The Bakken Magazine - October 2015

OCTOBER 2015

The Road To Wall Street E&P Analysts Explain Client Mood On Shale’s Dilemma Page 20

Plus

Achieving Field-Level Efficiencies Page 14

AND

New Oil Tracking Data Page 8

www.THEBAKKEN.com Printed in USA

CONTENTS

OCTOBER 2015

VOLUME 3 ISSUE 10

Pg 20

EXPLORATION & PRODUCTION

Bakken Wall Street Coverage

From Denver to Houston to New York, these E&P analysts share what they see now from operators and what future activity ramp ups will look like.

BY LUKE GEIVER

6 Editor’s Note

Learning To Talk The Bakken Talk

Pg 14

BY LUKE GEIVER

PRODUCTS & TECHNOLOGY

The Bakken’s New Direction

8 ND Petroleum Council

Progress Through Pipelines

BY TESSA SANDSTROM

5 Events Calendar

Efficiency gains and new strategy implementations are reshaping the oilfield, as we found out after a day in the field touring remote power and gas capture sites.

BY PATRICK C. MILLER

ADVERTISER INDEX 22 AE2S ON THE COVER: A truck approaches a Halcon Resources Bakken well site.

PHOTO: HALCON RESOURCES

19 Lunnen Real Estate

28 Bakken Oil Conference & Expo

13 Port of Vancouver USA

18 Corval Group

24 Presto Geosystems

11 Design Solutions & Integration

23 SBG Energy Services LLC

12 Dunlop Protective Footwear

26 The Bakken Magazine Webinar Series

5 Hotsy Water Blast Manufacturing 27 iLevel Digital

25 Torrid Technologies Group 2 Tyco Fire Protection Products

THEBAKKEN.COM

3

EDITOR'S NOTE www.THEBAKKEN.com

Learning To Talk The Bakken Talk Equity analysts covering the oil and gas sector can talk the talk.

When we spoke to analysts from Denver and Houston for the feature, “Bakken Wall Street Coverage,” our conversations were littered with up-to-date industry jargon utilized by private investors, energy firm CEOs and the analysts themselves to describe a complex Luke Geiver Editor situation in a few words. We heard terms like dead-cat The Bakken magazine bounce, DUC or the new favorite, lower-for-longer. lgeiver@bbiinternational.com Although the language of analysts may be infused with unique terms and sentence structures, the level of detail present in their collective messaging shows their connection to the oil and gas world. Speculation and predictive commentary provided by any analyst is only as good as the clarity within their hypothetical crystal ball is, but after reading this month’s piece you should get a sense of investor sentiment, the trending theme used to describe the state of the industry and the potential activity level expected when an oil price rally does occur.

In the interim, don’t let low oil prices lead you to believe that activity levels are stalled. All of the talk pointing to the need for efficiency in the oilfield is truly taking place and keeping the production levels in the play consistently near 1.1 million barrels per day. Staff writer Patrick C. Miller saw the field’s activity level first hand during his drive through the Bakken in the truck of Guillermo Barreto, business development manager for global power supplier Aggreko. Barreto and Miller toured the Bakken to see Aggreko’s unique approach to remote power supply and now, flare capture and utilization techniques. We’ve covered the work of Aggreko previously, but never to this level of detail. The story on their efforts in the Bakken helps to reveal just how far service companies have come from the early days of the Bakken’s activity and more importantly, how far they are still willing to go through investment and workforce commitment.

(Barreto packs extra clothes in his truck to ensure he can stay on the road safer and longer).

As you continue to navigate the low oil price environment, rest assured our team is as committed as ever to covering the Bakken and telling the story of this truly unique period on the timeline of the oil, gas and energy world. By now, we hope you can see our level of commitment, investment and time devoted to bringing you the magazine. If this is only your first or second time reading this publication, check us out in the coming months, I think you’ll like what you see. We may not have an extra set of clothes in our vehicles at all times like Barreto, but when it’s time to cover a relevant story on the progression of the Bakken, rest assured our brand will be there.

VOLUME 3 ISSUE 10 EDITORIAL Editor Luke Geiver lgeiver@bbiinternational.com Staff Writer Patrick C. Miller pmiller@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

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

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

Subscriptions Subscriptions to The Bakken magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States. To subscribe, visit www.TheBakken.com or you can send your mailing address and payment (checks made out to BBI International) to: The Bakken magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee.

For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising The Bakken magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production.

To find out more about The Bakken magazine advertising opportunities, please contact us at 866746-8385 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.

