The Bakken Magazine - March 2015

MARCH 2015

Workforce Watch Oil prices dip but job market strong Page 26

Plus

Perfecting Gas-Powered Drilling Rigs Page 38

AND

Tax Trigger: Per Barrel Effect Page 42

www.THEBAKKEN.com Printed in USA

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Mechanical Products

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CONTENTS

MARCH 2015

VOLUME 3 ISSUE 3

Pg 34

PRODUCTS & TECHNOLOGY

Straight From The Bakken Source

The unique tube trailers designed by Ferus Natural Gas Fuels to transfer well head gas for drilling rigs from one site to another may become a familiar part of the oil patch scenery.

BY LUKE GEIVER

CONTRIBUTION

42 The ND Bakken Tax Trigger: Per Barrel Impact

Economic analysts from Cost & Capital Partners explain the impact of oil-related tax triggers in effect now, or pending, for North Dakota-based production.

BY TOM BOKOWY AND RYAN HATCHER

Pg 26

EXPLORATION & PRODUCTION

A Bullish Bakken Jobs Market

In the low crude price environment, oil production jobs are evolving, but demand remains strong for workers in several trades.

BY PATRICK C. MILLER

6 Editor’s Note

Workforce Fine, Innovation Needed

BY LUKE GEIVER

8 ND Petroleum Council 2015 Legislative Update

BY TESSA SANDSTROM

10 Events Calendar 12 Bakken News

Bakken News and Trends

ON THE COVER: B&G Oilfield Services workers check pipeline installed in the Williston Basin.

PHOTO: B&G OILFIELD SERVICES

THEBAKKEN.COM

5

EDITOR'S NOTE

Workforce Fine, Innovation Needed As the Bakken continues to grow in prominence within the global lexicon, so does its ability to provide headline writers with the topical fuel needed to drive page views. For the past two months, the slide in oil prices has pushed Luke Geiver

Editor The Bakken magazine lgeiver@bbiinternational.com

many to ask and write about the impact low oil prices will or could have on the oilfieldrelated workforce. Naturally, answering that question appears to be a simple “if-then” situation: if oil prices drop, then companies associated in generating revenue via Bakken oil production will be forced to cut jobs to save money at a time when less money is coming in. At the heart of an if-then approach to a Bakken story is that it fits into a pageturning, boom-and-bust storyline. But, because the Bakken shale play is so unique and so unequivocally different than any other oil-production-based economic engine seen before, the sensational story of a booming play going bust just simply isn’t accurate.

Has the culture of chasing rigs evolved? Yes. Will the capex cutback impact the amount of time, money and investment put into the Bakken? Certainly, at least for the short-term. Will low oil prices cause a shift in North Dakota’s job market, and the oil industry’s too? For now at least, but not as much as you might think. In fact, Patrick Miller’s piece on the Bakken’s current job market offers incredible insight on the current state of jobs in the Bakken.

Before diving into the piece, our team had heard and read many doom-and-gloom stories and we were prepared to echo that view. But, after talking in-length with 14 different people entrenched in the Williston Basin’s economy and job market, transcribing more than 10,000 words worth of interviews and drinking more coffee to finish the piece than we want to divulge here, Miller’s piece revealed that the Bakken’s job market—for better or worse—has changed very little with the drop in oil prices. Included in the story is perspective from economic developers, job service experts, oilfield service firms and economists, each offering unique items for all of us to remember. As Nancy Hodur, an economist from North Dakota State University, who has become synonymous with explaining the workforce dilemma and the Bakken economy to all interested parties, alluded to in Miller’s feature, any shift in employment could actually benefit the health of North Dakota’s current and future well-being, including the oil industry.

If you are looking for a boom-and-bust piece, please skip Miller’s story. But, for what we feel is an accurate account of the current Bakken job scene in the Williston Basin, take a look at page 26’s headline, “A Bullish Bakken Jobs Market.”

And read about a unique drilling rig power option tweaked to near-perfection by Ferus Natural Gas Fuels, Statoil and GE Oil & Gas in our story, “Straight From the Bakken Source,” on page 34. In it, Stuart Wilson, Ferus vice president of commercial development, recounts the rise of tube trailers, well head gas capture, transport and reuse. What this trio of companies has done, Wilson says, is logistically different than the common oilfield milk run. Their story fits well into a theme we’ve heard for a month regarding the entire U.S. unconventional industry: Innovation is needed now more than ever.

For the Latest Industry News:

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

The BAKKEN MAGAZINE MARCH 2015

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ADVERTISER INDEX

VOLUME 3 ISSUE 3

19

AE2S

EDITORIAL

21

American Welltest Incinerators Ltd

Editor Luke Geiver lgeiver@bbiinternational.com

45

Bakken Conference & Expo

Staff Writer Emily Aasand eaasand@bbiinternational.com

38

Bartlett & West

Staff Writer Patrick C. Miller pmiller@bbiinternational.com

11

CARBO

Copy Editor Jan Tellmann jtellmann@bbiinternational.com

41

DUG Bakken & Niobrara 2015

23

Falcon Technologies

Chairman Mike Bryan mbryan@bbiinternational.com

30

Fortis Energy Services, Inc.

CEO Joe Bryan jbryan@bbiinternational.com

10

Hotsy Water Blast Manufacturing LP

President Tom Bryan tbryan@bbiinternational.com

47

Intertek Oil & Gas Services

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com

46

iLevel Digital

Vice President of Content Tim Portz tportz@bbiinternational.com

37

Johnson Controls, Inc.

Business Development Manager Bob Brown bbrown@bbiinternational.com

43

KLJ

Account Manager Austin Maatz amaatz@bbiinternational.com

20

LLP Combustion

Marketing & Sales Director John Nelson jnelson@bbiinternational.com

29

Miller Insulation

PUBLISHING & SALES

Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com

24-25

Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

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

33

NCS MULTISTAGE

22

Presto Geosystems

48

Quality Mat Company

32

R360 Environmental Solutions

2 18

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.

National Oilwell Varco

3 40 4

Rossco Crane SBG Energy Services LLC Summit Casing Texas Classic Productions Tyco Fire Protection Products

39

Unconventional Resources Technology Conference (URTeC)

42

Wells Concrete

44

Williston Basin Petroleum Conference

31

Wood Group PSN

COPYRIGHT Š 2015

by BBI International

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7

NORTH DAKOTA PETROLEUM COUNCIL

THE MESSAGE

PIPELINE-A-PLENTY: From water supply lines for community-based needs to the ever-present need of the oil and gas industry, pipeline infrastructure work will remain strong in 2015.

