The Bakken Magazine - March 2015

MARCH 2015

www.THEBAKKEN.comPrinted in USA

PlusPerfecting Gas-Powered Drilling Rigs Page 38

AND Tax Trigger: Per Barrel EffectPage 42

Oil prices dip but job market strongPage 26

Workforce Watch

Mechanical Products Safer. Smarter. Tyco.TM

THEBAKKEN.COM 5

CONTENTS MARCH 2015 VOLUME 3 ISSUE 3

6 Editor’s NoteWorkforce Fine, Innovation NeededBY LUKE GEIVER

8 ND Petroleum Council2015 Legislative Update BY TESSA SANDSTROM

10 Events Calendar

12 Bakken NewsBakken News and Trends

CONTRIBUTION42 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

Pg 34 PRODUCTS & TECHNOLOGY

Straight From The Bakken SourceThe 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

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

The BAKKEN MAGAZINE MARCH 20156

As the Bakken continues to grow in prominence within the global lexicon, so does its ability to pro-vide headline writers with the topical fuel needed to drive page views. For the past two months, the slide in oil prices has pushed many to ask and write about the impact low oil prices will or could have on the oilfield-related 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 com-ing in. At the heart of an if-then approach to a Bakken story is that it fits into a page-turning, 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 in-dustry’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 dif-ferent 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 ex-plaining 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 Fer-us 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 develop-ment, 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.

Workforce Fine, Innovation Needed

Luke GeiverEditorThe Bakken [email protected]

EDITOR'S NOTE

For the Latest Industry News:www.TheBakken.comFollow us:

twitter.com/thebakkenmag facebook.com/TheBakkenMag

THEBAKKEN.COM 7

www.THEBAKKEN.com

VOLUME 3 ISSUE 3

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 [email protected]. 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 [email protected]. 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 [email protected].

TM

Please recycle this magazine and remove inserts or samples before recycling

COPYRIGHT © 2015by BBI International

EDITORIAL

Editor Luke Geiver [email protected]

Staff Writer Emily [email protected]

Staff Writer Patrick C. Miller [email protected]

Copy Editor Jan [email protected]

PUBLISHING & SALES

Chairman Mike Bryan [email protected]

CEO Joe Bryan [email protected]

President Tom Bryan [email protected]

Vice President of Operations Matthew Spoor [email protected]

Vice President of Content Tim Portz [email protected]

Business Development Manager Bob Brown [email protected]

Account Manager Austin [email protected]

Marketing & Sales Director John Nelson [email protected]

Circulation Manager Jessica Beaudry [email protected]

Traffic & Marketing Coordinator Marla DeFoe [email protected]

ART

Art Director Jaci Satterlund [email protected]

Graphic Designer Lindsey Noble [email protected]

ADVERTISER INDEX19 AE2S

21 American Welltest Incinerators Ltd

45 Bakken Conference & Expo

38 Bartlett & West

11 CARBO

41 DUG Bakken & Niobrara 2015

23 Falcon Technologies

30 Fortis Energy Services, Inc.

10 Hotsy Water Blast Manufacturing LP

47 Intertek Oil & Gas Services

46 iLevel Digital

37 Johnson Controls, Inc.

43 KLJ

20 LLP Combustion

29 Miller Insulation

24-25 National Oilwell Varco

33 NCS MULTISTAGE

22 Presto Geosystems

48 Quality Mat Company

32 R360 Environmental Solutions

2 Rossco Crane

18 SBG Energy Services LLC

3 Summit Casing

40 Texas Classic Productions

4 Tyco Fire Protection Products

39 Unconventional Resources Technology Conference (URTeC)

42 Wells Concrete

44 Williston Basin Petroleum Conference

31 Wood Group PSN


NORTH DAKOTA PETROLEUM COUNCIL THE MESSAGE

2015 Legislative Update By Tessa Sandstrom

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

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

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 west-ern counties. The law appropriates substantial dollars to non-oil-producing 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

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

THEBAKKEN.COM 9

NORTH DAKOTA PETROLEUM COUNCIL

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 reason-able 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 meth-ods 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 is-sues its newest forecast before mak-ing 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 SandstromCommunications Manager,North Dakota Petroleum [email protected]

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.

