The Bakken January 2015

JANUARY 2015

Moving The Bottom Line Why Transload Facilities Are More Important Now Than Ever Page 24

Plus

High-Voltage Supply In The Oil Patch Page 30

AND

Minot’s Mega Transload Site Page 44

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Performance Under Pressure

Mechanical Products

CONTENTS

JANUARY 2015

VOLUME 3 ISSUE 1

pg pg30 40

Pg 30

EXPLORATION & PRODUCTION

Electrifying The Bakken

As the Bakken continues expanding, power providers of all sizes are looking for multiple solutions to meet a demand they can barely keep up with.

BY PATRICK C. MILLER

DEPARTMENTS

IN PLAY

44 ND Port Services In Training

A unique Minot, North Dakota, transload facility will someday offer commodity producers looking to move and receive product a 3,000 acre mega site.

BY PATRICK C. MILLER

pg 24

Pg 24

LOGISTICS

Transloading Needed Now

The movement of commodities into and out of the Bakken shale play has never mattered more as crude prices force operators to look for cost savings and efficiencies.

BY EMILY AASAND

6 Editor’s Note

Oil Prices And Future Well Counts

BY LUKE GEIVER

8 ND Petroleum Council

America's Once-in-a-Generation Opportunity Starts with Exports

BY TESSA SANDSTROM

10 Events Calendar 14 Bakken News

Bakken News and Trends

ON THE COVER: A train moving tankers of Bakkencrude rests at a stop before transport begins.

THEBAKKEN.COM

5

EDITOR'S NOTE

Oil Prices And Future Well Counts

Luke Geiver

Editor The Bakken magazine lgeiver@bbiinternational.com

We call it the oil price coma. It’s a state of mind and singular focus caused by the low crude price environment that forces us to check—and then recheck—the price of oil in between calls to analysts and experts about impacts and future price climbs. Our team has experienced this phenomenon, losing several productive hours to reading reports and stories about oil prices. Eventually, we reanalyzed and reviewed the numbers behind the Bakken shale play to help us exit that oil price coma. If you, or someone you know, has experienced this or is currently grappling with the price of oil and how it relates to the Bakken, consider the numeric facts used to describe the current state of the Bakken.

To date, the Bakken pool (which includes the Three Forks formation) has roughly 8,500 wells producing. To fully realize the Bakken pool resources, state experts and oil firms alike believe another 60,000-plus wells will be needed. Next, consider the disconnect between oil prices and rig counts and the reality that we cannot fully gauge the prominence of the Bakken by the number of rigs operating. In January 2010, the price of oil was near $77 per barrel and the rig count was 163. One year later, oil was at $86 b/o and the rig count was 200. Think this is a trend? In January 2013, the drilling rig count dropped to 185, but the price per barrel was actually higher than the same time a year previous, trading at $87 b/o. And, to fully highlight the partial disconnect one might see between the drilling rig count and the price of oil, in January 2014, the rig count was 188 but the price of oil was $74 b/o.

During this time of oil price speculation and talk of slowdowns, remember what prominent Bakken-area city leaders and the state’s top regulators say. The Bakken is a long-term play and there will be commodity price fluctuations that disrupt the all-out pace without stopping the majority of the activity happening in the play.

In this issue, we have a great example of a Bakken business sector that helps show that the industry is not drastically slowing down, but rather adapting. Staff writer Emily Aasand explains, in “Transloading Needed Now,” the mindset of several transload operators, each of whose idea of growth is linked to efficiency. They spoke of their goals of offering efficient operations for moving crude by rail out of the state and bringing supplies like sand and tubular goods into the region in a fast, cost-saving manner. They know that doing so will maximize the bottom line for their main clients and secure their future opportunities to service the Bakken’s energy service firms and oil producers.

Mastering Bakken product movement isn’t only about rail and trucking operations.

Patrick C. Miller highlights this fact in “Electrifying The Bakken.” For his in-depth look at the state of the area’s power supply, Miller spoke with Basin Electric and the McKenzie County Co-op, the two main power entities in the heart of the Bakken. Their stories help illuminate topics in the Bakken that are worth talking and reading about even at a time when all we may be thinking about is oil prices. If their stories aren’t enough, just remember that well-count number of 60,000-plus.

For the Latest Industry News:

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

The BAKKEN MAGAZINE JANUARY 2015

www.THEBAKKEN.com

ADVERTISER INDEX

VOLUME 3 ISSUE 1 EDITORIAL Editor Luke Geiver lgeiver@bbiinternational.com Staff Writer Emily Aasand eaasand@bbiinternational.com Staff Writer Patrick C. Miller pmiller@bbiinternational.com

33

AE2S

27

Alpha Capital LLC

28

AMETEK-Petrolab

21

Apex Auctions Limited

41

Bakken Conference & Expo

50

Bakken Directory

35

Bartlett & West

48

Bountiful Tanks

PUBLISHING & SALES

22

Capital Lodge

Chairman Mike Bryan mbryan@bbiinternational.com

20

Convey-All USA

34

Corval Group

39

Golight Inc.

49

Helical Pier Systems

Copy Editor Jan Tellmann jtellmann@bbiinternational.com

CEO Joe Bryan jbryan@bbiinternational.com President Tom Bryan tbryan@bbiinternational.com Vice President of Operations Matthew Spoor mspoor@bbiinternational.com Vice President of Content Tim Portz tportz@bbiinternational.com Business Development Manager Bob Brown bbrown@bbiinternational.com

10

Hotsy Water Blast Manufacturing LP

42

iLevelDigital

36

Johnson Controls, Inc.

40

KLJ

3

Account Manager Ben Lester blester@bbiinternational.com Account Manager Austin Maatz amaatz@bbiinternational.com Marketing & Sales Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

17

MetroPlains Management, LLC

26

Miller Insulation

11

NCS MULTISTAGE

18

New Prospect Company

43

Profire Energy, Inc.

51

Quality Mat Company

2

ART 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.

MBI Energy Services

Rossco Crane

47

SBG Energy Services LLC

52

Summit Casing

19

Taylor Power Systems

16

The Biosolve Company

4

Tyco Fire Protection Products

46

Valley Industries LLC

23

Wacker Neuson Sales

32

Wells Concrete

29

Wood Group PSN

COPYRIGHT Š 2015

by BBI International

TM

Please recycle this magazine and remove inserts or samples before recycling

THEBAKKEN.COM

7

NORTH DAKOTA PETROLEUM COUNCIL

THE MESSAGE

2014 Company Crude Oil Imports From Persian Gulf 160 150 140 130 120 110 100 90 80 70 44%

60

84% 49%

50

46% 58%

40

SOURCE: U.S. ENGERGY INFORMATION ADMINISTRATION

8

The BAKKEN MAGAZINE JANUARY 2015

Hunt Crude Oil Supply Co.

22% 12% 73% Axeon Specialty Products LLC

29% 33% BP West Coast Products LLC

4%

Barclays Bank PLC

• Several factors influence the source of a company’s crude oil imports. Motiva, for example, is partially owned by Saudi Refining Inc. • Only companies importing Persian Gulf crude are shown. In total, there are 69 crude companies.

• Persian Gulf includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia and United Arab Emirates

8%

Total Petrochemicals & Refining USA

36%

Houston Refining LP

Marathon Petroleum Co. LLC

Motiva Enterprises LLC

Chevron USA Inc.

Valero Marketing & Supply Co.

ExxonMobil Corp.

Phillips 66 Co.

3%

Paulsboro Refining Co. LLC

35%

10

Flint Hills Resources LP

13%

Tesoro Corp.

20

Shell Oil Co. Deer Park

30

NORTH DAKOTA PETROLEUM COUNCIL

America’s Once-in-a-Generation Opportunity Starts With Exports

By Tessa Sandstrom

“Do not pass Go. Do not collect $200.”

This is the dreaded phrase on the “Go to Jail Card” that you’ve likely drawn, or at least heard of, when playing the game of Monopoly.

Drawing this card is an all-around bummer.

You lose a chance at scooping up valuable property before others do, you don’t get to collect $200 that you might need to purchase property, and it increases the chance that you lose the game. But at least it’s just a game. Right?

Wrong. What many people probably don’t realize is that we’re in a real-life game similar to Monopoly, but this one is focused on the global oil market, not property. And, it just so happens that we’re stuck holding the “Do not pass Go” card.

In this game of Monopoly, for a very long time, the U.S. was equivalent to those cheap purple properties – Baltic Avenue and Mediterranean Avenue. Our reserves were believed to be dwindling and the Middle East held the coveted Boardwalk and Park Place properties – the reserves on which our nation depended for several decades for which we’ve dearly paid.