For the Latest Industry News:

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by BBI International

The BAKKEN MAGAZINE OCTOBER 2015

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NORTH DAKOTA PETROLEUM COUNCIL

THE MESSAGE

Progress through pipelines

By Tessa Sandstrom

They are the arteries of our country, delivering water, energy and fuel to cities, towns and remote areas all across our nation. They are pipelines,

and like the veins that course through our bodies, they are vital in delivering the resources needed for our very way of life.

Every day in the United States, more than 190,000 miles of liquid petroleum pipelines and 2.4 million miles of natural gas pipelines deliver energy to support our nation’s economy. A vast majority—99.999 percent, to be exact, arrives at its destination safely, making pipelines the most effective, efficient and economical way to transport the liquid petroleum and natural gas that millions of Americans rely on.

Although North Dakota has been an oil-producing state for more than 60 years, only recently has the state risen to become the second-largest oilproducing state in the nation.

The changing technologies of oil and natural gas development have allowed for faster and more efficient means of recov6

ering oil resources, which has brought many benefits to the state, including a faster growing economy, more jobs and the displacement of imported foreign oil, meaning greater energy security for our nation and cheaper fuel for each of us.

Yet, this rapid growth has also made it difficult for pipeline infrastructure to keep up with the current demand. Trucks and railroads have been relied upon to haul oil to its destinations, while some natural gas has been flared due to lack of pipeline infrastructure.

Yet, our state is making progress. Already we’ve seen the amount of crude hauled by rail drop from a high of 75 percent to less than 50 percent.

More than 1,250 miles of gathering lines and 75,000 barrels per day of takeaway capacity are capturing and transporting more natural gas, leading to far less flaring each year. Another $1.6 billion in natural gas infrastructure planned through 2017 will help reduce that amount even more.

In terms of cross-country

The BAKKEN MAGAZINE OCTOBER 2015

MAJOR ADDITIONS: Workers inspect the Garden Creek pipeline. As pipeline infrastructure continues to be built in the Bakken, rail transport is decreasing along with flared gas.

PHOTO: NORTH DAKOTA PETROLEUM COUNCIL

movement of our resources, four pipeline projects are pending, and, if approved, would transport an additional 1 million barrels of oil per day from North Dakota via pipeline. This is the equivalent of eliminating 1,505 rail tank cars every day, significantly reducing traffic on railroad tracks.

These and other projects are needed. Despite the fact

that pipelines remain the key to solving many of our state’s challenges, there are those who are standing in the way of progress.

These critics often use spills as a reason for halting infrastructure development, but too often, the full story is not being told. Pipeline releases are an unfortunate reality, but they are by no means permanent.

In partnership with the

NORTH DAKOTA PETROLEUM COUNCIL

Energy and Environmental Research Center and North Dakota State University, industry is exploring new and better ways of cleaning up spills. By using the latest techniques and science, industry is able to return land to its original condition in as little as one year even in cases where saltwater is concerned.

To remedy old spills that occurred prior to 1983, the state legislature appropriated $1.5 million, with $500,000 of these funds directed toward

a pilot program to study and establish best practices for responsibly removing salt from soil. An additional $1.5 million has been directed to EERC to study and analyze pipeline standards to ensure North Dakotaâ&#x20AC;&#x2122;s pipelines are built with the best technology and materials available today.

Another challenge is securing right of ways and easements. Landowners are rightly experiencing fatigue as they are often asked multiple times for

access to their land to install electric lines and crude, water or natural gas pipelines. Reclamation challenges have also caused some strife with landowners, but again, industry has been working to help resolve these issues.

A Right of Way Task Force made up of landowner associations, local leaders and industry representatives worked together to create a number of resources, including best practices and a hotline for reporting issues

related to pipeline reclamation.

In the last legislative session an ombudsman program operated by the North Dakota Department of Agriculture was created. This program, which has so far been successful, works with both the operator and landowner to ensure issues are resolved to the satisfaction of both parties.

A comprehensive pipeline network is vital to our economies, businesses, homes and very way of life. These veins traverse our nation, state, counties and cities, eventually coming into our homes to deliver water at the twist of a knob for cooking and cleaning and natural gas at the flick of a switch.

They deliver comfort and convenience to us every day, and in North Dakota, they are the key to solving many of the challenges associated with oil and gas development. Pipelines are not perfect, but industry stands ready to remedy any imperfections to ensure the energy and resources we each depend upon are available with the flick of a switch.