PHOTO: NORTH DAKOTA DEPARTMENT OF TRANSPORTATION

2015 Legislative Update The 64th Legislative Session has officially passed its halfway point. North Dakota's biennial legislative sessions always present a number of challenges for decision makers, but perhaps not more so than this year. Falling oil prices and rig counts have lent considerable uncertainty for legislators as they worked to build budgets. Among the 8

considerations was Senate bill 2103, otherwise known as the surge funding bill.

Despite budgetary concerns, Gov. Jack Dalrymple signed this bill into law on Feb. 24. The North Dakota Petroleum Council commends legislators and the governor for their quick action in passing this bill. These dollars are critical in helping western

The BAKKEN MAGAZINE MARCH 2015

By Tessa Sandstrom

counties jump-start many of the construction projects quickly this spring and catch up in building the infrastructure and affordable housing needed in these growing communities.

The surge funding, however, is not just an advantage for western counties. The law appropriates substantial dollars to non-oilproducing counties statewide for

quality infrastructure, as well. This is no doubt the first bill of many that uses oil and gas production and extraction taxes to invest in our priorities, including roads, schools and amenities and services to create an even stronger, better North Dakota.

While the surge funding bill was a top priority for the NDPC, our work did not stop with its

NORTH DAKOTA PETROLEUM COUNCIL

SURGING ROADS: Through Senate bill 2103, construction on North Dakota roadways and highways within the oil patch will commence at the start of construction season thanks to an emergency clause in the bill that allows the $450 million in funding to be distributed immediately.

PHOTO: NORTH DAKOTA DEPARTMENT OF TRANSPORTATION

SENATE BILL 2103 ‛SURGE’ NUMBERS: • $240 million for the state’s top 10 oil-producing counties.

• $172 million for the cities of Williston, Watford City, Dickinson and Minot.

• $112 million for counties outside the state’s oil production region.

• $100 million for other cities within the top 10 oil-producing counties.

• $16 million for townships outside the state’s oil production region.

• $10 million for cities within eligible counties bordering the oil patch.

• $450 million to the N.D. DOT for state highway improvements.

passage. There were many regulatory bills that would have added further uncertainty to the industry during the correction we have seen in oil prices. Many of those bills were killed or defeated, while others were amended to include more reasonable solutions to the challenges we face.

Such a bill is House bill 1358, which calls for new regulations for pipelines, that is once again the first of its kind in the nation. This bill would require that crude oil and produced water gathering lines be bonded and inspected by a qualified third party. More importantly, the bill would provide significant resources for studying and analyzing pipeline standards, researching best methods for reclaiming and remediating land in the case of a spill, and also provide funding for the clean-up of spills that occurred before 1983.

Advancements have been made in reclamation practices, and these studies will ensure North Dakota is again the leader in responsible energy development.

As the legislative session moves into the second half, the assembly will likely wait until after Moody’s issues its newest forecast before making final decisions on bills with fiscal impacts. The NDPC will continue to watch these and other bills to ensure western counties and regulatory agencies get the support they need and to also ensure onerous bills do not put at risk the positive business environment North Dakota has worked hard to create over the past decade.

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

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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 MARCH 2015

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BAKKEN NEWS

BAKKEN NEWS & TRENDS

BNSF expanding rail capacity in western North Dakota Continue installing double track on the Glasgow subdivision

Burlington Northern Santa Fe Railway Co. plans to invest $6 BILLION in its 2015 capital plan.

between Minot, North Dakota, and Snowden, Montana, in the far western part of the state.

BNSF PLANS TO: Invest close to $1.5 BILLION

across eight states for engineering and expansion projects, of which $700 MILLION is in BNSF’s North Region, where growth is most rapidly expanding due to demand for materials that support crude oil production in the Bakken.

North Region includes: WASHINGTON MONTANA

NORTH DAKOTA

MINNESOTA

OREGON SOUTH DAKOTA

WISCONSIN

ILLINOIS

12

The BAKKEN MAGAZINE MARCH 2015

Devote nearly $2.9 BILLION to renewal of assets and maintenance.

Spend $1.4 BILLION of the budget on locomotives, freight cars and other equipment acquisitions.

Extend the siding on the Dickinson subdivision between Mandan, North Dakota, and Glendive, Montana, and expand the terminal at the Dickinson yard to accommodate expected growth in single car volumes.

BAKKEN NEWS

Complete implementation of centralized train control on the Hillsboro subdivision, located in eastern North Dakota.

Upgrade connection track between the Hillsboro subdivision and the Devils Lake subdivision to permit faster train speeds.

“At BNSF, we believe strongly in working with our customers to help them supply the world with food, energy and products that grow and build our economy,” said Carl Ice, BNSF president and CEO. “These unprecedented capital investments demonstrate to our customers how deeply committed we are to building a prosperous future for all of us.”

BNSF will invest $200 MILLION for positive train control.

BNSF HAS:

32,000 MILES OF RAIL

IN

28 STATES &

2 CANADIAN PROVINCES 7,000 LOCOMOTIVES AVERAGING

1,600 TRAINS PER DAY

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13

BAKKEN NEWS

IMF outlook explains low oil price impact on Middle East The International Monetary Fund’s recent study, “Learning to Live With Cheaper Oil Amid Weaker Demand,” takes an in-depth look at recent global and regional shocks of falling oil prices. IMF weighed in on the regional economic outlook regarding oil imports and exports in the midst of decreasing oil prices. The report looks at altered economic environments for the countries in the Middle

East and Central America— home to some of the world’s biggest oil producers.

Oil exporting countries that will be most affected are Kuwait, Qatar, Iraq, Oman, Libya, and Saudi Arabia because most oil exporters need oil prices to be considerably above the $57 per barrel projected for 2015 to cover government spending, according to the study.

“The large decline in oil

prices will lead to significant revenue losses for oil exporters in the MENAP––(Middle East, North Africa, Afghanistan and Pakistan, which include Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, the United Arab Emirates and Yemen)––and CCA regions––(Caucasus and Central Asia, which include Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan)––because most of

these economies are highly dependent on oil,” the report says.

Oil exports account for two-thirds of total exports for MENAP and CCA countries.

The total oil export loss in 2015 is expected to reach about $300 billion in the GCC––(Gulf Cooperation Council, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates)––region.