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


EVENTS CALENDAR

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

Williston Basin Petroleum ConferenceApril 28-30, 2015Regina, SaskatchewanIssue: April 2015The Bakken magazine

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

The Bakken Conference & Expo July 27-29, 2015 Grand Forks, North DakotaIssue: July 2015The Bakken magazine

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

Houston Oilfield ExpoDecember 9-10, 2015Houston, TexasIssue: December 2015The Bakken magazine

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BAKKEN NEWS BAKKEN NEWS & TRENDS

BNSF expanding rail capacity in western North Dakota

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

Continue installing double track on the Glasgow subdivision between Minot, North Dakota, and Snowden, Montana, in the far western part of the state.

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.

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

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 materialsthat support crude oil production in the Bakken.

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

North Region includes:

OREGON

WASHINGTON

MONTANA NORTHDAKOTA

SOUTHDAKOTA

MINNESOTA

WISCONSIN

ILLINOIS

THEBAKKEN.COM 13

BAKKEN NEWS

BNSF will invest $200 MILLION for positive train control.

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 HAS:

32,000 MILES OF RAIL

AVERAGING 1,600 TRAINS

PER DAY

7,000 LOCOMOTIVES

IN28 STATES

& 2 CANADIAN PROVINCES


BAKKEN NEWS

The International Monetary Fund’s recent study, “Learn-ing 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 ex-ports 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 Emir-ates and Yemen)––and CCA regions––(Caucasus and Central Asia, which include Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan)––because most of

these economies are highly de-pendent 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 in-cludes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates)––region. The oil price decline is expected

IMF outlook explains low oil price impact on Middle East

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

50454035302520151050

LibyaOman

Qatar

Kazakh

stan

Saudi

Arabia

Azerba

ijan UAEKuw

ait

Bahrai

nAlge

ria

Uzbekis

tanYem

en

Turkm

enist

an

EXTERNAL LOSSES FROM LOWER OIL PRICES50

40

30

20

10

0

KuwaitQata

rIra

qOman

Libya

Saudi

Arabia

Azerba

ijan UAEAlge

ria

Kazakh

stan

Bahrai

n

Turkm

enist

an Iran

Yemen

100

80

60

40

20

0

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

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

160140120100806040200

Kuwait

Turkm

enist

anQata

r

Kazakh

stanIra

qUAE

Azerba

ijan

Saudi

ArabiaOman

Bahrai

nIra

nAlge

riaLib

ya

Yemen

January 2015 REOUpdate Baseline for 2015$57

GCC Non-GCC CCAOE

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

20

15

10

5

0

-5

-102012 2013 2014 2015 2016 2017 2018 2019

GCC Non-GCC CCAOE

SOURCES: NATIONAL AUTHORITIES; AND IMF STAFF CALCULATIONS

THEBAKKEN.COM 15

BAKKEN NEWS

to significantly erode fiscal posi-tions 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 Afghani-stan, 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 fa-vorable 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 trad-ing 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-than-expected supply, particularly from the U.S., was not offset by pro-duction 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 produc-tion respond to lower prices, if OPEC resumes its role as a swing producer, or if prices will be in-fluenced 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 ten-sions,” IMF said. “Forecasts for the Euro area have been revised downward to 1.2 percent, and for China down to 6.8 percent.”

World U.S. Euro AreaEmerging 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 OilExporters 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

REAL GDP GROWTH, 2014 AND 2015

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

3020100

-10-20-30-40

Kuwait

Turkm

enist

anQata

r

Kazakh

stan

Iraq

UAE

Azerba

ijan

Saudi

Arabia

Oman

Bahrai

nIra

nAlge

riaLib

ya

Yemen

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

SOURCES: NATIONAL AUTHORITIES; AND IMF STAFF CALCULATIONS

SOURCE: INTERNATIONAL MONETARY FUND


BAKKEN NEWS

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 presen-tation, 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,”

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.”

“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.”