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

THEBAKKEN.COM

7

BAKKEN NEWS

BAKKEN NEWS & TRENDS

Near-Term Oil Supply, Demand 97.5

mb/d

95

92.5

90

87.5

85 1 Q2013

3Q2013

1Q2014

3Q2014

1Q2015

3Q2015

1Q2016

3Q2016

World Oil Supply

World Oil Demand SOURCE: ENERGY INFORMATION ADMINISTRATION

Oil tracking trends The fall in oil prices is squeezing upstream oil and gas investment, but it could be boosting overall oil demand, data from the International Energy Agency shows. Market adjustments are looming, the IEA said during an October presentation in Istanbul. According to the globally recognized energy analysis group, tightening global oil supply guided by low oil prices could reduce 2016 production volumes by roughly 500,000 bar8

rels per day. The IEA’s belief is that as oil prices continue trading in the $50/b range, production in North America and a handful of other global production zones will not continue to supply at current levels. Volatile oil prices have already impacted production in the U.S., North Sea and Russia. Next year, IEA believes production in the U.S. will drop by 400,000 bpd.

“While oil’s recent volatility has been unnerving—Brent

The BAKKEN MAGAZINE OCTOBER 2015

crude jolted from a six-year low below $43/b to above $50/b in the space of days— the lower price environment is forcing the market to behave as it should by shutting in output and coaxing demand,” IEA said.

In the U.S., demand will remain at above-trend levels through 2016. Despite the uncertainty in China’s economy and growth rate, the world's second largest oil consumer will continue to purchase

crude at current levels, IEA believes. Beijing will also buy extra crude to fill up its strategic reserve.

By the second half of 2016, the world will start to siphon off record-high oil stocks. Until then, the U.S. and others will experience the greatest production declines.

The anticipated loss of nonOPEC output suggests that unless prices recover, “lowercost OPEC producers would need to turn up the taps dur-

BAKKEN NEWS

Top Fuel Producers 100% 90% 80%

Others

Others

Others

Others

Others

70% 60% USA

50%

USA France

Qatar

40% 30% 20%

Rus. Fed.

Other OPEC

USA China

10% 0%

Coal

Russian Fed.

Russian Fed.

Canada USA

Saudi Arabia

USA

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Natural gas

Brazil

Nuclear

China

Hydro

SOURCE: ENERGY INFORMATION ADMINISTRATION

ing the second half of 2016 to keep the market in balance,â&#x20AC;?

IEA said.

US Oil Report

For the first time ever, the U.S. Energy Information Administration is tracking U.S. petroleum supply on a monthly basis. Based on survey results from participating states, the EIA is now able to provide a more accurate and timely glimpse into U.S. crude production. Adam Sieminski,

EIA administrator, said the new survey-based results is a significant improvement over the way the EIA previously reported U.S. production that relied on tax information and random production statistics provided by state agencies.

Under the new survey model, information that was once several months late or incomplete, is now more accurate and timely due to the participation of regional entities more capable of

providing accurate data. The first report issued in August included information provided by 13 states, including: North Dakota, Montana, Wyoming, California, Arkansas, Colorado, Kansas, Louisiana, New Mexico, Ohio, Pennsylvania, Texas and Utah. Information from the survey, which will add more state data later this year, will be used in several EIA products, including the Short-Term Energy Outlook and the Annual Energy Out-

look. In addition to production volumes by state, the EIA intends to add to its monthly petroleum report by including information on oil production by density as measured by API gravity.

THEBAKKEN.COM

9

BAKKEN NEWS

STATE OF THE INDUSTRY

Shale play survey results show oil price impact on services Roughly 50 percent of all service companies operating within one of the major U.S. shale plays have seen work volume decreases, according to a survey completed by Citadel Advisory Group. After releasing its first oil and gas index survey in February, the Colorado-based advisory group has completed and released its second survey, this time testing the perspective of the energy services sector faced with low oil prices.

“The early summer West Texas Intermediate head-fake above $60 provided some temporary optimism to many people in the business. We wanted to see if the current down-leg into the $40s was putting additional pressure on service providers, and if so, how much and what was being done to weather the storm,” said

Chris Frevert, managing director at Citadel.

To gather industry intel, Citadel opened its survey from August 11 to August 28. The survey results reveal the work volume impact oil prices have had on energy service firms and how those firms are dealing with the loss of revenue generation.

For nearly one-third of all survey respondents, price reductions of 10 to 15 percent were incurred from their top three customers. Further reductions are expected as well. Nearly half of the Respondents believe reductions in work compensation will be less than 10 percent in the future, while roughly 40 percent believe there will be no further price reductions.

Regardless of future service compensation reduction percent-

ROLLING OUT NEW PLANS: Due to low oil prices, many survey respondents said workforce alterations are typically the first method of cutting costs to increase company profitability.