The oil price decline is expected

CAPITAL ADEQUACY RATIOS

EXTERNAL LOSSES FROM LOWER OIL PRICES

50 45 40 35 30 25 20 15 10 5 0

50

FISCAL BREAKEVEN PRICES, 2015 (U.S. dollars per barrel)

GCC

Non-GCC

CCAOE

January 2015 REO Update Baseline for 2015 $57

80

30

60

20

40

10

20

0

0

w Qa ait ta Ira r Om q Sa ud Liban i y Az Ara a er bia ba ija n UA A Ka lg E za eri k a Tu B hsta rk ah n m ra en in ist an I r Ye an m en

40

FISCAL BALANCE, OIL EXPORTERS, 2012-19 (Percent of GDP)

20

GCC

Non-GCC

CCAOE

15 10 5 -5 -10

SOURCES: NATIONAL AUTHORITIES; AND IMF STAFF CALCULATIONS

14

100

0

Tu rk Ku m w en ait is Ka Q tan za at kh ar st a Iran A Uq Sa zerb AE ud ai i A jan ra Ombia Ba an hr ain Ira Al n ge r Li ia by Ye a m en

160 140 120 100 80 60 40 20 0

External Losses from Lower Oil Prices (Percent of GDP) Net Oil Exorts (Percent of Total Exports) - RHS

Ku

Li b Om ya a Ka Qa n Sa zakh tar ud st i an Az Ara er bia ba ija n UA Ku E Ba wai hr t a Uz Alg in e be ri ki a Tu Y stan rk em m e en n ist an

(Percent of Risk-Weighted Assets; Latest Available Data)

The BAKKEN MAGAZINE MARCH 2015

2012 2013 2014 2015 2016 2017 2018 2019

BAKKEN NEWS

REVISION IN NONOIL FISCAL BALANCE AND EXTERNAL LOSSES FROM LOWER OIL PRICES, 2015

Change in Non-oil Fiscal Balance (Percent of Non-oil GDP) External Losses from Lower Oil Prices (Percent of GDP)

Ba

h Ku rain w Omait Sa a ud Qa n i A ta ra r bi UA a E Al ge ri Ira a Iran Li q Ye bya m en Az e r K Tu aza baij rk kh an m st en an ist an

30 20 10 0 -10 -20 -30 -40

SOURCES: NATIONAL AUTHORITIES; AND IMF STAFF CALCULATIONS

to significantly erode fiscal positions across the region, and IMF adds, if oil prices partially recover, fiscal balances could improve over time while remaining in deficit in most countries.)

While oil exporters are feeling the tension and economic impacts of declining prices, oil importers in the MENAP countries (including Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Somalia, Sudan, Syria,

and Tunisia) and CCA regions (including Armenia, Georgia, the Kyrgyz Republic, and Tajikistan) are actually benefiting.

“Lower oil prices create favorable conditions for continuing subsidy reforms and for stepping up structural reform efforts to support medium-term growth and job creation,” the IMF report says. “However, oil importers should not overestimate the positive impact of the decline in oil prices on their economies:

demand growth is weak in trading partner countries and there is considerable uncertainty about the persistence of lower oil prices and the availability of external financing.”

Oil prices have declined by roughly 55 percent since early September after OPEC opted not to cut production in November. IMF reports that oil prices will equal, on average, $57 per barrel in 2015 before rising to $72 per barrel by 2019.

According to the report, the drop in oil prices occurred because of both supply and demand factors. Higher-thanexpected supply, particularly from the U.S., was not offset by production cuts by OPEC members, just as global oil demand was weakening.

Over the medium-term, the outlook is likely to depend on

how oil investment and production respond to lower prices, if OPEC resumes its role as a swing producer, or if prices will be influenced more by marginal costs of shale oil production, IMF said.

Despite a large decline in oil prices, the IMF forecast of global growth for 2015 has been revised down to 3.5 percent. Growth forecasts for the EU, Japan, and emerging economies in China and Russia have also declined.

“Russia’s economy is now expected to shrink by 3 percent in 2015 because of lower oil prices and increased geopolitical tensions,” IMF said. “Forecasts for the Euro area have been revised downward to 1.2 percent, and for China down to 6.8 percent.”

REAL GDP GROWTH, 2014 AND 2015 World

U.S.

Euro Area

Emerging Markets

China

Russia

2014

3.3

2.4

0.9

4.4

7.4

0.6

2015

3.5

3.6

1.2

4.3

6.8

-3.0

2015 Revision from Oct. 2014 WEO

-0.3

0.5

-0.2

-0.6

-0.3

-3.5

MENAP Oil Exporters

GCC

Non-GCC Oil Exporters

MENAP Oil Importers

CCA Oil Exporters

CCA Oil Importers

2014

2.7

3.7

1.5

3.0

5.2

4.7

2015

3.0

3.4

2.4

3.9

4.9

4.4

2015 Revision from Oct. 2014 REO

-0.9

-1.0

-0.7

0.0

-0.8

-0.4

SOURCE: INTERNATIONAL MONETARY FUND

THEBAKKEN.COM

15

BAKKEN NEWS

Low oil prices matter to natural-gas-focused Magnum Hunter Magnum Hunter Resources has spent the past 18 months selling over $700 million of oil-producing assets to become a natural gas liquids (NGL) company. Magnum has sold its Eagle Ford acreage, all of the company’s Canadian assets, and almost all assets in North Dakota after the decision was made to exit the oil business and enter the gas business.

In North Dakota, Magnum Hunter still has one non-core legacy asset in Divide County that produces approximately 3,000 barrels of oil per day, which according to comments

made during an investor presentation, could be up for sale.

“As Magnum Hunter sits today, we are by no means an oil company,” Gary Evans, CEO of the company, said. “We are 90 percent natural gas liquids. Oil only represents 10 percent of our production.”

Although Magnum Hunter is not an oil-focused firm, it still feels the effects of declining oil prices.

“I can tell you from past experiences that this is the fourth downturn I have lived through and I don’t believe OPEC has done this for a temporary fix,”

“I do think the oil prices will affect the gas business because of all the associated gas that comes with the drilling of oil wells in the Eagle Ford, Permian Basin, the Bakken and in other oil plays,” Evans said. “Those plays are going to drop big time, with respect to production, and affect the gas business.”

MAGNUM HUNTER LOOKING TO SELL WILLISTON BASIN ASSETS?

15.5 MMBoe as of 6/30/14

Drilling locations target the Middle Bakken/Three Forks Sanish

178 gross

Proved producing reserves of

88,600 net acres

producing wells in Divide County, North Dakota

16

Evans said. “What I’m expecting, and our management team and board is expecting, is for prices on oil to stay down for at least 12 to 18 months. But prices will undoubtedly rebound, but it’s all really going to depend upon whether OPEC makes a decision to reduce their volumes or to allow world supply growth to catch up.”

Evans said he believes oil prices will get fixed quicker than most think, yet Magnum Hunter plans on running its company as if, “we’re going to be dealing with low oil prices for an extended period of time.”

The BAKKEN MAGAZINE MARCH 2015

Total proved reserves of

7.5 MMBoe as of 6/30/14

in the Williston Basin in Divide County, North Dakota

BAKKEN NEWS

Hess, ConocoPhillips and Occidental reduce capital budgets for 2015 ConocoPhillips executive vice president of exploration and production.

In 2014, ConocoPhilliips reported an overall net loss of $39 million, compared to last year’s Q4 earnings of $2.5 billion, yet saw a 4 percent production growth compared to 2013.