Low oil prices matter to natural-gas-focused Magnum Hunter

MAGNUM HUNTER LOOKING TO SELL WILLISTON BASIN

ASSETS?

Total proved reserves of

15.5 MMBoe as of 6/30/14

Proved producing reserves of

7.5 MMBoe as of 6/30/14

88,600 net acres in the Williston Basin

in Divide County, North Dakota

178 gross producing wells in

Divide County, North Dakota

Drilling locations target the

Middle Bakken/Three Forks Sanish

THEBAKKEN.COM 17

BAKKEN NEWS

Three Bakken oil produc-ers 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 previ-ous 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 ex-ploratory 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 com-pany 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,

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, chair-man and CEO. “The growth came from five major projects, ongoing ramp-up in the Eagle Ford and the Bakken, and a suc-cessful turnaround season across our operations.”

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

“The Tioga gas plant expan-sion is our key commitment to sustainable growth in North Dakota and allows us to reduce flaring with our more-than-dou-bled 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.

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

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

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 cur-rent product price environment.”

Hess, ConocoPhillips and Occidental reduce capital budgets for 2015

2014 VS. 2015 CAPITAL PLANS20

18

16

14

12

10

8

6

4

2

0Hess Occidental ConocoPhillips

Billi

on D

olla

rs$5.6

$4.7

$8.7

$5.8

$16.7

$11.5

2014 Capital Budget 2015 Capital Budget


BAKKEN NEWS

North America’s largest midstream energy company has utilized Bakken energy production to increase its na-tional footprint. Kinder Morgan Inc. has purchased Hiland Crude’s Bakken pipeline assets for $3 billion. The acquisi-tion 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 as-sessment 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.

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.

THEBAKKEN.COM 19

BAKKEN NEWS

PERATIONS AE2

S

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

“We are going to be operating this as a midstream, not as an affiliate of a produc-er.” 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

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, accord-ing to the company.

“This is an opportunity rich environ-ment for acquisitions,” Richard Kinder,

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


BAKKEN NEWS

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 comple-tion 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 devel-oper from continuing with its current and future builds, Vedadi said.

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

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.

BAKKEN NEWS

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reporting his New York investors rely on before funding his build-out 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 mul-tiple gas plants currently planned and under construction along with several major road and highway projects as examples of infrastruc-ture 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 under-stand the amount of work that still needs to be completed,” he said.

Last December, Vedadi ex-perienced 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 cur-rent oil prices due to his access and

use of third-party reporting. “We perform several third-party stud-ies,” 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 interna-tional 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 emerg-ing markets before and we know the patience and determination it takes,” she said.


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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 emis-sions. According to the EPA, it will work with industry, states and tribes to evaluate other approaches. Hydraulically frac-tured 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 target-ing as methane producers.

Although the EPA said methane emissions in the oil and gas industry have decreased 16 percent since 1990, addition-al regulatory steps are necessary because oil and gas production increases will increase meth-ane emissions once again. The Western Energy Alliance, a 480-plus 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 add-ing new red tape to make man-datory 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 meth-ane gas reduction efforts could be achieved by capturing gas that escapes into the air. The EPA has also issued updates on methane reduction require-ments and acceptable approach-es for well completions, storage tanks and natural gas processing plants.

EPA to regulate oil, gas industry methane emissions

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EXPLORATION & PRODUCTION

THEBAKKEN.COM 27


The impact of low oil prices and a decreased rig count on the Bakken’s workforceBy Patrick C. Miller

Bakken Jobs MarketA BULLISH

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, execu-tive 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 short-

JOBS, 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


Tim Rasmussen, public relations man-ager 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 hous-ing 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 be-ing shaved off.”

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

As Gene Veeder, public relations direc-tor for McKenzie County Development, relates, “Nobody likes slumping oil prices. It just means we have to be a lot more ef-ficient. We’ve been through it before.”

Veeder believes the huge backlog of in-frastructure work left to complete on public and private projects such as pipelines, hous-ing, roads, bridges, transmission lines, sub-stations, utilities, retail stores and gas pro-cessing 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. “Con-struction 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.”


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 es-timated time to come back. It’s not perma-nent.”