PHOTO: THE BAKKEN MAGAZINE

10

The BAKKEN MAGAZINE OCTOBER 2015

Where do you anticipate the price of WTI to be on December 31, 2015?

At or below $5 bbl…33.3% $46 to $55 bbl…47.2% $56 to $65 bbl…16.7% $66 to $75 bbl…2.8% More than $75 bbl…0.0% ‘I think our government needs to pay more attention to the U.S. oil and gas industry and to do everything in their power to maintain a more stable market.’

-Survey Respondent from Marcellus Basin

‘Until this dreadful Iran deal was negotiatated, I was expecting $75 to $80 at year end.’

-Survey Respondent from Eagle Ford

ages, many service firms have already had to deal with reduced revenue. The number one method for internal cost reductions has been tweaking the workforce.

Nearly 40 percent of all respondents said they have performed workforce reductions of 11 to 20 percent and another 19 percent of respondents reported a workforce reduction effort of 21 to 50 percent. However, 19 percent also reported that they had performed zero workforce reductions. Over the next three months, 40 percent of respondents also said they don’t plan to make any further workforce reductions.

Following workforce reduction, individual pay levels have been the next preferred internal cost reduction approach. Roughly one-fourth of those surveyed said worker pay has already been cut.

Benefit programs have also been altered, along with a reduction in the number of company sites and

the sale of assets, according to a range of 13 to 18 percent of all respondents.

Survey respondents from the Eagle Ford represented the largest percentage at 23 percent, followed by the Permian and Niobrara, each at 18 percent. Bakken survey respondents represented roughly 10 percent of total survey participant volume.

Nearly two-thirds of all entities surveyed have been involved in the oil and gas industry for more than 10 years, and, the same percent of firms believes 2015 gross revenue will be less than $25 million.

The survey showed that most in the industry don’t expect oil prices to recover by year’s end.

“Most of these folks have been here before, and have the knowledge and determination to ride this out,” Frevert said.

BAKKEN NEWS

Matrix contracted to build Dakota Access Pipelineâ&#x20AC;&#x2122;s ND gathering terminals While Energy Transfer Partners continues the permitting and approval process for portions of its proposed 450,000 barrels per day crude transport pipeline, Matrix Service Co. will be working on designing and building six crude gathering terminals for the North Dakota portion of the pipeline.

Once built, the pipeline will stretch from North Dakota to Patoka, Illinois. The pipeline will cross through North Dakota, South Dakota, Iowa and Illinois.

In North Dakota, Matrix has been awarded a contract it values at $330 million to design and

build the crude gathering terminals. The terminals will be located within several high production regions of the Bakken shale play.

To date, terminals are planned in the North Dakota communities of Stanley, Ramberg, Epping, Trenton, Watford City and the area known as Johnson Corner.

John Hewitt, CEO of Matrix, said the company is extremely proud to have been chosen to build the terminals. Engineering and design has already been started. Field construction should start on all six terminals

by January 2016 before comple-

LIKELY SIGHT: Crude gathering locations may not all be to the scale as the image seen here, but Matrix will start working this winter to build new sites for the Dakota Access Pipeline.

PHOTO: OVERLAND AERIAL PHOTOGRAPHY

tion later next year. Each terminal will feature a capacity rating of 200,000 to 600,000 barrels.

Upon completion, Bakken and Three Forks producers will

have access to several markets, including the Midwest, East Coast and Gulf Coast.

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BAKKEN NEWS

BREAKEVEN ANALYSIS FINDINGS: Why Bakken breakeven prices vary A $6 million well pumping 400 barrels of oil per day would break even Calculating breakeven prices on Bakken and Three Forks wells can be difficult, but Justin Kringstad, director of the North Dakota Pipeline Authority, has made an attempt. To perform the analysis, he used past well performance across the oil production region to estimate well economics at various production levels. He also used key economic assumptions that include: $6 to $8 million wellhead costs, no tax incentives, 30-day average production rate and an internal rate of return of 20 percent to drill.

with oil prices at $55 per barrel, a $7 million well would break even

at $65 per barrel and an $8 million well would break even at $70 per barrel.

A $6 million well pumping 800 barrels per day would break even with oil prices at $35 per barrel, a $7 million well would break even at $40 per barrel and an $8 million well would break even at $45 per barrel.

A $6 million well pumping 1,500 barrels per day would break even with oil prices at $25 per barrel, a $7 million well would break even at $30 per barrel and an $8 million well would break even at $35 per barrel.

Low production wells occur in areas that are identified as core or hot spot areas.

Risk is still present in most areas.