“I think that’s a pretty big accomplishment for a company our size,” said Ryan Lance, chairman and CEO. “The growth came from five major projects, ongoing ramp-up in the Eagle Ford and the Bakken, and a successful turnaround season across our operations.”

For Hess, Bakken oil and gas production was up by approximately 50 percent from Q4 of 2013 due to continued drilling activities and Q1 2014 completion of the Tioga gas plant expansion project.

“The Tioga gas plant expansion is our key commitment to sustainable growth in North Dakota and allows us to reduce flaring with our more-than-doubled natural gas liquids capacity,” says John Hess, CEO. The oil producer says it plans to operate roughly 9.5 rigs and bring approximately 210 new operating wells online, compared with 17 rigs and 238 operated wells brought online in 2014.

“Hess has some of the best acreage in the Bakken, and we will continue to drill in the core area of the play, which offers the most attractive returns,” Greg Hill, president and COO, said.

20 18

$16.7

16 14 Billion Dollars

Three Bakken oil producers cited declining prices in their 2014 fourth quarter (Q4) reports as reasons for cutting capital expenditures in 2015.

In 2015, ConocoPhillips’ $11.5 billion capital budget is a 31 percent decrease from the previous year. Occidental Petroleum Corp. will scale back operations in the Williston Basin. Its 2015 capital cost budget of $5.8 billion is a 33 percent decrease from 2014.

Hess Corp. will reduce its 2015 spending in the Bakken to $1.8 billion, a reduction from its 2014 budget of $2.2 billion.

Hess’ overall 2015 capital and exploratory budget is $4.7 billion— a 16 percent reduction from its 2014 budget of $5.6 billion.

Despite the budget decrease, ConocoPhillips will continue to focus on the Bakken but will defer significant investment in the emerging North American unconventional plays, the company says.

In ConocoPhillip’s Q4 earnings release, the company reported a 35 percent growth in the Eagle Ford and Bakken production compared to 2013. In 2015, the company plans to run six rigs in the Eagle Ford, three in the Bakken, and two each in the Permian conventional and unconventional plays.

“At these levels, we maintain our land possession, meet our longer-term rig commitments, and can continue to progress key pilot tests,” said Matt Fox,

2014 VS. 2015 CAPITAL PLANS

12

$11.5

10

$8.7

8 6

$5.6

$5.8

$4.7

4 2 0

Hess

Occidental

2014 Capital Budget

“Substantially, all our core acreage is held by production, which allows us to defer investment in the short term while maintaining the long-term value and optionality of this important asset. As oil prices recover, we will increase activity and production accordingly.”

Occidental’s domestic core after-tax earnings were $59 million, compared to $391 million for Q4 2013. According to the Houston-based company, the quarter’s domestic results reflected lower crude oil and NGL prices, higher operating costs from increased work-over and maintenance activities, and higher depreciation, depletion and amortization expenses, which

ConocoPhillips 2015 Capital Budget

were partially offset by higher crude oil volumes.

“Our capital program will focus on our core assets in the Permian Basin and parts of the Middle East,” said Stephen Chazen, president and CEO of Occidental. “We have minimized our development activities in the Williston Basin, domestic gas properties, Bahrain, and the Joslyn oil sands project, as these have subpar returns in this current product price environment.”

THEBAKKEN.COM

17

BAKKEN NEWS

Kinder Morgan shuns oil price, adds $3 billion Bakken asset

THE KINDER VIEW: Although KMI will service Continental Resources on the Double H pipeline, the company insists it will give no producer preferential treatment.

PHOTO: KINDER MORGAN INC.

18

The BAKKEN MAGAZINE MARCH 2015

North America’s largest midstream energy company has utilized Bakken energy production to increase its national footprint. Kinder Morgan Inc. has purchased Hiland Crude’s Bakken pipeline assets for $3 billion. The acquisition gives KMI a crude transport and gathering system linked in to Cushing, Oklahoma. The purchase includes the Double H pipeline, a 485-mile system connecting Dore, North Dakota, to Guernsey, Wyoming. The system was developed and previously owned by Harold Hamm, CEO of Continental Resources.

“We took into account lower oil prices,” Steve Kean, president of KMI, said. The midstream company also used revised production totals given lower crude prices in its assessment of the system's potential volume. “We paid a price to get a position in this basin,” he added, noting that the purchase will be accretive—or provide positive additions to earnings per share—in 2015. In 2016 and 2017, the system should add roughly 6 to 7 cents per share.

The Double H, currently nearing completion, will eventually offer 108,000 barrels per day of capacity. There are currently take-or-pay contracts in place for 60,000 bopd and an on-going open season call for additional producer commitments. Although Continental Resources will use the system, KMI said it will not work exclusively with the exploration and production company on the development of its system. “We are a midstream company,” Kean said.

BAKKEN NEWS

COMPLETE OPERATION: With its Bakken purchase, KMI now has infrastructure in several of the major U.S. shale plays.

PHOTO: KINDER MORGAN INC.

Corp. all use the system. KMI intends to keep the 430 employed by Hiland. The purchase of the Double H may not be the only step taken by KMI in the Bakken, in the pipeline sector or other areas, according to the company. “This is an opportunity rich environment for acquisitions,� Richard Kinder,

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CEO, said. “Well-positioned midstream companies will prosper,� he said, regarding the current low oil price environment. “If you are a long-term investor with staying power, this could be a real opportunity for you for years to come.�

AE2S

“We are going to be operating this as a midstream, not as an affiliate of a producer.� For Kean, this approach will be more advantageous for adding new shippers. “Some don’t like to contract with a rival producer’s affiliate,� he said.

Oasis Petroleum Inc., XTO Energy Inc., Whiting Petroleum Corp. and Hess

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BAKKEN NEWS

Bakken real estate, construction firms confident despite oil prices

MASSIVE INVESTMENT: This 3-D rendering of a 219-acre retail development in north Williston shows the commitment many developers, Stropiq Inc. included, have for the constantly growing Bakken region.

PHOTO: STROPIQ INC.

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The BAKKEN MAGAZINE MARCH 2015

Oil price fluctuations have left major housing and construction developers in the North Dakota communities of Watford City and Williston unfazed. Jason Vedadi, a University of Montana graduate who started a multi-state construction firm and land development company, is currently overseeing the completion and continuation of multiple housing projects in Watford City. In early February, Vedadi Corp. issued a release about the developments. The subject of the release was not about housing options but instead was formulated to send a message that oil prices would not stop the multi-state construction firm and housing developer from continuing with its current and future builds, Vedadi said.