This era of energy scarcity resulted in a ban on U.S. crude oil exports to help support domestic price controls and respond to the 1973 oil embargo.

Today, we’ve rolled the die and our odds are looking better. Innovation and technology have unlocked the prime Bakken and Eagleford “properties” that have made us a real player in energy development. As a result, our net imports have declined 19 percent between 2012 and 2013, and domestic oil production could more than double by the mid-2030s bringing those net imports even lower.

What prevents us from being a real player in the game, however, is that despite this abundance, we are still beholden to the mentality of scarcity and the export ban. Oil is traded on a global market, but it is one in which we cannot participate. Instead, this is a market that OPEC, which includes countries that would seek to do

us harm, virtually monopolizes. Today, we are seeing the impact this monopoly has on our nation, and many of these impacts are beginning to be felt right here at home in North Dakota as oil prices fall.

The era of scarcity is still rather fresh in our minds, and many of us are content with staying in “jail” and allowing others to play the game. “Keep our oil here!” is a common mantra among those who support this position.

This position, however, is one that does not realize the logistical impossibilities of “keeping our oil here.”

Many U.S. refineries are built, or were converted decades ago, to process heavy, sulfurous crude oils that are imported from Canada, Mexico and the Middle East. The crude that comes from shale plays like the Bakken and Eagleford is light, sweet and very valuable.

Despite this value, it is often marketed at a discount because we do not have the refineries here to process this new abundance of oil. For this reason, the U.S. may never truly be energy “independent.”

But we can be independent from those aforementioned countries that would seek to do us harm. The good news is the refineries that are equipped to handle light, sweet crude are among our friends and allies in Europe. The bad news is our export ban does not prevent them from purchasing our oil, and instead forces them to get it from countries that would also seek to do them harm. Herein lies the first benefit of U.S. oil exports―geopolitical influence. Our ability to compete with OPEC in this global market would take away the organization’s ability to manipulate oil prices, which would lend greater stability to the commodity.

There are other benefits―namely jobs, economic growth and lower energy prices―that would come from lifting the export ban. As we’ve seen in North Dakota, an increase in production has translated into billions of dollars in economic growth and tens of thousands of

jobs. Lifting the ban so this resource could get the markets that need light, sweet crude could mean an additional 300,000 additional jobs by 2020 according to a study by ICF International.

IHS estimates that increased production from ending the ban could create 1 million jobs for our nation, a quarter of which would be in non-producing states. Additionally, increased production means increased capital investments approaching $1 trillion over the next 15 years, a tremendous boon to the U.S. economy.

These benefits go beyond state and federal coffers. In addition to increased wages and income through new job and career opportunities, savings would be passed down to consumers. Thanks to domestic production, we’ve seen gas prices plummet to their lowest point in years, and this would only continue if the export ban were lifted. Numerous studies by respected researchers and think-tanks like IHS, Resources for the Future, and Center for a New American Security have found that lifting the ban could further translate into lower gas prices for consumers. IHS says the savings could add up to $265 billion over 15 years.

As Jack Gerard, the American Petroleum Institute president and CEO, so simply summed up in his 2015 State of American Energy Address, “We have a once-in-generation opportunity to show the world how energy abundance can be used as a positive force rather than as a tool to harm or to control other nations as some still use their energy abundance.”

That opportunity starts with lifting the export ban. A failure to do so will leave us sitting on the sidelines unable to pass “Go.” If you support lifting the export ban, contact your U.S. Senators and Congressmen today and urge them to support American energy exports.

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: Energy Generation Conference

January 27-29, 2015 Bismarck, North Dakota Issue: January 2015 The Bakken magazine

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

10

The BAKKEN MAGAZINE JANUARY 2015

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BAKKEN NEWS

BAKKEN NEWS & TRENDS

ND Gov.'s Proposed budget: $3.7 billion North Dakota Gov. Jack Dalrymple's 2015-'17 budget plan includes tax relief and structure change for western North Dakota.

The $3.7 billion budget plan has several elements that would increase funding to the Bakken's major oil producing counties.

The Executive Budget includes a 5.4 percent increase in general fund appropriations comparted to the current biennium, $408 million in additional tax relief during the 2015-'17 biennium, $3 billion dedicated solely to statewide infrastructure improvements including highways, roads, water supply systems, airports and critical flood control projects, and an $80.4 million package to improve the state’s park system and to fund statewide conservation projects.

“With this budget, we are taking advantage of North Dakota’s success and strong financial position to advance several initiatives that will have a lasting effect on our quality of life,” Dalrymple said. “Because of our strong revenues and sound fiscal management, we can make major, one-time investments in our priorities while also providing additional tax relief. Here in North Dakota, we can make meaningful investments in our people, our places and the many opportunities for continued progress.”

The budget proposal includes $2.2 billion in one-time general fund expenditures for the 2015-‘17 biennium. One-time investments include “jump-start” funding so that the state’s oil and gas region can begin projects at the onset of the 2015 construction season, including funding for statewide road and water supply projects, funding for state park improvements and conservations projects, funding for affordable housing projects, and funding to help build schools as a result of rapid growth in student enrollments, according to budget documents.

Dalrymple also recommended that the legislature adjust the oil production tax formula.

In his executive budget, Dalrymple proposed

12

increasing the region’s share of the tax revenue to 60 percent after local counties collect $5 million in gross oil production tax revenues. The funding adjustment will inject nearly $1 billion more than the oil and gas producing counties of western North Dakota received during the 2013-’15 biennium.

The executive budget also includes $873 million in up-front, supplemental funding so that officials in the oil production region have the funding they need to begin infrastructure improvement projects at the onset of the 2015 construction season. Also included in the budget is $119 million in new energy impact grant funds to help address a wide range of impacts created by rapid growth, according to budget documents.

According to Dalrymple, the recent growth in western North Dakota has created significant challenges and he proposed that the budget includes $20 million in law enforcement grant funds to help equip, train and staff police departments and sheriffs offices in the Williston Basin. The budget also includes $27.5 million to complete the new Law Enforcement Training Academy and will support the addition of four more Highway Patrol troopers to serve in western North Dakota.

Under the budget proposal, the state will invest a total of $3.7 billion in western North Dakota in the 2015-’17 biennium.

During his State of the State address weeks after he provided his budget plans, Dalrymple reiterated his desire to send more money to western North Dakota than ever before. During his address, he reminded the state that his office is committed to a balanced budget and that it will continue to monitor the impact of oil prices. "In the end, I expect our Legislature will find that we can continue to fund our priorities, maintain healthy reserves and provide even more tax relief."

The BAKKEN MAGAZINE JANUARY 2015

BAKKEN NEWS

$3.7 billion

to western North Dakota

$2.2 billion

to one-time general fund expenditures

$119 million

in new energy impact grant funds

$20 million

in law enforcement grant funds for western North Dakota THEBAKKEN.COM

13

BAKKEN NEWS

Crude conditioning regulations start April 1 Starting April 1, crude produced from the Bakken pools of North Dakota will be less volatile than automobile or lawnmower gasoline. After months of in-person hearings and written commentary, the North Dakota Industrial Commission has made it official: crude produced in the state must meet certain temperature and pressure requirements before shipment. The crude conditioning order— No. 25417—requires the use of conditioning equipment to separate production fluids into gas and liquid to ensure that hydrocarbons such as natural gas liquids are not present during transport. The NDIC’s ruling places emphasis on the Reid Vapor Pressure of the crude. Although the RVP national standard for crude is roughly 14.7 pounds per square inch, the state has imposed a 13.7 psi limit on all transported crude.

“Allowing for a vapor pressure of 13.7 psi or less adjusts for an error margin of one psi in the sampling procedures and measurement equipment,” NDIC said. In 2014, several private and government agencies performed Bakken crude characteristics studies. The results varied between the studies, but different testing methods were used.

The 13.7 threshold ensures that Bakken or Three Forks crude is at the state’s desired level of volatility. According to the Department of Mineral Resources, roughly 80 percent of all Bakken crude contains a 11.8 psi RVP. For those producers who are not currently producing crude at or below the 13.7 level, equipment such as heater treaters or heated liquid separators placed on the well pad or on a gathering system must be used. Thirdparty testing will also be periodically required to verify the RVP numbers. The DMR will perform field checks on gauges placed on field equipment. Those found in violation of failing to condition crude to the 13.7 psi threshold will be subject to a $12,500 fine for each day the oil is left unconditioned.