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A direct, uninterrupted route from the Pacific Rim to the U.S. Midcontinent and Canada means moving cargo more efficiently. In fact, shipping via the Port of Vancouver USA is half the cost of shipping through the Gulf ports. Weâ&#x20AC;&#x2122;re closer to the Pacific Rim and offer Direct Rail Service and connections that enhance transactions and freight mobility. Weâ&#x20AC;&#x2122;re also closer to your next success story.

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PRODUCTS & TECHNOLOGY

14

The BAKKEN MAGAZINE OCTOBER 2015

PRODUCTS & TECHNOLOGY

The Bakken's New Direction Faced with the challenge of low oil prices and constrained operations, service companies—like Aggreko—are finding ways to stand-out.

By Patrick C. Miller

Although much of the oil and gas activity in the Bakken occurs in the sweet spot of the formation where production is higher and breakeven costs are lower, it hasn’t made Guillermo Barreto’s job any easier.

As Aggreko’s business development manager in North Dakota, Barreto sometimes hits the road at 4 a.m. from his home in Bismarck to visit the four corners of the Bakken—from Dickinson to Williston to Minot and back again—as part of a 600-mile round trip in search of opportunities.

“Because power is needed across the industry, I visit with oilfield service companies, housing companies, solids control companies and operators—anybody who may need a power source or what we call critical temporary utilities,” Barreto says.

Low oil prices mean that maintaining con-

tact with Bakken-related businesses has become more important than ever.

“The Bakken is connected very much like the network of pipeline that covers it,” Barreto explains. “You don’t know where you’re going to find the next big opportunity. In order to actually find it, you have to turn every stone and go into every business you haven’t been in before. And even the ones you have, you never know.”

Sometimes that means spending the night in a motel when the day gets too long or the weather conditions make travel unsafe, which is why Barreto always carries an extra change of clothes in the pickup that doubles as his mobile office.

Aggreko—an international company with its national headquarters in Houston, Texas, and its primary business of providing rental power solutions, as well as heating and cooling

MAN ON THE GO: Guillermo Barreto, Aggreko's business development manager in North Dakota, continues to scour the four corners of the Bakken in search of opportunities where the company's remote power solutions can assist a variety of businesses.

PHOTO: THE BAKKEN MAGAZINE

THEBAKKEN.COM

15

PRODUCTS & TECHNOLOGY

solutions for everything from heavy industrial applications to large scale events, such as the Olympics—is one of the solutions that oil and gas operators turn to when needing to reduce flaring from well sites in the heart of the Bakken.

“One of the key things that Aggreko does differently is if you drive out in the field, you’ll see that there’s typically one generator per well,” Barreto states. “That’s what we call a non-engineered solution.

A generator rental company will rent you one generator per pump jack, and that will cover your needs. But, in essence, it’s not.

“What Aggreko is good at is right-sizing engineered ap-

plications,” he continues. “Your field will experience a higher demand and then a lesser demand when your load changes. Aggreko is able to scale that load up or scale that load down by adding or removing generators from the system.”

Barreto compares the approach to a Lego set that can easily be built up or disassembled to meet the customer’s power needs. Indeed, the blockshaped components imprinted with the orange Aggreko logo appear to validate his analogy.

“We determine the electrical load from a facility and calculate the number of kilowatts needed to run the facility, then add some redundancy,” he says.

“Depending on the operator,

some of them want redundancy included for 100 percent runtime. Others may not want 100 percent run time.”

On a clear fall day as the red and yellow fall foliage hugs the grassy green-fringed buttes of the Fort Berthold Reservation along the south side of the Missouri River, Barreto shows off several well sites powered

by Aggreko technology. Although each site is operated by a different Bakken producer, he stresses their similarities.

“What all the locations have in common is that they’re all engineered solutions tailormade to handle the loads at that particular site,” he notes. “Anywhere power’s not available because of remoteness or a utility

can’t get it to you fast enough, that’s where Aggreko provides a solution.”

In addition to its rental power generators that can operate on diesel, natural gas or LNG, Aggreko also specializes in solutions that include heating and cooling control and oil-free compressed air solutions. The evolving nature of oilfield businesses in the Bakken—as well as Aggreko itself—keeps Barreto on his toes.

“These businesses keep morphing,” he says. “What used to be a business a week ago may have bought the business next door, and now they’re into something new. With the downturn in crude prices, a lot of the organizations have changed. It’s

PROBLEMS FLARING UP: With more drilling and production focused in the Bakken's "sweet spot," the oil and gas industry is looking for flaring solutions in areas that lack infrastructure for gas transport.