The confidence of Vedadi stems from two things: third-party

BAKKEN NEWS

reporting his New York investors rely on before funding his buildout projects, and the amount of permanent, yet-to-be-completed infrastructure needed for the oil and gas industries producing in the Bakken play. Vedadi points to multiple gas plants currently planned and under construction along with several major road and highway projects as examples of infrastructure that will employ many for years to come. “I think there is a such a balance in the marketplace between public infrastructure and other things that need to be done and a lot of people don’t understand the amount of work that still needs to be completed,” he said.

Last December, Vedadi experienced the connection between unfinished work and the demand

for long-term housing. When Vedadi opened up a housing development—at the same time as multiple other housing options were also brought to the public— the demand was unexpected. “On apartments that came available in December, you would frankly think that is the worst time to bring something online in North Dakota between the weather, holidays and the annual slow-down in fracking,” he said. “Our apartments have had no rent compression due to lack of interest and are actually leasing at a faster rate than we anticipated.”

In addition to his first-hand experience gained through recent housing demand in Watford City, Vedadi is not concerned about current oil prices due to his access and

use of third-party reporting. “We perform several third-party studies,” he said. “We’ve got multiple partners out of New York, hedge funds, that go through extensive due diligence.” The reports, Vedadi said, have consistently shown that housing supply in Watford City and Williston are greatly lower than the total amount needed to serve each respective community.

Stropiq Inc., an international real estate developer, has also tuned out the notion that low oil prices may lower the demand for services, specifically in Williston.

In early February, the company issued a statement that its plans to develop and build a 219-acre retail site in North Williston will continue despite low crude prices. “While oil prices may cause

temporary caution, there is a cost efficiency of oil production in this region along with sheer supply that makes investment sustainable,” said Larry Jensen, senior director of retail development for JLL, the investment services group working with Stropiq on the project. “This is a unique project, sitting in an even more remarkable setting and economic backdrop.”

Ellen Simone, principal for Stropiq, added that the company understands the ebb and flow of the market and has built in flexibility to its business approach applicable to changing market dynamics. “We have developed in resource-dependent emerging markets before and we know the patience and determination it takes,” she said.

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BAKKEN NEWS

EPA to regulate oil, gas industry methane emissions By 2016, the U.S. EPA could be regulating methane produced during oil and gas retrieval. The EPA recently unveiled its plans to apply its 2012 New Source Performance Standards to the oil and gas industry in an effort to regulate, and stop increasing methane emissions. The 2012 standards include several technologies and processes approved by the EPA that can help to reduce emissions. According to the EPA, it will work with industry, states and tribes to evaluate other approaches. Hydraulically fractured wells, compressor stations, pneumatic pumps and leakage from new or modified well sites are all areas in the oil and gas

industry the EPA will be targeting as methane producers.

Although the EPA said methane emissions in the oil and gas industry have decreased 16 percent since 1990, additional regulatory steps are necessary because oil and gas production increases will increase methane emissions once again. The Western Energy Alliance, a 480plus energy entity group, said that methane emissions in the oil and gas industry are, in fact, decreasing, and do not need to be regulated more. The efforts by the EPA to do so “is another case of the administration adding new red tape to make mandatory what industry has been doing voluntarily for several

years,” Kathleen Sgamma, vice president of government and public affairs for WEA said.

Proposed rules on the regulations will be issued this summer. New standards would apply to new and modified pieces of equipment, but would not include older equipment.

The EPA believes most methane gas reduction efforts could be achieved by capturing gas that escapes into the air. The EPA has also issued updates on methane reduction requirements and acceptable approaches for well completions, storage tanks and natural gas processing plants.

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EXPLORATION & PRODUCTION

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The BAKKEN MAGAZINE MARCH 2015

EXPLORATION & PRODUCTION

A BULLISH Bakken Jobs Market The impact of low oil prices and a decreased rig count on the Bakken’s workforce

By Patrick C. Miller

What does it say about the employment situation in the Bakken when the Job Service North Dakota office in Williston imports help from other offices around the state because it’s short five workers?

Contrary to some reports, it means that while the demand for some positions in certain areas—such as exploration, drilling and fracking—has softened, the overall demand for jobs remains bullish throughout North Dakota, in general, and the Bakken, in particular.

“It’s not really doom and gloom, which is what a lot of people may think with the slide in the oil prices,” says Shawn Wenko, executive director of Williston Economic Development. “We look at this from our office as more of a market correction than anything. I think the industry knows that as well.”

Cindy Sanford, Job Service customer service office manager in Williston, notes that her office continues to see a strong demand for workers. She then rattles off a string of six employers scheduled to meet with her the next day and lists several different sectors short of employees, including the office she runs.

“Who isn’t stretched?” she asks. “We’ve been short since I’ve been here. If people want to work, there’s a job here.”

Asked what she’d consider a cause for concern, Sanford quickly replies: “If we didn’t see anybody in our office, then I’d be worried, whether it’s looking for jobs or applying for unemployment.”

But given the fact that 165 people had been in the office seeking help the previous day and the spring Williston job fair has no shortJOBS, JOBS, JOBS: In spite of low oil prices and the softening of jobs in some areas, the demand for skilled workers in the Bakken far exceeds the supply.

PHOTO: B&G OILFIELD SERVICES

THEBAKKEN.COM

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EXPLORATION & PRODUCTION

CREATING SEPARATION: Companies such as B&G Oilfield Services, which have been operating in the Bakken since 1966, believe the quality of their employees and efficiencies will help them make it through the current oil price slump.

PHOTO: B&G OILFIELD SERVICES

age of employers seeking recruits, it’s not a scenario that appears likely to occur any time soon. And even when someone comes in to apply for unemployment, Sanford is not yet concerned.

“What we're seeing for unemployment is that a lot of it’s seasonal,” she explains.

“Many of those getting laid off—like some of the frack guys—are still attached, which means they’re laid off and they have an estimated time to come back. It’s not permanent.”

Michael Ziesch, manager of North Dakota’s Labor Market Information Center, routinely fields calls from news media outlets inquiring about how the low oil prices are affecting employment in the Bakken.

He’s received calls from at least 10 foreign countries—some in the Middle East—requesting employment statistics.

28

“It’s kind of fun to see who is curious,” he says.

Among the factors Ziesch examines are the unemployment rate, the monthly jobs estimate and unemployment claims.

For the most current data, he says none of them show any negative effect from lower oil prices.

“Those data are also relatively stable for the year,” Ziesch notes. “We’re not seeing the effect yet of any large-scale layoffs or large-scale events in northwest North Dakota.”

However, the longer low oil prices persist, the more noticeable the effects will be in the state’s employment statistics.

“We do expect to see some change,” Ziesch says. “When rigs are being stacked, we will see some shift in employment levels, but we haven’t seen anything drastic yet.”

The BAKKEN MAGAZINE MARCH 2015

Tim Rasmussen, public relations manager for MDU Resources, says, how oil and gas producers deal with low prices varies from company to company.