14

RAIL LOCATIONS

TIOGA EPPING

API D86IBP VaporP C2-C4s

42.1 99.6 11.81 5.11

API D86IBP VaporP C2-C4s

41.3 99.6 12.08 5.60

MANITOU API D86IBP VaporP C2-C4s

41.3 99.2 12.38 5.59

TRENTON DORE API D86IBP VaporP C2-C4s

41.0 101.0 10.95 4.53

API D86IBP D VaporP V C2-C4s C

41.3 99.6 12.08 5.60

FRYBURG API D86IBP VaporP C2-C4s%

MIN AVG MAX

41.0 99.2 10.45 4.23

41.7 100.3 11.52 4.95

42.8 101.7 12.38 5.60

API D86IBP VaporP C2-C4s

42.8 101.7 10.45 4.23

DICKINSON API D86IBP VaporP C2-C4s

41.7 100.4 11.39 4.72

*Average of average data, may vary slightly vs. cumulate average

Transload and pipeline operators are also linked to the oil conditioning regulations.

Both must report crude loads to the DMR that arrive at a facility over the 13.7 number; a situation that the DMR said could require investigative work by all parties involved.

The new regulations do not allow for the blending of crude oil produced from the Bakken or Three Forks systems with liquids recovered from gas pipelines prior to oil sales, or the blending of crude with liquids such as condensate, pentanes, butanes or propane prior to sale.

The BAKKEN MAGAZINE JANUARY 2015

Before arriving at its decision to implement the new conditioning and standards regulations, the NDIC received 1,114 pages of testimony from 33 groups or individuals before its initial hearing on the matter. Following the NDIC’s decision to reopen the subject for comment, the state received another 141 pages of testimony submitted by 25 various groups.

BAKKEN NEWS

Record construction programs slated for 2015 North Dakota Gov. Jack Dalrymple helped celebrate the completion of the New Town, North Dakota, truck reliever route, the fourth route completed this fall, designed to reduce truck traffic through the community and to enhance road safety in the region.

“This truck reliever route is an important infrastructure investment for New Town and the region taking trucks off the community’s Main Street and enhancing traffic movement and safety,” said Dalrymple.

“This is the fourth reliever route or bypass to open this fall in western North Dakota, underscoring the state’s commitment to address the impacts of rapid growth and enhance the safety of our roadways.”

The 3.2 mile truck reliever route will divert North Dakota Highway 23 truck traffic from New Town’s Main Street to northwest of the city and includes turn lanes and asphalt with concrete at the intersections.

“This was such an essential project to the city of New Town for a number of reasons,” said Grant Levi, director of the North Dakota Department of Transportation. “One reason is, presently, there are about 3,500 trucks a day traveling through that community and now, trucks have an option to not travel through that community. The other reason is that we’re in need of reconstructing New Town’s main street. As we get into that reconstruction project, that bypass will be used as a detour.”

The 2013 and 2014 construction seasons represent the largest road construction programs in state history with more than $1.6 billion in bids for roadway projects, the state said.

“We’re very thankful for the resources the governor proposed and the legislative body gave to us last legislative session and we appreciate the fact that they have understood the need for infrastructure investments across the entire state,” Levi said.

Other truck reliever routes completed in the fall of 2014 included the Watford City southeast and southwest bypasses and the Alexander bypass.

“The bypass projects in Watford City really provided relief to that community by redirecting traffic out of that community,” said Levi. “It was interesting to hear how the community reacted on the day when we opened those bypasses. I heard comments that people could cross the streets, they were no longer delayed getting across town, and that they were able to move around within their community like they had in the past.”

Levi added, “With the resources made available by the governor and the legislature, we were able to open a bypass around Alexander, which was really good for that community.”

Roughly 12,000 vehicles were traveling through Alexander with 40 percent of those being trucks.

FOUR TO FOLLOW

1 2 3 4

Reconstruction of Highway 23 Reconstruction of Main Street in New Town Expansion of Highway 85 into a four-lane highway Work on rural transportation systems

“With the bypass projects, we’re restoring the quality of life in those communities, and that’s really an essential part of what we do,” said Levi.

There is a bypass currently under construction in Williston, but it isn’t projected to be open until the end of the 2015 construction season. The NDDOT has development plans for construction projects in 2015, but the execution of said projects depend on the resources that are made available in the upcoming legislative session.

Tentative plans for 2015 include the reconstruction of Highway 23 through Watford City to turn it into a city street to serve the community, the

reconstruction of the main street in New Town, as well as working on rural transportation systems to make sure the system can handle the increased traffic loads. Another project the NDDOT hopes to spearhead is changing Highway 85 from Watford City to Williston into a four-lane highway.

THEBAKKEN.COM

15

BAKKEN NEWS

Operator perspective: The low crude price environment The season for announcing 2015 budget and operations plans is upon us, and although a handful of exploration and production firms linked to the Bakken have offered some form of guidance, many have said 2015 announcements will not come until the end of the first quarter.

Marathon Oil and Whiting Petroleum, both major Bakken players, have said they will wait to offer 2015 guidance. Others however, have already given a snapshot of how the low crude price environment will impact operations and spending this year.

ConocoPhillips will spend $13.5 billion this year, a decrease of roughly 20 percent from 2014. The oil majors focus on unconventional resources will continue to target the Eagle Ford and Bakken, with spending reaching roughly $6.5 billion. Of the company’s total 2015 budget not set for unconventionals, $1.9 billion will be

spent on base maintenance and corporate expenditures, $4.8 billion on sanctioned projects in Australia, Alaska, Europe and Malaysia, and $1.8 billion toward exploration and production appraisal programs. The decrease in spending was due, in part to the absence of investment needed for projects set for completion, along with low crude prices.

QEP Resources has said it will focus on four major shale basins in 2015, including the Williston Basin, Permian Basin, Pinedale and Uinta basins.

Richard Doleshak, executive vice president and chief financial officer for QEP, told investors at the end of 2014 that the firm has a good story to tell in spite of $60 crude oil.

Continental Resources has already offered its 2015 budget plans. Despite a budget reduction revision issued at the end of the year, Continental Resources will invest roughly $1.5 billion in its

Bakken operations for the year.

Intially, the company intended to invest $2.5 billion for the year.

Continental will also run 11 rigs in its core acreage as opposed to its original plan to run 19 rigs throughout its Williston Basin acreage. The reason for its 2015 budget decrease is also directly linked to low crude prices.

No shale player has offered a more poignant update and perspective on the low crude price environment to its 2015 plans than Oasis Petroleum CEO Thomas Nusz. During a December investor presentation, Nusz addressed several topics related to low crude prices and Bakken oil production in 2015.

This year, the Williston Basin pure play exploration and production firm will focus on its held acreage in areas with the highest estimated ultimate recovery (EUR) totals. The 2015 focus areas will receive the majority of Oasis’ attention due to the

present and scalable infrastructure, along with the ability of the team to perform high-intensity completions and optimize full field development strategies.

“We are in a new environment today in comparison to what we have been in during the last 12 months,” Nusz said. The current environment has caused Oasis to reduce its budget to a range of $750 million to $850 million. The company intends to run a 10-rig program instead of its current 16-plus rig operation.

Oasis will also move to its “backyard,” a term Nusz used to describe the acreage that it understands the most. That acreage will be its Indian Hills and South Cottonwood areas. Although the company is reorganizing in a specific area, Nusz added that it could still drill and complete economic wells in nearly any part of its operations. The 2015 focus area has an eight-year inventory.

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BAKKEN NEWS

HIGHLY ECONOMIC DRILLING INVENTORY LOCATIONS Gr ow th

4,000 3,500

3,590

78 %

proach Oasis and many other Bakken operators have adopted for a vast majority of wells, will cause the company to hold off on completions requiring the practice during the early winter months. The need to heat water in the winter months makes slickwater fracks more efficient and cost-effective in the summer months, he said.

The tighter focus on Indian Hills and South Cottonwood means that Oasis, like many other operators planning to focus on specific acreage blocks, can now turn its attention to infrastructure upgrades and muchneeded maintenance upgrades.

The low-price environment, “gives you a great opportunity to go back and optimize all of the base infrastructure that may not have gotten as much opportunity the past few years as we ramped up,” he said.

3,000 2,616

2,500 2,020

2,000 1,532

1,500 1,000 500 0

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403

Operated DSUs YE2012 YE2013

Net Op and NonOp Locations

Gross Operated Locations

As of 12/31/13, based on identified locations at $80/bbI WTI

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BAKKEN NEWS

Oak Ridge computational tool available to oil, gas industry Oak Ridge National Laboratory has developed a computational tool that anyone involved in oil and gas exploration can use to reduce costs and improve accuracy.