PHOTO: THE BAKKEN MAGAZINE

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The BAKKEN MAGAZINE OCTOBER 2015

PRODUCTS & TECHNOLOGY

POWER TO THE PUMPS: In the field, Aggreko's engineered power solutions provide operators with the option of scaling up or scaling back their needs as well site conditions change.

PHOTO: THE BAKKEN MAGAZINE

realigned some structures, so you have to understand their organizations.”

For example, Barreto recalls a Bakken operator with a midstream segment that called Aggreko’s toll-free number to inquire about oil-free compressed air. The company was commissioning a section of pipeline that had to meet certain specifications. As Aggreko’s North Dakota representative, Barreto handled the call.

“We sent them a compressor and a desiccant dryer. Within three days, we helped the operator meet specifications and avoid delays. We helped them achieve their goal.”

Aggreko has found success in the Bakken not only by providing engineered power solutions in remote locations that can be scaled to meet their customers’ needs, but also in providing natural gas generators for stranded gas. This solution has provided assistance to the oil and gas industry that’s dealing with a gas flaring problem that has become a greater challenge as producers concentrate their drilling in the formation’s high-productions areas.

With greater oil volume comes more natural gas production in an area of the Bakken that lacks the infrastructure to move the gas to processing

facilities on the north side of the Missouri River. The problem was further compounded this year by construction delays.

Rather than requiring industry to meet an 85 percent gas capture goal beginning in 2016, the North Dakota Industrial Commission in September chose to delay the goal until Nov. 1 next year.

“The fact that Aggreko has a strong fleet built around natural gas and with flaring being an issue, we can certainly be part of that solution for operators that are looking at both saving costs on fuel and controlling their flaring,” Barreto notes.

“We have the infrastruc-

ture, the hardware and the human resources behind them to make it happen,” Barreto explains. “It’s typically a matter of how long it takes for the operator to get us the information. Once we’re in the door, it could be the very next day or it could be as long as two or three weeks. We always try to engineer the best solution.”

A number of factors go into determining whether the generators supplied by Aggreko will be run on diesel fuel or natural gas.

“The determining factor for either diesel or natural gas is the timeframe for utilities to get to that location,” Barreto

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PRODUCTS & TECHNOLOGY

explains. “There are some hardware requirements that have an additional cost around natural gas, such as the plumbing of the gas lines from the source to the generators and the backup propane line.

“You need an extended run time for that payback to occur on that investment,” he adds. “If it’s typically one to two months out to have utilities come on location, an operator will usually go with a diesel-run unit.”

If the operator wants to run generators on gas produced at the well site, it’s important for Aggreko to have accurate information to engineer the proper solution. For example, Barreto says knowing the electrical load, how many motors are running,

whether they’re on soft start or whether pump jacks have a filtration systems is key. A gas analysis is required as well.

If it’s determined that using gas-fired generators makes the most sense for the customer, then Aggreko’s proprietary cleaning technology comes into play.

“When we take the gas— no matter where it’s coming from—it goes through our proprietary cleaning device called the scrubber and then it hits the engine,” Barreto explains. “We can take the gas right from the wellhead and make it work, as long as it’s within the H2S and other gas parameters.”

Another feature Aggreko provides its customers is remote monitoring that can spot

CAN YOU HEAR ME NOW?: Aggreko's remote power systems are monitored 24 hours a day and checked every three minutes to alert operators to potential problems, saving time and money in making repairs.

PHOTO: THE BAKKEN MAGAZINE

PRODUCTS & TECHNOLOGY

problems 24 hours a day, seven days a week through a communications link to the company’s operations center in Louisiana.

Aggreko’s systems are analyzed every three minutes. Another feature Aggreko provides its customers is a unique service - Aggreko Remote Monitoring (ARM), a real-time asset monitoring and dedicated diagnostic support that can detect potential or existing issues 24 hours a day, seven days a week. If a problem occurs ARM will transmit this information to Aggreko’s Remote Operating Center (ROC).

“We’ve invested heavily in this technology,” Barreto says.

“If there’s anything that goes wrong with the system—it can be as simple as oil pressure, temperature, fuel level, gas pressure

or volume—ARM will send an alarm which transmits to the ROC. The team at ROC gets in touch with the field personnel to let them know that the alarm has been triggered.”

Immediately knowing the nature of the problem saves Aggreko’s customers time and money.

“We’re prepared accordingly to deal with the issue when we arrive on location,” Barreto notes. “It keeps our equipment proactively and preemptively running. It’s also a very distinguishing feature from the rest of the industry.”