Michael Ziesch, manager of North Da-kota’s Labor Market Information Center, routinely fields calls from news media out-lets 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—re-questing employment statistics.

“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 Da-kota.”

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

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

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

THEBAKKEN.COM 29


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 la-bor 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,



‘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-

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 Bak-ken’s communities and the benefits of living and working in western North Dakota.

B&G not only participates in communi-ty 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

will carry the company through tough times. “We talk to our employees about mak-

ing 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-

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

THEBAKKEN.COM 31


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.

“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,” Bertag-nolli explains. He also wanted to be involved in helping the U.S. become more energy in-dependent, another goal he’s realized.

“I am 100 percent sold on the oppor-tunities in North Dakota,” Bertagnolli says. “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 Dako-ta, there’d be a lot more people coming to North Dakota.”

Once hired by B&G, the company pro-vides 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. Ber-tagnolli says it’s one reason why 60 percent of the B&G’s employees have been referred by other employees.

“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,” 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 conduct-ed by Hodur and Dean Bangsund, another economics researcher at the school. Bertag-nolli 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 under-standing of the motivations and goals influ-encing oil and gas employees.

“It’s a project to try to get a little bet-ter handle on some of the perceptions, ten-sions and characteristics of the workforce,” Hodur says.

The study seeks to address issues as-sociated with the rapid growth in western

North Dakota, including employee reten-tion, community development and the allo-cation of government services. Hodur says the research gathered will help communities and employers plan for and provide the ap-propriate mix of public and private services for residents.

“What’s valuable about it is that it gives the frontline folks an opportunity to express the things that they like and the things that they’d like improved,” 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?

“A lot of interesting dynamics could play out in the next six months to two years,” says Bangsund, who also conducts economic impact studies for the North Da-kota Petroleum Council.

“What will be interesting is that there is a backlog of wells that haven’t been fracked,” he says, “We might not initially see it so much in the fracking employment, but


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

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

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 confi-dent that this is more or less a cor-rection, and we’re going to see it re-bound. 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 fu-ture to this thing.”

Author: Patrick C. MillerStaff Writer, The Bakken [email protected]


Source

PRODUCTS & TECHNOLOGY

Ferus Natural Gas Fuels is perfecting a flare gas capture and recycling process to power Bakken drill rigs today, and everything else tomorrowBy Luke Geiver

Straight From The Bakken

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 let-ters 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

THEBAKKEN.COM 35




become commonplace in the play if a unique joint venture be-tween 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 So-lution. 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 ca-pable of capturing, storing, mov-ing and reusing associated gas produced at one Williston Basin well site to power a natural gas-

converted drilling rig or other capable equipment operating on another. Statoil has played a sig-nificant role in the development of the system. After more than one year working to streamline the process, the Ferus team be-lieves it has moved past the pilot project stage into full commer-cialization mode. Expanding its reach into the Bakken, and other shale plays, is dependent on fu-ture 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 Evolution Of FerusIn the early 2000s, Ferus be-

gan providing oilfield logistic ser-vices in western Canada moving liquid nitrogen and CO2. Oil pro-ducers in the region were in need of fluids to increase production associated with energized well fracturing, and significant reduc-tions 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 devel-opment for Ferus, says. Roughly

four years ago, Wilson and his team began exploring the possi-bility of utilizing the company’s knowledge in moving cryogeni-cally treated fluids through com-plex 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 dis-cussions with GE Oil & Gas. “They wanted to partner with us to deploy their machines and

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

THEBAKKEN.COM 37

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equipment into productive use,” Wilson says. Shortly after the introduction of GE and Ferus, Wilson began working with GE and an exploration and produc-tion company looking to better utilize a resource while reduc-ing its production of flared gas. Through the addition of Statoil, Ferus began developing and per-fecting the system it provides to-day. “Statoil challenged us. They said they had a gas with no mar-ket,” 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 technol-ogy running in the Bakken.

In mid-September of 2014, Statoil announced it was official-ly 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 devel-opment and production at Statoil said, “but by using this captured natural gas in place of diesel in our drilling and hydraulic fractur-ing operations, we are further re-ducing 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.