Clayton Webster, Oak Ridge senior scientist and leader of the computational and applied mathematics group, said the new approach uses a multilevel Monte Carlo method involving computational algorithms. Repeated random sampling with the tool provides a more accurate picture of the earth’s subsurface. “What we wanted to do is reduce the overall uncertainty or the confidence in where drills are placed and where we get the biggest bang for our buck,�

Webster said.

BELOW THE SURFACE: A three-dimensional model of an oil reservoir shows that the permeability field is very heterogeneous and why uncertainty quantification for this type of problem is computationally expensive.

PHOTO: OAK RIDGE NATIONAL LABORATORY

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18

The BAKKEN MAGAZINE JANUARY 2015

BAKKEN NEWS

According to Webster, the computational tool developed by the Oak Ridge research team is a perfect fit for oil and gas exploration.

“We develop a lot of techniques like this, but it’s rare that we will go out and directly apply them to an application,” he explained. “Typically, we’ll develop a method independent of an application and let others apply it. But in this case, we decided to apply it directly because it was a very good sales pitch for what we are doing.”

The Oak Ridge computational tool can result in a dramatic reduction in computational costs, Webster noted.

“It’s somewhat problem-dependent, but I can tell you from the kind of problems we looked at—simple exploration type problems—that we were able to see cost reductions on the order of up to 50 to 60 percent,” he said.

“It means you can go further and you can do more exploration,” he continued.

“If you’re able to afford some amount of cost in the exploration process, then you can go a lot further and get more confidence in your results.”

Perhaps the best part is that anyone involved in oil and gas exploration can apply the tool to their computational method.

“You can take the approach that we’ve done―and any exploration company or individual looking at these applications can essentially do exactly what we’re doing by using their existing technology,― but then adding on this ability to balance errors as you go through some type of hierarchal sampling or optimization procedure,” Webster said.

Webster and his colleagues will soon be publishing a paper on their research, which could be used by those interested in applying their approach. In six to eight months, Oak Ridge should have a software application available.

THEBAKKEN.COM

19

BAKKEN NEWS

EIA debuts oil import analysis tool The U.S. Energy Information Administration released a U.S. crude oil import tracking tool that allows industry leaders, analysts and the public to track trends in crude imports. The tool allows users to sort imports by month or year, by crude type, country source, port of entry, processing company or processing refinery.

“This tool sheds light on the adjustments to imports being made in response to growing production of crude oil within the United States. It is one part of EIA’s ongoing effort to assess the effects of a possible relaxation of current limitations on U.S. crude oil exports, which is another avenue to accommodate domestic production growth,” EIA said.

The tracking tool was launched on the EIA’s beta site to solicit user feedback and has various capabilities to access information from the EIA’s monthly company level import database. Subjects include volume and quality of U.S. crude

20

oil imports, source of U.S. crude oil imports, light crude oil imports by region, refinery-level trends in light crude imports and refinerylevel trends in imports other than light sweet crude.

The interactive tool shows that U.S. crude oil imports have declined since 2010, with nearly all of the decline occurring in light sweet grades. In particular, U.S. light crude imports fell 71 percent between 2010 and the period of January through August 2014. It can also track light crude imports, and found that imports by the 10 largest refineries using imported light crude in 2013 accounted for 55 percent of total U.S. light crude imports, with the remaining 45 percent scattered among more than 100 refineries. There is evidence that some refineries have recently reduced imports of medium heavy grades of crude oil in order to accommodate increasing light domestic production, the EIA said.

The BAKKEN MAGAZINE JANUARY 2015

U.S. light crude imports fell 71% between 2010 and August 2014 Light crude oil imports by East Coast refiners down 69% from 2010 to the year-to date 2014 Light crude oil imports on the Gulf Coast declined 94% from 2010 to the year-to-date 2014 Imports of light sour, medium, and heavy crude to North Dakota increased from 2010 to 2013

BAKKEN NEWS

Information technology predictions for oil, gas industries The drop in oil prices will inspire oil and gas industry related firms to â&#x20AC;&#x153;apply intelligence in how they explore for, produce and process resources,â&#x20AC;? according to IDC Energy Insights, an information technology (IT) advisory firm.

IDC has released a set of predictions for 2015, outlining several actions the oil and gas industry will or should take. â&#x20AC;&#x153;To help decision-makers understand how IT will influence future decisions, IDC has released 10 probable elements of the oil and gas industries future that must be addressed,â&#x20AC;? the firm said.

1. CEOs will expect immediate and accurate information on top shale plays by the end of 2015.

2. Oil and gas firms should and will work with engineers, geologists and drillers to develop dashboards that will help in developing certain fields.

3. By the end of 2017, 80 percent of the top oil and gas companies will reengineer processes and systems to optimize

logistics, hedge risk and efficiently and safely deliver crude, liquefied natural gas and refined products.

4. Over the next three years, 40 percent of oil and gas majors and all software divisions of oilfield services will co-innovate on domain specific technical projects with IT professional service firms.

5. By 2016, 70 percent of oil and gas firms will have invested in programs to evolve their IT packages and third-party platforms that help in changing commodity price environments.

6. With continued labor shortages impacting oil and gas workforce, firms will look to IT to meet productivity goals.

7. 100 percent of top 25 oil and gas firms will use modeling and simulation tools to optimize field development programs by the end of 2017.

8. Spending on connectivityrelated technologies will increase by 30 percent between 2014 and 2016.

9. As mergers and acqusitions

happen in 2015, 40 percent of oil and gas companies will look to reevaluate hydrocarbon accounting practices.

10. By 2016, 50 percent of oil and gas firms will have advanced analytics in place. Roughly one-quarter of the top 25 firms

will apply intergrated planning and information to large capital projects by 2015.

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LOGISTICS

Transloading Needed Now Transload facilities will benefit oil producers by reducing transportation costs

By Emily Aasand

Lower crude prices have oil and gas industry leaders looking for ways to reduce the cost of production at well sites by streamlining the supply chain for proppant and being able to simplify and reduce rail transportation costs.

SBG Energy Services LLC, New Frontier LLC and Dakota Transload Inc. are just a few of the transloading facilities seeing a surge in demand for services since oil prices began to drop last June. The three companies all have slightly different business models, yet have the same end goal: to reduce the cost of oil production by providing enough storage space for the required frack sand, ceramic proppant, pipeline and other energy related products.

Family Affair

Jarid Sinkler’s family has been in the oil fields since the late 1970s.

His father began working for a mud company in North Dakota when he noticed trucks lined up waiting for access to saltwater disposal (SWD) sites. His father, Orley Sinkler, called Phil Gisi, Jarid's uncle, and together they decided to put down capital and build a SWD plant.

In the beginning, the plan was for SBG Energy Services to build two disposals, but the company quickly saw the need for growth and decided to build seven.

“We looked at how the water was coming into our sites and figured it’d be convenient if we had a trucking company to haul water ourselves,” says Sinkler, vice president of business development for SBG Energy Services.

Through a close relationship and previous business partnerships,

SIMPLIFYING THE MOVEMENT: With decreasing oil prices, oil producers are looking to simplify and reduce transportation costs, which is being accomplished through transload facilities.

PHOTO: DAKOTA TRANSLOAD

24

The BAKKEN MAGAZINE JANUARY 2015

LOGISTICS

THEBAKKEN.COM

25

LOGISTICS

FINDING A NICHE: Everett (left) and Kyle Hexom (right) go over blueprints for the sand terminal.

PHOTO: NEW FRONTIER LLC

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The BAKKEN MAGAZINE JANUARY 2015

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SBG Energy purchased a trucking company and started hauling water to its disposal sites.

The tucking company, Rud Transportation, is operated by Gus Rud, a fourth-generation trucker in North Dakota. Rud was distributing diesel, propane and other fuels so Sinkler and his team figured they could join forces with Rud and start distributing diesel to western North Dakota as well. â&#x20AC;&#x153;What has always been a benefit for us is being a North Dakota company with a family thatâ&#x20AC;&#x2122;s from here and with the relationships that we have instate, opportunities present themselves at every corner and, because weâ&#x20AC;&#x2122;re all from North Dakota, there were relationships that were easy fits,â&#x20AC;? says Sinkler. â&#x20AC;&#x153;And I think one of the things that makes us unique is the size of our company. Itâ&#x20AC;&#x2122;s pretty small and mostly family and because of that, we can make decisions a little bit faster than some.