Even Barreto receives the notifications by email when the remote monitoring system detects a problem, sometimes in the middle of the night.

“As a salesman, you want to know when something goes wrong because you never like that call from the customer saying ‘What’s going on?’ and you don’t know,” he says. “Part of customer service is not only knowing when everything is good, but also knowing when something is wrong. It’s better for you to take the bad news to your customer rather than the other way around.”

Barreto knows that the long hours that come with traveling hundreds of miles a day in western North Dakota are the key to establishing good relationships with potential customers.

“We go into our meetings with an understanding of what our customers do so that we

can uncover opportunities together,” Barreto says. “But even when we don’t know exactly what they’re doing, we go with an open mind to try to understand what they do and then see if there’s an opportunity for us to aid them in whatever they’re trying to achieve.”

And that’s how Barreto helps Aggreko maintain its edge in the remote power and gas capture field.

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

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EXPLORATION & PRODUCTION

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EXPLORATION & PRODUCTION

Bakken WALL STREET Coverage E&P analysts share perspective on low oil, activity levels and future expectations.

By Luke Geiver

For the latest oilfield catchphrase, talk with an energy equity analyst. From their offices in Denver, Houston or London, they can explain the truth behind the dead cat bounce, the DUC or the most recent term linked to oil production in the low price environment: lower for longer.

To deliver the level of insight and descriptive analysis on the exploration and production sector, midstreams or the energy service firms that they are tasked with covering for internal or external investor clients, analysts have to know the complexities of the industry and more importantly, how to talk about it with energy CEOs and hedge fund managers alike.

To hear them in action, listen to any quarterly financial update from any Bakken-based E&P. To understand their individual perspectives and what they talk about with clients regarding oil prices, production activity and the key to keeping investors happy, we talked with

analysts from Denver, Houston and a group of industry veterans that recently formed a finance and marketing service for those companies in need of private capital.

Lower For Longer Explained

Since the time Daniel Guffey, vice president of equity research for oil and gas exploration and production at Stifel Nicolaus, first started covering the E&P space in 2007, the industry has completely changed. â&#x20AC;&#x153;There has been a big step change,â&#x20AC;? he says. The change has occurred in every facet of the shale space including technology, economics and managing style. In the past 18 months, for example, Guffey says operators have moved to slickwater fracks as a strategy to increase production.

Drilling and completion times have decreased, resulting in more efficient and economic operations. Boardrooms are now pondering the finance of future production through cashflow instead of debt, he adds. This evolution

INVESTORS LOOK AHEAD AT BAKKEN: According to Houston Analyst Jason Wangler, investor clients are willing to invest in the Bakken and other plays once commodity prices stabilize.

PHOTO: HALCON RESOURCES

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EXPLORATION & PRODUCTION

‘You don’t need $80 or $90 oil to make the plays economic. At $60 now, most of these companies are making money.’

- Daniel Guffey, vice president of equity research for oil and gas, Stifel Nicolaus

of the industry has altered the breakeven prices for many U.S. shale plays, including the Bakken.

“You don’t need $80 or $90 oil to make the plays economic,” Guffey says. “At $60 now, most of these companies are making money.” For every entity linked to the shale space, those should be welcome words. Current oil price predictions point to the end of 2016—possibly sooner, or later—as the time when price fundamentals balance and the demand for oil once again outpaces demand. The rebalance will drive oil price back above $60, predictions show, but

22

until then, analysts have now turned to the term “lower for longer” to describe what everyone should expect from the oil markets in the U.S. The term holds meaning for producers and analysts each. For the production community, the term explains how analysts describe the mindset of E&Ps. “Companies are getting leaner, overhead is shrinking. They are all getting more efficient as a whole,” Guffey says. “That will help them drive better returns for investors and allow them to stay competitive in a low price environment.”

Jason Wangler, senior vice

The BAKKEN MAGAZINE OCTOBER 2015

president and equity analyst from Wunderlich Securities, mimics Guffey’s sentiment.

“A lot of folks are highgrading their assets and finding a way to hunker down and get through the downturn,” he says. By now, operators have changed their strategies due to the high-probability that oil prices will not rally for the next few quarters.

The idea, as Wangler and Guffey explain, is to remain relevant knowing that oil prices are going to say low for the next few quarters.

Earlier this year, Wangler explains, “There was an idea that there would be a V-shape

DENVER PERSPECTIVE: From his Denver offices, Daniel Guffey is near the headquarters of many Bakken entities.

PHOTO: STIFEL NICOLAUS

curve where oil would be down for a bit but we would pop back up and the second half of 2015 was going to be fantastic. Now the phrase lower for longer is a phrase that is being thrown around a lot.”