“If they have a producing oil well, they’re going to keep producing that oil well, and it’s going to take people to do that,” he says. “If there’s any slowdown, it’s on the drilling side and the exploration side. Some companies aren’t going to the fringe areas.

They’re staying in the core areas. They’re doing less drilling.”

Wenko notes that some effects of the low prices are noticeable.

“We’ve seen a cutback on some of the amenities, specifically, a lot of companies are starting to drop their housing stipends where normally they would supply housing for their employees,” he says. “Some of the E&P operators have come back to the service companies and asked for a rebid on their cost, seeking anywhere from a 10 to 18 percent reduction in their cost for services.

You’re also seeing some of the overtime being shaved off.”

Sanford relates with a chuckle a story about an oilfield worker who came into the Job Service office to apply for unemployment because his hours per week were cut from 80 to 40.

As Gene Veeder, public relations director for McKenzie County Development, relates, “Nobody likes slumping oil prices.

It just means we have to be a lot more efficient. We’ve been through it before.”

Veeder believes the huge backlog of infrastructure work left to complete on public and private projects such as pipelines, housing, roads, bridges, transmission lines, substations, utilities, retail stores and gas processing facilities as something of a buffer to industry cutbacks.

“We have a lot of catching up to do because we grew so quickly in such a short amount of time,” Wenko explains. “Construction is still going fairly strong, and I think we’ll see that going into the spring and summer. Any of the servicing jobs are still strong. For Williston, we’re starting to develop a restaurant and retail base we’ve never had. We’re seeing a lot of interest in retail development in the area.”

EXPLORATION & PRODUCTION

BE PREPARED TO GO: Because infrastructure projects such as road constructions have yet to catch up with with the needs of the Bakken, there are still many job opportunities available.

PHOTO: ND DEPARTMENT OF TRANSPORTATION

Ziesch agrees and notes, “If you look at some of those counties in northwest North Dakota, they have unemployment rates around 1 percent and they have more than twice as many job openings as they do job seekers in the area. Even if things slow down, that would be an opportunity for other industries looking to absorb those workers.�

Veeder, Wenko and others agree that a slowdown in oil and gas production at this point isn’t all bad. “I tell people that we’re about five years behind,� Wenko explains.

Nancy Hodur, a researcher at the North Dakota State University Agribusiness and Applied Economics Department,� says she believes a slowdown could be good for North Dakota’s economy in the long term. “From an economic perspective, there are bad things that happen when you have a white-hot economy,� she explains. “There’s wage inflation and you have a super-tight labor market. Nobody else can hire anybody to work.�

And, she asks, “How do you grow any type of balanced economy? Do you crowd out other industries? Some businesses in the state considering expansion might just say,

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THEBAKKEN.COM

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EXPLORATION & PRODUCTION

STILL GOING STRONG: Employment statistics from North Dakota Job Service indicate no large-scale layoffs in the Bakken, although the situation could change if low oil prices persist.

PHOTO: ND DEPARTMENT OF COMMERCE

‘To heck with this. We’re going somewhere else.’ To have a more measured economic growth is a good thing.”

Patrick Bertagnolli, human resources director for B&G Oilfield Services, says, “I can’t tell you that the current climate hasn’t created some obstacles. We’ve got challenges just like everybody else, but we’re doing the best we can to take care of our people and our communities. We’re optimistic about the outcome.”

He sees the situation for B&G—a Wil-

30

liston-based company formed in 1966—as an opportunity to separate itself from the competition by emphasizing the strengths of its leadership team, how the company treats employees, its strong role in the Bakken’s communities and the benefits of living and working in western North Dakota.

B&G not only participates in community activities, but also puts great emphasis on safety—even away from the oilfields—while keeping its employees happy and satisfying its customers, all factors Bertagnolli believes

The BAKKEN MAGAZINE MARCH 2015

will carry the company through tough times.

“We talk to our employees about making sure our customers are happy with our work,” he says. “We have several positive stories where our crews have done such a tremendous job with our efficiencies that they’ve taken on additional work with the oil companies.”

With employee recruitment as part of his HR duties, Bertagnolli uses his personal experience to sell potential employees on working for B&G and living in North Da-

EXPLORATION & PRODUCTION

North Dakota, including employee retention, community development and the allocation of government services. Hodur says the research gathered will help communities and employers plan for and provide the appropriate mix of public and private services for residents. â&#x20AC;&#x153;Whatâ&#x20AC;&#x2122;s valuable about it is that it gives the frontline folks an opportunity to express the things that they like and the things that theyâ&#x20AC;&#x2122;d like improved,â&#x20AC;? Bertagnolli explains.

The question many would like answered

is: How long are the low oil prices going to last and how will they impact employment in the Bakken? â&#x20AC;&#x153;A lot of interesting dynamics could play out in the next six months to two years,â&#x20AC;? says Bangsund, who also conducts economic impact studies for the North Dakota Petroleum Council. â&#x20AC;&#x153;What will be interesting is that there is a backlog of wells that havenâ&#x20AC;&#x2122;t been fracked,â&#x20AC;? he says, â&#x20AC;&#x153;We might not initially see it so much in the fracking employment, but

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kota. He came to the Bakken from Montana in 2011 following a 22-year career with UPS. Although he liked his former job, he had more important goals in life. â&#x20AC;&#x153;That fact that my wife and I can be with our son and daughter at the end of the day is a stroke in the win column,â&#x20AC;? Bertagnolli explains. He also wanted to be involved in helping the U.S. become more energy independent, another goal heâ&#x20AC;&#x2122;s realized. â&#x20AC;&#x153;I am 100 percent sold on the opportunities in North Dakota,â&#x20AC;? Bertagnolli says. â&#x20AC;&#x153;I think the education system is undersold.

They have an incredible education system here from grade school up through college.

If people knew more about North Dakota, thereâ&#x20AC;&#x2122;d be a lot more people coming to North Dakota.â&#x20AC;?

Once hired by B&G, the company provides employees with skills training, as well as education on such topics as budgeting and debt management, which helps position them for home ownership if they want to and put down roots in the community. Bertagnolli says itâ&#x20AC;&#x2122;s one reason why 60 percent of the B&Gâ&#x20AC;&#x2122;s employees have been referred by other employees. â&#x20AC;&#x153;A lot of our success is because we have very skilled people out there who are very professional and have brought new work to our organization,â&#x20AC;? says Bertagnolli, who also serves as a member of the North Dakota Workforce Development Council, which works to develop workforce training and a strategic plan for the state.

B&G is also working with NDSU on an oil and gas workforce study being conducted by Hodur and Dean Bangsund, another economics researcher at the school. Bertagnolli believes the research will be beneficial to the Workforce Development Council.