When we see a direction we want to take, we gather around the table, make the decision and act on it.â&#x20AC;?

After its work in the SWD business, the team knew it could operate a midstream pipeline service. SBG saw an opportunity to transport water via pipeline to SWD sites from remote areas. â&#x20AC;&#x153;As much as weâ&#x20AC;&#x2122;re a trucking company, weâ&#x20AC;&#x2122;re equally focused on getting trucks off the road,â&#x20AC;? says Sinkler. â&#x20AC;&#x153;Gathering and pipeline for produced water has been a really good avenue for us in the last year.â&#x20AC;?

SBG Energy also offers its customers a rail service. The company has a rail spur in Bismarck that helps bring in diesel fuel and allows the company to transport the fuel from Bismarck to the oil patch.

In addition to the rail spur in Bismarck, SBG also has a rail spur in Gillette, Wyoming, and it's newest spur is a 450-acre industrial rail park being developed in Richardton, North Dakota. The Richardton project is on the Burlington Northern mainline and is approved for two new switches, and is co-located with the Red Trail ethanol plant.

"We hope to not only support the oil industry, but also the agriculture industry through this project," said Sinkler. "Because of the size of the acreage acquired, we will

LOGISTICS

A CLEAR VISION: One of Dakota Transload's main focuses is on ceramic proppant transloading.

PHOTO: DAKOTA TRANSLOAD

be able to accommodate everything from manifest loads to unit trains with plenty of storage."

With the decrease in the price of oil, one of the key things all industry players are looking at is how to reduce the cost of production in the Bakken. Sinkler says rail is going to be a huge player in reducing costs.

“There are so many things we can do and are looking into with our manifest rail yard to drop the price of production and to help everyone be more competitive,” says Sinkler.

Centralizing Services

SBG Energy isn’t the only transload company finding that simplifying rail transportation for customers is key in cutting production costs. New Frontier LLC, a Williston, North Dakota-based developer, is working on a $250 million transload facility called the East Valley Rail Project.

The project will provide inbound storage and handling of several energy related products, ranging from frack sand to tubular goods, as well as providing a fully integrated approach from source to wellhead with staff located in Fort Worth, Texas, coordinating extensively with the Burlington

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LOGISTICS

Northern Santa Fe network operations center as well as the local rail operational teams.

The facility is the first unit train facility in western North Dakota approved by the BNSF, which allows the company to switch cars internally versus waiting for the railroad to switch them.

“The oil prices have dropped, but none of the companies are talking about shutting down. They’re talking about efficiencies,” says Jason Everett, lead developer for the

28

company. “Our company fits into that new model because it’s efficient from a time perspective, from a cost perspective and from a rail and location perspective because it’s located on both the state highway system and the BNSF double mainline."

Everett says that with this facility, his company will be able to handle unit trains with the cost savings running upward of $100,000 per train that comes in. If a company is moving two trains a month, that

The BAKKEN MAGAZINE JANUARY 2015

equates to $200,000 savings just on the shipment side of production.

The new facility will be one of the only transloading facilities that can unload unit trains of pipe and casing and store them on site so they don’t have to be handled multiple times before getting shipped to the final location, Everett says.

“With this, we’ll not only be able to save money on the shipping side of things, but we’ll also be able to save money on the trucking and handling side by reducing the amount pipe movement,” he says.

The transload facility will also be able to store 200,000 tons of frack sand, will have a pipe and casing yard of 30 acres, and will have 90 additional acres of storage for things like large tanks or railcars. Based on the current market size, this facility can handle up to 25 percent of the frack sand market in the current 200-mile radius.

“We’re hearing from clients that fracking crews are literally shut down halfway through a job because they run out of sand and this facility will give them the ability to store multiple wells worth of sand so they don’t have to face running out of sand midproject,” Everett says.

The sand storage capacity at the site means, exploration and production companies can actually forecast and store the amount of frack sand they need instead of having to have it trucked back and forth, according to Everett.

The team is also working on establishing an NGL loading facility within the property that will take the conditioned gases and ship them because there’s a lack of availability on the NGL export side, says Everett.

“We’ve always known that it was going to be key to have an NGL facility and once the regulations came on, it makes it more of a must rather than just an idea or a future plan,” says Everett.

The company will also be able to provide railcar maintenance and repair as well as railcar management and shipping management.

“All of these really make our facility a one-stop shop,” says Everett.

“We looked at the location and determined that the rail only crosses the highway

LOGISTICS

at four different spots between Montana and Minot, this [Williston] being one of the main areas that it crosses a major public road,” says Everett. “BNSF has double tracked the main line from Montana to Minot so we have the ease of getting trains off the track and into our facility as optimal as we can.”

Aside from having a centralized location in the Bakken, the company is made up of a team who has a breadth of knowledge of the industry, which Everett says sets this transload facility apart from others. The background of the different partners range from commercial banking to civil construction and oil field services. New Frontier recently hired a CEO for the facility who has more than 20 years of BNSF experience at a management level and about 10 years in the transloading business.

“We strategically planned this project and the way it was set up—the location and the design,” says Everett. “Our project is more of a port than just a transload facility.

We sat down and brought in a rail engineering team, a great civil engineering team and we all collaborated on how to make the most of this project.”

East Valley Rail is expecting its first deliveries in July 2015.

Ceramic Dynamic

Dakota Transload, yet another North Dakota transload facility, was established in 2012 by Ron and Josh Boyko, and although it had a slow start, it’s seeing steady growth in western North Dakota.

The company, headquartered in Stanton, North Dakota, mainly focuses on ceramic proppant transloading, but does transload other types of oilfield products including pipeline and rail.

“We transload it from rail into our facility and then reload it back into pneumatic trucks which deliver directly to the well heads,” says Luke Retterath, general manager of Dakota Transload. The 160-acre facility is currently able to unload 75 rail cars per day and load 125 pneumatic trucks per day, although Retterath says expansion plans in 2015 will increase those numbers dramatically.

Dakota Transload houses between three and four customers, including several large completion companies, according to the company.

Although Dakota Transload is small in comparison to other Bakken facilities, it has received requests to expand. But, the company believes its current approach will help it continue to thrive in the Bakken.

“We want to do the right things the right way and that’s kind of our motto and

how we’re growing,” says Retterath. “We have plans in 2015 for expansion but it’s really just a matter of getting the planning done and getting all the pieces of the puzzle put together right now.”

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

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29

EXPLORATION & PRODUCTION

Electrifying The Bakken Coping with the demand for electric energy on the regional and local levels has been challenging

By Patrick C. Miller

Keeping up with the rapidly expanding electrical demand created by the oil and gas industry in the Bakken—as well as the commercial and residential needs caused by a booming economy—has been no easy task for electric utilities.

“It’s kind of a clash of cultures,” says Dale Niezwaag, senior legislative representative with Basin Electric Power Cooperative. “With utilities, we like to do long-range planning. We like 10 to 20 year load forecasting and building large generating units that are meant to turn on and run at the highest efficiency. That’s the ideal world.”

However, Bismarck-based Basin Electric and the rural electric cooperatives it serves in the Williston Basin have learned to adapt to a less than ideal world.

“We’ve run into the oil and gas industry where they want electricity tomorrow, no matter what the cost,” Niezwaag relates. “They just want us to get it done because time is money and they want production to start. You have those two things clashing.”

If the utilities had not met the demand, it’s safe to say that the oil and gas activity in the Bakken would have slowed considerably without enough electricity to power the myriad of uses required for oil and gas production, not to mention increased electrical demand from homes, business and the municipal infrastructure needed to support them.

That is not to say that the job is by any means done or that it’s been smooth sailing since horizontal drilling and fracking caused North Dakota’s crude production to skyrocket to its current level of more than 1 million barrels per day.

PEAKING POWER: Basin Electric's gas-fired Pioneer Generating Station northwest of Williston will be expanded for a third time this year with the addition of 12 9.3 megawatt natural gas-based reciprocating engines.

PHOTO: BASIN ELECTRIC POWER COOPERATIVE

30

The BAKKEN MAGAZINE JANUARY 2015

EXPLORATION & PRODUCTION

THEBAKKEN.COM

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EXPLORATION & PRODUCTION

MORE WIND: Basin Electric has 750MW of wind generation now and plans to add another 300 to 400MW to meet increasing electrical demand, mostly in the Bakken.

