has significant potential as an energy source. One scientific report esti-

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IN PLAY

Energy Intensity Declines Due to Efficiency Gains 250 Note: Energy intensity is measured as quads per $ GD P

Energy consumption if energy intensity were the same as in 1970 (adjusted for imports)

Quads of Total Primary Energy

200

Reduction in energy consumption as a result of energy efficiency

150

100

50 1970 energy consumption

Actual energy consumption

0 1970

1976

1982

1988

1994

2000

2006

2012

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mates that up to 680 million tons of biomass “could be used for energy and fuels, resulting in 54 billion gallons of nonfood ethanol and biofuels, and enough electricity to meet 20 percent of U.S. energy demand by 2030.”

Zero emissions, lower power costs and stable prices have resulted in wind energy increasingly becoming the primary choice

40

for new power in such regions as the Pacific Northwest, the Plains states and the Midwest. Between 2011 and 2013, wind energy provided 60 percent or more of all new electric generating capacity and delivered more than 80 percent in the upper Midwest. The U.S. has more than 62,000 MW of wind energy capacity, which generated 168 million MW hours in 2013.

The BAKKEN MAGAZINE FEBRUARY 2015

The report notes that since the 1970s, energy efficiency has been “a quiet success story” for the U.S. The oil crisis of 1974 and energy shortages resulted in new strategies and technologies that use less energy to “deliver the same or better services to consumers and businesses.” Although America’s economy has continued to grow, energy use has slowed significantly. One study predicts that energy efficiency could further reduce energy requirements in America’s economy nearly by half by 2050.

“Today, different sectors of the economy rely on certain forms of energy. Transportation is largely fueled by oil, while electricity generation is powered by coal, nuclear, natural gas and renewables,” Gerard says.

“Looking ahead a quarter century from now, this is not expected to change, which means each energy source—from oil and natural gas to solar and wind energy; from coal and nuclear to hydropower, geothermal and biomass—will remain essential to successfully meet America’s future energy needs.”

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The BAKKEN MAGAZINE FEBRUARY 2015

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MAT drill site

AFTER ROCK DRILL SITE

Disadvantages - Damaging native farm land - Loss work time due to unsafe work surface - Delays in drilling - Unable to access due to bad weather - Wasting unnecessary amounts of rock - Unnecessary extra cost - High reclamation expense

WORLDS LARGEST SUPPLIER

AFTER MAT DRILL SITE

Advantages - No reclamation cost - Reduce the environmental impact - Reduce the amount of rock on native farm lands - Minimize unnecessary accidents - Mats provide a safe and stable work surface - 24/7 all-weather access with no down time - Potential to drill one to two more additional wells per year - Reduce the amount of truck traffic on roads - No additional cost - Protect existing flowlines

MANUFACTURING SINCE 1974