NDSU is looking for other employers in the Bakken to participate in the study, which is aimed at gaining a better understanding of the motivations and goals influencing oil and gas employees. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s a project to try to get a little better handle on some of the perceptions, tensions and characteristics of the workforce,â&#x20AC;?

Hodur says.

The study seeks to address issues associated with the rapid growth in western

THEBAKKEN.COM

31

EXPLORATION & PRODUCTION

when the slowdown in drilling occurs, if low prices are maintained through the end of the year, I would expect that we’ll see lower employment.

How much lower? I don’t know.”

But Bangsund is optimistic about the Bakken’s future.

“I don’t believe that we’re going to see $50 oil for the next 25 years,” he says. ”The technology is in place, and there’s a considerable amount of oil left to be retrieved out of the Bakken and Three Forks. We could still have a tremendous number of wells compared to what we have now.

By some estimates, we’re not even a quarter of the way done.”

With an increase in oil prices, Bangsund believes production in the Bakken would rapidly rise.

“If economics were to return to something similar to what we’ve seen EXTRACTING WORK: With thousands of wells left to be drilled and much of the guesswork gone, economists believe the long-term prospects for the Bakken remain strong.

PHOTO: ND DEPARTMENT OF COMMERCE

in 2013 and the majority of 2014, I think we’d see the companies go back and we’d see active well drilling for a considerable period. I don’t think anything’s changed in the long term.”

Wenko agrees with Bangsund’s assessment and adds: “We’re confident that this is more or less a correction, and we’re going to see it rebound. One of the best comments I’ve heard is that there’s 60 to 70,000 wells out there that need to be drilled.

If you don’t drill them this year, you’re going to drill them eventually.

We’re still looking at a long-term future to this thing.”

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

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PRODUCTS & TECHNOLOGY

Straight From

The Bakken Source Ferus Natural Gas Fuels is perfecting a flare gas capture and recycling process to power Bakken drill rigs today, and everything else tomorrow

By Luke Geiver

Ferus Natural Gas Fuels LP relies on a trailer design that, at first glance, seems out of place on the gravel roads and paved highways of the Bakken. The trailers, often pulled by white semis, feature two pairs of long, narrow tubes stacked together. The word Ferus is painted across the stacked tubes, the curvature of the letters highlighting the unique design and placement of the tubes on the trailer, each letter wrapping into itself as if everything important to the trailer originated from within the tubes. Although the trailers can draw double takes from industry and community members accustomed to seeing water trucks and oil transport trucks, the tube trailers could soon THE MODERN WELL SITE: Statoil began utilizing associated gas sourced from the Williston Basin to power drilling rigs in 2014 through a pilot project with Ferus Natural Gas Fuels and GE Oil & Gas. In 2015, the operator will move beyond the pilot stage and implement the Ferus, GE Oil & Gas process for transporting and converting associated gas on a large commercial scale.

PHOTO: FERUS NATURAL GAS FUELS

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The BAKKEN MAGAZINE MARCH 2015

PRODUCTS & TECHNOLOGY

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PRODUCTS & TECHNOLOGY

WELCOMED CONVERSION: After Ferus Natural Gas Fuels arrives on the well pad with compressed associated gas, GE's technology converts the gas into fuel capable of powering drilling rigs modified to run on natural gas.

PHOTO: JAY PICKTHORN/AP/STATOIL

become commonplace in the play if a unique joint venture between Ferus and GE Oil & Gas continues to prove out.

Throughout 2014, the duo has been working to perfect what Ferus and GE Oil & Gas have called The Last Mile Fueling Solution. The solution relies on the logistics know-how of Ferus and the modular gas compression technology provided by GE Oil & Gas. The combined efforts of each has developed a system capable of capturing, storing, moving and reusing associated gas produced at one Williston Basin well site to power a natural gas36

converted drilling rig or other capable equipment operating on another. Statoil has played a significant role in the development of the system. After more than one year working to streamline the process, the Ferus team believes it has moved past the pilot project stage into full commercialization mode. Expanding its reach into the Bakken, and other shale plays, is dependent on future clients understanding those tube trailers and history of Ferus.

As that happens, the gravel roads and highways of the Bakken could look much different.

The BAKKEN MAGAZINE MARCH 2015

The Evolution Of Ferus

In the early 2000s, Ferus began providing oilfield logistic services in western Canada moving liquid nitrogen and CO2. Oil producers in the region were in need of fluids to increase production associated with energized well fracturing, and significant reductions in water use. “The general message then was that we could make molecules and transport them through tough terrain and complex logistic networks. We could get them to and from the wellsite,” Stewart Wilson, vice president of commercial development for Ferus, says. Roughly

four years ago, Wilson and his team began exploring the possibility of utilizing the company’s knowledge in moving cryogenically treated fluids through complex logistics networks into the fuel supply business. At that time, the team was focused on natural gas fuels and how the company could supply the fuel for use in fleets. “Our problem then was the supply chain,” Wilson says.

While working to develop a supply chain model, the team was introduced and began discussions with GE Oil & Gas. “They wanted to partner with us to deploy their machines and

PRODUCTS & TECHNOLOGY

equipment into productive use,” Wilson says. Shortly after the introduction of GE and Ferus, Wilson began working with GE and an exploration and production company looking to better utilize a resource while reducing its production of flared gas.

Through the addition of Statoil, Ferus began developing and perfecting the system it provides today. “Statoil challenged us. They said they had a gas with no market,” Wilson says.

Through the end of 2013 and most of 2014, the trio worked to optimize the system.

And, although flare gas capture outfits were already present and available in the Bakken, none were matching the service style and capabilities of Ferus. The team is now on what it believes to be generation two of the process

and has multiple units including trailers and GE’s CNG technology running in the Bakken.

In mid-September of 2014, Statoil announced it was officially committing to the Ferus, GE Last Mile Fueling Solution. “Not only is Last Mile enabling our company to better comply with the new flaring regulations in North Dakota,” Lance Langford, vice president for Bakken development and production at Statoil said, “but by using this captured natural gas in place of diesel in our drilling and hydraulic fracturing operations, we are further reducing emissions and costs. This is good for profit and climate.”

Langford’s confidence in the Ferus, GE process gave him the confidence to use the system in real-time commercial operations.

ducing associated gas, the gas is captured and streamed through equipment that relies on pressure and temperature to strip out the natural gas liquids such as butane, ethane and propane. The leftover dry gas is then streamed into GE’s gas compression equipment to a high pressure. The dry, compressed gas is then streamed into the tube trailers. Once full, the tube trailer leaves the site and drives to a well pad with a drilling rig in need of power.

The tube trailer is then plugged into a pressure reduction unit that reregulates the temperature and pressure before feeding the treated gas stream into an engine powering the drilling rig.