PHOTO: BASIN ELECTRIC POWER COOPERATIVE

â&#x20AC;&#x153;This year, weâ&#x20AC;&#x2122;re looking in the neighborhood of 20-plus substations that we have to build for various loads,â&#x20AC;? says John Skurupey, general manager of McKenzie Electric, which receives high-voltage power from Basin that it steps down for distribution to its customers in the heart of the Bakken. â&#x20AC;&#x153;A lot of itâ&#x20AC;&#x2122;s for the producers and individual pumping loads,â&#x20AC;? he adds. â&#x20AC;&#x153;We still have on our plate, in terms of major construction of transmission lines and substations, probably at least two years worth of work just to get to where weâ&#x20AC;&#x2122;re comfortable in delivering and distributing bulk transmission to our membership.â&#x20AC;?

Basin serves 137 rural electric cooperatives in a nine-state region, making it one of the largest generation and transmission utilities in the U.S. In 2014, the co-op operated 4,913 megawatts of generating capacity. Basin is forecasting a need for 1,800 MW of additional capacity by 2035. â&#x20AC;&#x153;Of that 1,800, 1,600 is for western North Dakota, the Williston Basin and Bakken portion,â&#x20AC;? says Niezwaag. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re looking at 75 to 80 percent of our load growth happening in the western part of North Dakota and eastern Montana. Thatâ&#x20AC;&#x2122;s a significant load growth weâ&#x20AC;&#x2122;re going to have to meet in the next 20 years.â&#x20AC;?

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EXPLORATION & PRODUCTION

of miles of distribution line we have yet to build.â&#x20AC;?

Itâ&#x20AC;&#x2122;s enough to cause both Skurupey and Niezwaag to see the production slowdown caused by low oil prices and North Dakotaâ&#x20AC;&#x2122;s gas flaring restrictions and crude conditioning requirements as a welcome opportunity to catch up. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;d say that weâ&#x20AC;&#x2122;re a little bit behind the eight ball right now,â&#x20AC;? he says. â&#x20AC;&#x153;With the loads that we know for a fact are going to come on, we are bumping up to the edge of our ability to serve or add our next load.â&#x20AC;?

To service the forecasted load in the Bakken, Basin is currently building a 200-milelong, 345-kilovolt transmission line that will deliver electricity generated by the cooperativeâ&#x20AC;&#x2122;s coal-fired Antelope Valley Station near Beulah. Known as the AVS to Neset Transmission Project, it runs through portions of Dunn, McKenzie, Mercer, Mountrail and Williams counties The construction project includes two new substations, modifications to three existing

substations, river crossings, temporary construction staging sites and other facilities.

Karl Aaker, engineering manager at McKenzie Electric, says the transmission line is vital to the regionâ&#x20AC;&#x2122;s rural electric cooperatives that supply power to the growing industrial, commercial and residential demand. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s going to be our stiff backbone for supporting the base loads that we keep growing on our system,â&#x20AC;? he explains. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s everything from the continued growth of oil wells, gas plants, oil processing and even the commercial development and residential development in some of the cities in the area, such as Watford City.â&#x20AC;?

The line is expected to go into full service in 2017, but Skurupey says part of it should be able to serve McKenzie County by October 2016. Still, it may not happen in time to meet the expected load growth. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re pushing on Basin to try to bump that timeframe up,â&#x20AC;? he says.

And that leads to another

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Because much of the demand for electricity is driven by oil and gas production, itâ&#x20AC;&#x2122;s different from the peaks and valleys in the loads Basin typically serves. â&#x20AC;&#x153;What weâ&#x20AC;&#x2122;re seeing out in the Bakken is that thereâ&#x20AC;&#x2122;s a pretty steady demand,â&#x20AC;? Niezwaag says. â&#x20AC;&#x153;The pumps and the transfer and gathering lines keep running 24 hours a day. You donâ&#x20AC;&#x2122;t have as much variability as you would in other places. Itâ&#x20AC;&#x2122;s a load thatâ&#x20AC;&#x2122;s pretty steady. What variability there is, having smaller plants allows us to meet that.â&#x20AC;?

Skurupey notes that McKenzie electric is about 2,000 requests behind for electrical service ranging from residential water wells to farmers and ranchers to man camps to producers to gas plants. â&#x20AC;&#x153;If they donâ&#x20AC;&#x2122;t have power, theyâ&#x20AC;&#x2122;re in the queue to get it,â&#x20AC;? he says. â&#x20AC;&#x153;And then you add on top of that all the lower voltage distribution that we have to get out there to all those entities. I couldnâ&#x20AC;&#x2122;t even give you an estimate of how many hundreds

challenge of building infrastructure to meet the Bakkenâ&#x20AC;&#x2122;s growing electrical demand: obtaining permits and easements, conducting environmental impact studies and responding to requests for information from government agencies.

Planning for the AVS to Neset Transmission Project began three years ago. Even though construction started in 2014, Basin is still waiting for a permit from the U.S. Army Corps of Engineers and on easements from landowners. Niezwaag says that construction takes less time than obtaining permits and easements, and the process becomes even more complex when federal land is involved. â&#x20AC;&#x153;Once you move into federal land, thatâ&#x20AC;&#x2122;s another array of permits and approvals that have to come in,â&#x20AC;? he says. â&#x20AC;&#x153;You also have several agencies that have the ability to hold up permits as youâ&#x20AC;&#x2122;re going through the process.â&#x20AC;?

Curt Pearson, Basinâ&#x20AC;&#x2122;s manager of media and community relations, notes that the cooper-

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33

EXPLORATION & PRODUCTION

FACTS & FIGURES McKenzie Electric Cooperative's growth from 2008 to 2014 2014 10,108 2014 3,672

2008 2,427

Number Members

2014 995

2008 5,753

Number Meters

2014 253

2008 799 2014 2008 2,665 2,340

2008 181

Transmission

Underground

Overhead

EXPLORATION & PRODUCTION

2014 1,092,181

2008 1.73

2014 2.58

Meters/Mile of Line

2008 281

2014 290

2008 6.12

2014 8.26

2014 157,372,029 2008 621,417 2008 55,487,397

Total Outages

Outage Time/Meter/Year

Assets

Capital Credits Returned

THEBAKKEN.COM

35

EXPLORATION & PRODUCTION

MAJOR TRANSMISSION: Constructing high-voltage transmission lines to provide electricity to industry, business and municipalities in the Bakken requires a lengthy process of obtaining easements from landowners and permits from government agencies.

PHOTO: BASIN ELECTRIC POWER COOPERATIVE

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The BAKKEN MAGAZINE JANUARY 2015

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EXPLORATION & PRODUCTION

ative goes through a painstaking process to site a transmission line to keep landowners satisfied with the routing.

“When we’re dealing with landowners on a transmission line, we’re dealing with people who buy their electricity from our member co-ops,” he explains. “In a very real sense, they’re our members as well. We really want to work with them.

“If they say ‘Don’t’ put the line here, move it over a quarter mile’ or ‘Don’t put it in front of my house,’ we definitely work with the landowners as best we can to make adjustments and make certain that the line routing is acceptable to them,” Pearson says.

Basin is also working on another transmission line project related to the AVS to Neset Transmission Project that’s specifically designed to assist McKenzie Electric’s customers.

Known as the North Killdeer Loop Project, it will include 60 miles of 345 KV transmission line and three substations.

In the past, large generation and transmission utilities such as Basin Electric relied on longrange forecasts of electrical demand, constructing major coalfired power plants that took 10 years or more to complete.

These base-loaded plants are designed to run efficiently and reliably nonstop for months at a time. But beginning in 2008 with the rapid expansion of oil and gas activity in the Bakken and the constantly increasing demand for electricity, that model was no longer feasible.

“With the rapid growth that’s taken place, we have not literally had the time to put in large, more efficient plants,” Niezwaag said. “We have the

obligation to serve whatever the needs are. So we’ve had to go to smaller peaking plants which are easier to permit and quicker to build. It’s mainly been a necessity situation more than a reliability and efficiency situation.”

To cope with the rising demand, Basin built two gas-fired peaking plants in 2013, one near Williston and the other near Watford City. Once in operation, these plants can come online within minutes to meet demand at peak times and they offer a number of advantages.

“We can place them in areas to meet the load and also to provide transmission support to keep the grid available,” Niezwaag says. “We can have all the transmission in the world, but if we can’t get power where it’s needed, it does us no good. So we’ve ended up putting in the smaller units.”

Basin expanded the generating capacity of both peaking stations during the past year and will further expand their capacity starting this spring.

The Lonesome Creek Station west of Watford City became operational in December 2013 as a 45 MW unit. During 2014, two more 45 MW units were added. This spring, a third construction phase will begin to add three more 45 MW combustion turbines. The project is scheduled for completion in June 2016. The new turbines use a “dry” low-emission combustion process that requires no water to control nitrogen oxide emissions.