Moving Flared Gas From A To B

There are two pieces to the Ferus gas movement logis-tics puzzle: the gas consump-tion 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 pow-ering 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 de-mand for the product. “We need to be able to make sure there is consistent gas supply from an in-consistent product source.”

Starting at the well site pro-

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 equip-ment 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 in-dicating they want the Last Mile


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 logis-tics so that as one trailer is getting empty we replace it with anoth-er,” Wilson says.

More Than A Milk RunThe process of capturing,

storing and transporting associ-ated gas is not akin to the term used to describe a simple, repeti-tive route Wilson refers to as the milk run. There is a big differ-ence between delivering a prod-uct on a paved road location and doing so on a leased road made of gravel in the middle of win-ter, according to Wilson. “The nature of some logistics is liter-ally a milk run, where you make the same trip at the same time

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

Because the fueling solu-tion 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 at-tained at the well head or savings over diesel costs. Most produc-ers don’t care where the gas will come from for drilling rig power.

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

GE and Ferus are not work-ing exclusively with Statoil. The duo is already well into con-tractual discussions with several Bakken producers, according to Wilson. The discussions could remove roughly 15 million stan-dard 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. Accord-ing to Wilson, the system can be

used in other markets, including agriculture, construction and the very industry that had the origi-nal 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 com-pression units in the Bakken. But someday, he believes, tube trailers won’t just be seen as a staple to the Bakken. The Bakken will in-stead be the starting point. “We are trying to connect all dots,” he says, “with all markets.”

Author: Luke GeiverEditor, The Bakken [email protected]


‘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

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IN PLAY

• Production Triggers―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.

• New Wells―The trigger has already been in effect for one month, so all new wells will be taxed at 2 percent of produc-tion value compared to the stan-dard 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.

• Existing Wells―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

production tax for the following 18 months.

• Impact for Producers―If the five-month trigger is hit, producers will receive a tax ben-efit ranging from $2.60 to $3.00 per barrel. At current WTI pric-es, 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 extrac-tion tax reduced to zero percent for 18 months.

Based on the current and

ND Bakken Tax Trigger: Per Barrel Impact By Tom Bokowy and Ryan Hatcher

$- $2.00 $4.00 $6.00 $8.00

$10.00 $12.00

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15

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-15

Nov

-15

Dec

-15

Jan-

16

NORTH DAKOTA OIL TAX PER BARREL

Gross Production Tax -5.0% Oil Extraction Tax - 6.5%

THEBAKKEN.COM 43

IN PLAY

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$5.00

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$25.00

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$45.00

Current With Trigger

BAKKEN PRODUCER CASH COSTS PER BARREL

Marke�ngDifferen�al

Interest

G&A

Taxes

Produc�onExpense

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

Cash ImpactThe 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 bar-rel 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 pro-ducers is significant due to the higher operating costs for horizontal wells with hydrau-lic 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 produc-ers are just covering daily cash costs to produce and market the barrels of oil. The tax holi-day will support producers and improve cash flow during low-er oil pricing periods.

The incentive is not enough to encourage new oil production. With average in-vestment costs ranging from $20 to $25 per barrel, WTI would need to rise above $70 per barrel before drilling and completing new wells be-comes 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 foresee-able future until prices rise sig-nificantly.


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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.

API/Density/Specific Gravity ASTM D5002, D4052

Vapor Pressure ASTM D323, D6377, D5191

Water & Sediment (Centrifuge) ASTM D4007, D1796

Sulfur Content ASTM D4294

H2S in Vapor (Ambient Temperature) ASTM D5705M

H2S in Vapor (Elevated Temperature) ASTM D5705

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Intertek’s new laboratory in Bismarck provides the testing, on-site field sampling, and data management services needed in order to meet NDIC compliance.

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1 - 8 0 0 - 2 2 7- 8 1 5 9 \ \ Q M AT. C O M

5-ACRE MAT DRILL SITE

AFTER AFTER

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

ROCK drill site

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

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MAT drill site

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The Bakken Magazine - March 2015

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