The Ferus team manages the whole process, needing only the okay from the producers indicating they want the Last Mile

Moving Flared Gas From A To B

There are two pieces to the Ferus gas movement logistics puzzle: the gas consumption side at the drilling pad and the production side at the well head. “The complicated part is not making one individual piece of that supply chain work. The complicated part is connecting it all so that you have a reliable product of natural gas for powering the drilling rig. The drilling rig doesn’t care if you are having supply issues,” Wilson says. And, he adds, supply issues possible from the gas supply itself are totally independent from the demand for the product. “We need to be able to make sure there is consistent gas supply from an inconsistent product source.”

Starting at the well site pro-

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37

PRODUCTS & TECHNOLOGY

Solution and the location of the wells where gas can be sourced and the wells where drilling is scheduled. “We manage all of the inventory. We time the logistics so that as one trailer is getting empty we replace it with another,” Wilson says.

More Than A Milk Run

The process of capturing, storing and transporting associated gas is not akin to the term used to describe a simple, repetitive route Wilson refers to as the milk run. There is a big difference between delivering a product on a paved road location and doing so on a leased road made of gravel in the middle of winter, according to Wilson. “The nature of some logistics is literally a milk run, where you make the same trip at the same time

38

‘We need to be able to make sure there is consistent gas supply from an inconsistent product source.’

Stewart Wilson, Vice President Commercial Development, Ferus Natural Gas Fuels

over pretty consistent road conditions,” he explains. “We are the opposite of that.” According to Wilson, the team is constantly managing produced gas resources and the demand from drilling rigs on neighboring well sites that could be several miles away.

Because the fueling solution is unique, the payments for service plans are also handled in unique terms. There are several different payment plans, Wilson says, ranging from gas prices attained at the well head or savings over diesel costs. Most producers don’t care where the gas will come from for drilling rig power.

The BAKKEN MAGAZINE MARCH 2015

“What they care about is cost savings over diesel and that they can get a consistent supply.”

GE and Ferus are not working exclusively with Statoil. The duo is already well into contractual discussions with several Bakken producers, according to Wilson. The discussions could remove roughly 15 million standard cubic feet per day of flared gas from the Williston Basin, enough to fuel more than 100 drilling rigs in North Dakota.

The Ferus and GE combo isn’t focused solely on the oil and gas industry either. According to Wilson, the system can be

used in other markets, including agriculture, construction and the very industry that had the original Ferus management team of the early 2000s excited about expanding out of the oilfields of western Canada: transportation.

Until that happens, Wilson is working to expand the network of tube trailers and GE compression units in the Bakken. But someday, he believes, tube trailers won’t just be seen as a staple to the Bakken. The Bakken will instead be the starting point. “We are trying to connect all dots,” he says, “with all markets.”

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

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IN PLAY

ND Bakken Tax Trigger: Per Barrel Impact

By Tom Bokowy and Ryan Hatcher

production tax for the following 18 months. â&#x20AC;˘ Impact for Producersâ&#x20AC;&#x2022; If the five-month trigger is hit, producers will receive a tax benefit ranging from $2.60 to $3.00 per barrel. At current WTI prices, many Bakken producers are just covering cash costs and may not be able to reinvest in drilling

operations without higher crude prices.

North Dakota calculates oil taxes using a formula based on the benchmark WTI market price to determine the trigger for the oil extraction tax. In 2014, the trigger was set at $52.06 and increased to $52.59 for 2015. If the price for WTI minus $2.50 is

below the trigger for one month, then all new wells completed in that month qualify for a reduced tax of 2 percent. If WTI minus $2.50 is below the trigger for five consecutive months, then all wells have the 6.5 percent extraction tax reduced to zero percent for 18 months.

Based on the current and

NORTH DAKOTA OIL TAX PER BARREL $12.00 $10.00 $8.00 $6.00 $4.00

Gross Production Tax -5.0%

Oil Extraction Tax - 6.5%

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The BAKKEN MAGAZINE MARCH 2015

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â&#x20AC;˘ Production Triggersâ&#x20AC;&#x2022; North Dakota has two sets of triggers for current and existing wells linked to the WTI (West Texas Intermediate) benchmark price minus $2.50. For 2015, that trigger has been set at $52.59. â&#x20AC;˘ New Wellsâ&#x20AC;&#x2022;The trigger has already been in effect for one month, so all new wells will be taxed at 2 percent of production value compared to the standard 6.5 percent. This incentive lasts for the first 18 months, or 75,000 barrels, or $4.5 million of gross value or until the WTI benchmark exceeds $72.50 for a single month. â&#x20AC;˘ Existing Wellsâ&#x20AC;&#x2022;If the WTI benchmark minus $2.50 per barrel is below the trigger for five consecutive months, new and existing wells will receive a tax holiday for the 6.5 percent

IN PLAY

BAKKEN PRODUCER CASH COSTS PER BARREL

$45.00

Marke ng Differen al

$40.00 $35.00

Interest

$30.00 $25.00

G&A

$20.00 $15.00

Taxes

$10.00 $5.00

Produc on Expense

$0.00 Current

With Trigger

futures market pricing for WTI, the tax trigger should be enacted in May 2015.

Cash Impact

The current tax on oil production for the state of North Dakota includes a gross production tax of 5.0 percent of the gross value and an oil extraction tax of 6.5 percent.

When Bakken producers were able to generate $90 per barrel. last year, the taxes ranged from $8 to $10 per bbl. With lower crude oil prices, taxes per barrel produced in North Dakota are currently less than $4.00 per bbl. The 6.5 percent tax holiday will reduce the effective taxes producers pay per barrel by $2.50 to $3.00.

The impact for shale producers is significant due to the higher operating costs for horizontal wells with hydraulic fracturing. The cash costs, which are costs associated with the operation of the wells and marketing of the oil, but not including the initial investment and depletion is near the break-

even point. At the current level of crude pricing, shale producers are just covering daily cash costs to produce and market the barrels of oil. The tax holiday will support producers and improve cash flow during lower oil pricing periods.

The incentive is not enough to encourage new oil production. With average investment costs ranging from $20 to $25 per barrel, WTI would need to rise above $70 per barrel before drilling and completing new wells becomes economical. As seen in the chart, the tax holiday will reduce some of the cash costs for producing a barrel, but compared to the costs of drilling and operating a well in the Bakken region, investment should be modest for foreseeable future until prices rise significantly.

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The BAKKEN MAGAZINE MARCH 2015

North Dakota Oil & Gas Expertise Intertek testing, inspection, certification and other services support Bakken oil, natural gas, refining, transportation, and quality operations.

Our personnel provide crude oil field sampling and inspection services, working with storage tanks, railcars, and pipelines. Intertek professionally calibrates and gauges, meters, storage tanks, and railcars.

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