The Pioneer Generation Station northwest of Williston—which went operational in September 2013 as a single 45 MW unit—was also expanded in 2014 with two additional 45

ON THE WAY: To serve the growing demand for electricity in the Williston Basin region, Basin Electric has begun construction of a 200-mile-long, 345KV transmission line from its Antelope Valley Station near Beulah to western North Dakota.

PHOTO: BASIN ELECTRIC POWER COOPERATIVE

MW units. Expansion beginning this spring will add another 112 MW of peaking capacity. This generation will be provided by 12 9.3 MW natural gas-based reciprocating engines. The Pioneer Station’s three existing units use LM 6000 water-injected, simple-cycle combustion turbines. Completion is targeted for June 2016.

“This generation supports some base load, but it also helps with reliability in the event that any of the transmission lines coming into this area are taken out of service for maintenance or there’s some kind of outage,” Aaker says. “That generation in

this area will keep our reliability high and keep the power on to supply power to the increasing growth.”

Niezwaag says the gas-fired peaking plants have advantages and disadvantages.

“They’re not as efficient as we’d like them to be and, from an emissions standpoint, you’ve got several stacks instead of one,” he explains. “But they do provide some benefits where you’ve got that ability to ramp it up as needed. With the gas generation peakers, they’re quick on, quick off.”

To meet future demand, Basin is considering construc-

THEBAKKEN.COM

37

EXPLORATION & PRODUCTION

ALL ABOUT THE BASE: Designed as a base-load electrical generating plant, Basin Electirc's coal-fired Antelope Valley Station went into commercial operation in the mid-'80s and continues to supply electricity to the Bakken.

PHOTO: BASIN ELECTRIC POWER COOPERATIVE

tion of a high-efficiency combined-cycle natural gas-fueled plant, possibly in Emmons or Morton counties. The plant would have two turbines fueled by natural gas and a third powered by steam produced from the other two turbines. If pursued, the plant would be in service by 2020 or 2022.

“We were originally looking at 2019, but now with a couple things that have happened—what people said they were going to be able to build and get online—they haven’t been able to build it as quick as they thought or load demand has leveled a little bit,” Niezwaag says. “With the price of oil and the Keystone pipeline, all those things are getting pushed back a little bit. Our timeline is moving on when that large plant is going to be needed.”

Combined-cycle power plants are something of a departure from the coalfired power plants Basin has traditionally constructed.

38

“When you compare a coal plant to a combined-cycle plant, you get a little bit more flexibility,” Niezwaag said. “A coal plant can take a day or two to come online.

With a combined-cycle, it’s not as quick as the peaking plants. You’re talking a matter of hours to get a combined-cycle plant up and running compared to three or four minutes for a peaking plant.”

A combined-cycle plant would be considered an intermediate power generating solution, Niezwaag says.

“With coal, you consider that base load because you can turn it on and have it run all the time. With the peakers, you just turn them on when they’re absolutely needed,” he explains. “With combined cycle, you can bring it on, but also turn it off when you don’t need it. So it’s more of a 7 a.m. to 7 p.m. generating plant. You’ve got a little bit more flexibility with that.”

Wind is also part of Basin Electric’s

The BAKKEN MAGAZINE JANUARY 2015

plan to meet energy demand in the Bakken.

The cooperative went from almost no wind generation in the early 2000s to having 750 MW of generation today.

“We’re probably going to be adding another 300 to 400 megawatts of wind in the future,” Niezwaag says. “We’re looking at the EPA compliance and, depending on what the rules are going to be, we feel that wind is going to have to be part of our portfolio.”

The abundance of natural gas from the Bakken gives Basin access to another fuel source and provides greater flexibility in meeting the increasing demands on electrical generating capacity.

“The ability to combine the wind with the gas gives us a marketable product,” Niezwaag says. “Wind is intermittent and it doesn’t run all the time. But if we have as much gas as wind, it allows us to turn our gas on when the wind’s not blowing. If

EXPLORATION & PRODUCTION

we have good wind, we can shut some gas down.

Environmental concerns and potential EPA regulations intended to curb global climate change have made the traditional coalfired power plants less attractive as a means of providing future generation. It also creates uncertainty about the cost of electricity. â&#x20AC;&#x153;We usually owned or had long-term contracts for coal, so you always knew what your price was going to be,â&#x20AC;? Niezwaag explains. â&#x20AC;&#x153;Now, with the environmental situation being more prevalent and more of an issue with our members and with the regulators, itâ&#x20AC;&#x2122;s putting coal under pressure. â&#x20AC;&#x153;Wind and gas generation allows us to meet the environmental side of it,â&#x20AC;? he continues. â&#x20AC;&#x153;The other side that we lose, though, is the price stability. If the EPA regulations get really strict on coal, we can go to the wind and gas and have some generation there. Youâ&#x20AC;&#x2122;re hedging on a lot of different areas with a diverse portfolio.â&#x20AC;?

As with all infrastructure development in the Bakken, the challenge for both Basin and McKenzie Electric has been to build enough infrastructure to meet demand without overbuilding. â&#x20AC;&#x153;You donâ&#x20AC;&#x2122;t want to waste the consumerâ&#x20AC;&#x2122;s resources,â&#x20AC;? Niezwaag relates. â&#x20AC;&#x153;You donâ&#x20AC;&#x2122;t want to build all a transmission line and then all of a sudden have things slow down.

Theyâ&#x20AC;&#x2122;re paying for an 18-wheeler when all they needed was a station wagon to get by.â&#x20AC;?

For McKenzie Electric, itâ&#x20AC;&#x2122;s been a balancing act between being too conservative, meeting the customerâ&#x20AC;&#x2122;s needs and not going far beyond whatâ&#x20AC;&#x2122;s needed. â&#x20AC;&#x153;Hopefully, weâ&#x20AC;&#x2122;re building to meet their needs in the future,â&#x20AC;? Skurupey says. â&#x20AC;&#x153;And, hopefully weâ&#x20AC;&#x2122;re not overbuilding so that weâ&#x20AC;&#x2122;re not wasting money. Thatâ&#x20AC;&#x2122;s always the challenge. How do you be as efficient as you possibly can?â&#x20AC;?

Thus far, keeping up with demand has been far more of a challenge than overbuilding. â&#x20AC;&#x153;When this all started, there were going to be two wells per pad, one going one direction and one going the other way,â&#x20AC;? says Niezwaag. â&#x20AC;&#x153;That quickly changed from two

to four to eight. Now weâ&#x20AC;&#x2122;re hearing up to 18 to 20 wells per pad.â&#x20AC;?

Skurupey compares the situation to shooting at a moving target. â&#x20AC;&#x153;We end up having to rebuild brand new facilities within two or three years,â&#x20AC;? he says. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;re putting in lines that are quite expensive, and then finding out that we have to go back in and replace them. Itâ&#x20AC;&#x2122;s not a simple thing. Itâ&#x20AC;&#x2122;s almost a wholesale replacement.â&#x20AC;?

Niezwaag points out that producers are still experimenting with the optimum number of wells on a site and the amount of separation between them. In addition, other developments on the horizon could impact the electrical load in the Bakken.

For example, if carbon dioxide is used for enhanced oil recovery, Niezwaag believes it will increase energy demand. If the U.S. Forest Service allows drilling on federal grasslands, it will not only increase the de-

mand for electricity, but also create difficulty in obtaining permits to build transmission lines into those areas.

Compounding the difficulty in forecasting future energy needs for the Bakken is the unwillingness of producers to provide information about their plans. â&#x20AC;&#x153;What we finally decided to do about a year ago is poll all the producers that drill in our area,â&#x20AC;? Skurupey says. â&#x20AC;&#x153;We asked them for a 3 to 5 year projection. They donâ&#x20AC;&#x2122;t like doing that because everythingâ&#x20AC;&#x2122;s confidential.

Itâ&#x20AC;&#x2122;s like pulling teeth to get information out of some of them.â&#x20AC;?

However, the effort eventually paid off. â&#x20AC;&#x153;They finally gave us some fairly good information,â&#x20AC;? Skurupey notes. â&#x20AC;&#x153;We designed our transmission and substation build-out accordingly. We think that weâ&#x20AC;&#x2122;re going to be set so that we donâ&#x20AC;&#x2122;t have to rebuild anything on that side of the system in the futureâ&#x20AC;&#x201D; hopefully.â&#x20AC;?

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The BAKKEN MAGAZINE JANUARY 2015

Looking down the road at what the future holds for electrical demand in the Bakken, Niezwaag says, “If there’s three areas to look at, it would have to be the technology in the Bakken, the price of oil that creates volatility and federal regulations. Those are the three things we have to keep an eye on and try to anticipate and meet.”

Despite the stress caused by trying to keep up with the growing demand for electrical generating capacity and new service requests, Skurupey sees the positive side of being a rural electric cooperative in the Bakken.

“There are a lot of people throughout the United States who would love to have our problems,” Skurupey says. “It’s just a challenge. Everybody we serve—it doesn’t matter if you’re a rancher or a multi-billion-dollar corporation—each one is still a member of ours, and we try to do our best to meet their needs, no matter what happens.”

And, he adds, “It’s come on a little fast, but we’ve been pretty good at adjusting. We put a lot of load on our contractors and consultants. We’re drawing on their resources from all over the United States. I think we’re doing a pretty darn good job if you consider everything that’s gone into this boom.”

Basin Electric has had to change the way it plans for new generating capacity and for building new power plants, not only because of the Bakken boom, but also because of changes in national energy policy and environmental regulation.

“In days past, we used to be able to build coal plants, which was a 10 to 12 year process and why we needed to do long-term planning,” Niezwaag relates. “Right now, with the EPA regulations, we’re pretty much limited to handle meeting our growth with gas generation and renewables—mainly wind generation. For the past 10 years, we’ve gone from meeting our demand with the large coal-based plants to meeting it with smaller gas-fired generation along with the renewable of wind.”

Although lower oil prices and new regulations might reduce North Dakota’s oil and gas production, as well as lead to a slowdown in economic growth, Skurupey believes that McKenzie County will continue to see a high level of industry activity.

“It is the sweet spot of the Bakken,” he explains. “If any drilling continues, it’ll likely happen here, even though it may be reduced a little bit. The fact that they’re able to drill 21 wells on one pad, they’re going to realize their efficiencies and reduce their costs. I’m pretty confident that we’ll still see rigs working in our service area, even though the price of oil is down.”

Author: Patrick C. Miller Staff Writer, The Bakken magazine 701-738-4923 pmiller@bbiinternational.com

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IN PLAY

THE BASIC VISION: The idea behind North Dakota Port Services Minot facility is to receive inbound shipments destined for the oilpatch before reusing the train cars to ship out other commodities sourced from the region PHOTO: NORTH DAKOTA PORT SERVICES

ND Port Services In Training

By Patrick C. Miller

When Greg Johnson started North Dakota Port Services in 2007 with the goal of making regional rail transportation more efficient, oil and gas operations in the Bakken weren’t part of the business model.

“We started it as an intermodal facility to service our value-added agriculture customers across the region,” says Johnson, CEO of one of two privately owned rail ports in the U.S. “The explosion of development in the Bakken wasn’t really in anybody’s vision.”

But that began to change in

44

2008 when the Bakken began to boom.

Located next to the BNSF Gavin Yard at Minot, NDPS is a transloading, intermodal and warehousing facility serving a 250-mile area around Minot— including eastern Montana, northern South Dakota, northwestern Minnesota, southern Manitoba, and southeastern Saskatchewan. NDPS can handle a full intermodal unit train along with approximately 80 manifest rail cars.

“When the Bakken began drawing attention, we started being asked if we could service different areas, mainly from

The BAKKEN MAGAZINE JANUARY 2015

transloading services for operators trying to get product in and then eventually the crude oil and LNG going back out,” Johnson recalls.

NDPS serves as a regional distribution hub for the upper Midwest and lower Canadian provinces. Examples of import products shipped to the oil and gas industry include heavy equipment, building supplies, pipe, proppants, diesel fuel, gasoline, crane mats and other well completion materials.

As originally planned, truck containers with products from Asia being shipped by rail to markets in the eastern U.S.

would be loaded with agricultural products at NDPS rather than being sent back empty overseas.

“We discovered that a lot of that inbound freight to the Bakken was coming from Asia across the water via container,” Johnson explains. “We made a proposal to our ocean carriers and the operators to utilize that container box by getting it off the train, off-loaded, inspected, cleaned up, reloaded with our ag products and sent back.”

Importing loaded containers and sending them back full is a two-way, freight-paying move that’s “about as efficient as you can get in a rail industry

IN PLAY

CEO GREG JOHNSON: When the NDPS first began pursuing its Minot facility, the goal was to serve the agricultural community.

PHOTO: NDPS

and trucking industry or in the freight industry,” Johnson says.

“You really utilize that movement on the rail to its fullest when you do that.”

Located on a 120-acre site, NDPS is serviced by BNSF's Northern Tier Intermodal Line, adjacent to the railroad’s mainline switchyard with daily service and four-lane highway access. The BNSF route traverses northern Montana and comes through Williston and Minot where it splits to go south to Fargo or east to Grand Forks.

From Grand Forks, trains can travel south to Fargo or north to Winnipeg.

Johnson believes the NDPS facility’s proximity to the Bak-

TRACK TIME: Whether it is unloading crude, sand or pipe, NDPS believes efficiency and quick unloading times are crucial for its success.

PHOTO: NDPS

ken and its strategic location in relation to other major rail shipping hubs in Seattle, Minneapolis, Chicago and Omaha make it ideally suited to serve the increased demand for products coming into and leaving the region.

“It’s actually their most convenient route for the Chicago market,” Johnson says of the northern tier route. “Minot is halfway between Chicago and

Seattle, roughly at that thousand-mile intersection. Minot has fueling, crew change, train inspection and car repair. It’s a natural stopping point for all trains.”

The process of inbound trains being split up to service different parts of the region and then being reassembled outbound to carry various loads is slow, inefficient and needs to change, Johnson says. He envi-

sions NDPS as the point where trains can be pulled off the tracks, unloaded, serviced and reassembled to transport agricultural and energy products in a timely manner.

“Reliable and timely service into this marketplace is very critical to the success of all shipping communities,” he says.

“You don’t survive if you can’t ship timely and deliver to your customers.”

THEBAKKEN.COM

45

IN PLAY

FULL SITE: In the future, the NDPS site in Minot could cover as many as 3,000 acres.

PHOTO: NDPS

To illustrate the point, Johnson compares the Bakken’s distribution network to a spider web.

“Why would you build a big distribution hub in the middle of a spider web?” he asks. “It’s easier to distribute into the spider web than it is to bring every-

46

thing in, try to distribute it and then get it back out.”

For the railroad, not having to service so many different stops along the main line would greatly improve service, according to Johnson.

“The main line has to have trains roaring at 50 miles per

The BAKKEN MAGAZINE JANUARY 2015

hour,” he says. “When that train is slowing down and stopping and having to change cars, it affects every train on that chain all the way back to the West Coast or Chicago. You can’t keep trains moving when there’s one in the way.”

Last October, BNSF asked

NDPS to host a meeting of ocean carriers and shippers to assess the opportunity to improve intermodal shipping in the region. Currently, the nearest intermodal transportation facilities are in Seattle and Minneapolis.

Although they had just two

IN PLAY

weeks to organize the event, Johnson said the meeting was well-attended by regional shippers. Three international carriers also attended and three others continue to express strong interest.

However, Johnson says nothing has been heard from BNSF since then.

“All we need BNSF to do is provide a rate,” says Johnson. “They need to provide a rate that makes economic sense to the shipping community because everybody has to be profitable for it to work. Provide that rate to the shipping community and bring the trains in. That’s all we ask.”

NDPS currently occupies a 120-acre site, but has plans to expand by up to 3,000 acres to become the intermodal shipping hub that Johnson says is needed.

But until BNSF makes a decision, NDPS’ expansion plans remain in limbo.

“There’s a lot of parcels here available for small, large, medium shippers to locate fa-

OIL SUPPLY: NDPS will provide freight handling services for shippers sending supplies to the Bakken.

PHOTO:NDPS

cilities,” Johnson says. “We would service their spur for the offload, whether it’s a fertilizer car to unload, an ag hopper to get loaded or a crude oil car to get loaded or a diesel car to get emptied.”

If Johnson’s plan comes to

fruition, NDPS will become a distribution center for the upper Great Plains.

“I’m focused on building the future, not just for North Dakota Port Services,” Johnson says. “I like to look at it as a vision for our region in the

transportation sector for our children, grandchildren, great grandchildren and, hopefully, generations to come.”

Author: Patrick C. Miller Staff Writer, The Bakken magazine 701-738-4923 pmiller@bbiinternational.com

THEBAKKEN.COM

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