Following a brief rally in June, oil prices once again dipped. “When we saw the price go upwards of $60 we saw operators put rigs back to work. That rally was shortlived,” Guffey says. Most believe the dip was a true sign

EXPLORATION & PRODUCTION

COMPANY FOR CURRENT CONDITIONS

A team of industry veterans made up of former Goldman Sachs representatives and crude marketing and logistics experts have formed a new company that links the financial backing of Wall Street with the industry knowledge of Houston. HudsonFieldâ&#x20AC;&#x201D;Hudson referring to New York Cityâ&#x20AC;&#x2122;s Hudson River and Field referring to the oilfieldâ&#x20AC;&#x201D;is the brainchild of Ben Freeman, Scott Bormaster and a handful of others. The new firm has experts well-suited to work with oil producers in need of help due to the current oil price environment.

According to Freeman, the company can provide financing to any production entity looking to pay down existing debt or drill new wells. It can also provide hedging expertise or market crude. â&#x20AC;&#x153;We see financing as a very important tool we can engage our clients with,â&#x20AC;? Freeman, CEO and former Goldman Sachs managing director and global head of oil derivatives trading, says. â&#x20AC;&#x153;A really important point for our business is that we are client aligned. We are not in the upstream business,â&#x20AC;? he adds. â&#x20AC;&#x153;Low sustained oil prices for the better part of this year means our services are more in demand than if oil was trading around $100.â&#x20AC;?

Scott Bormaster, president of marketing and transportation and former vice president of oil business development for Buckeye Partners LP, has an example

of how HudsonFieldâ&#x20AC;&#x2122;s expertise can shine during the current price cycle. By working with clients in any of the major U.S. basins, Bormaster believes he has the chance to save them transport costs due to infrastructure upgrades, additions and space allowances INDUSTRY VETS, FINANCE that werenâ&#x20AC;&#x2122;t present until EXPERTS: Scott Bormaster and recently. In the Bakken, rail the rest of the HudsonField team will use experience in the field and will give way to pipeline, he from Wall Street to meet the unique financing needs of E&P clients. says. Some major pipelines PHOTO: HUDSONFIELD currently have free space, giving producers who can find a way to tap into that unused capacity an economic alternative or in some cases, an advantage, even if the profit from switching between rail or pipeline is small. â&#x20AC;&#x153;At $100/b, producers donâ&#x20AC;&#x2122;t care much about a few pennies. When it is $40/b,â&#x20AC;? Bormaster says, â&#x20AC;&#x153;every penny counts.â&#x20AC;?

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EXPLORATION & PRODUCTION

‘A lot of folks are saying that when this comes out they will have their pocketbooks ready.’

- Jason Wangler, senior vice president and equity analyst, Wunderlich Securities

that the global oil markets are out of balance.

FROM HOUSTON TO WALL STREET: Before covering E&Ps, Wangler worked in Houston for a reservoir analysis firm.

PHOTO: WUNDERLICH SECURIITIES

What Investors Want

“The investor perspective has ebbed and flowed,” Wangler says.

At the beginning of the year there was strong interest and a high volume of money being infused into the oil and gas industry, he says. Successful equity raises in April by several firms proved that.

Today, the energy shops and hedge funds that Wangler talks too say they are underweight in energy because it is an “ugly space,” with too much uncertainty right now.

“I would say the interest is still really high and it is as high as it was several months ago, but the actual capital being deployed is much lower,” Wangler says.

Investors that are active in the shale space do have par-

ticular desires. The collective mood from investors has been to stick with those entities that have good balance sheets, Guffey says.

From producers, investor clients of Wangler’s want to see production stay flattish throughout 2015. “Being able to do that within cashflows and use outside financing is important,” he says. “I think that is about as good as you could do right now. You can

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hunker down, you can see production at flattish levels and when you get out of this you can see production growth when a rally does come.”

In today’s market, Guffey says, “a strong balance sheet has gone from being a premium to being a necessity if you want your stock to hold up.”

Despite the best balance sheet maneuvers and strategies, some investors are not willing to play in the shale space.

“From an investor standpoint, a lot of it has to do with the stability of the commodity,” Wangler says. But, when oil prices do stabilize, things could change quickly. “A lot of folks are saying that when this comes out they will have their pocketbooks ready.”

new basins, there is a lot of potential to go out and recover more oil within your basin,” Guffey says. “It is not traditional exploration. It is about doubling your resource potential.”

When a price rally does occur, Wangler is not concerned with the availability of capital to producers in need of fixing balance sheets or paying for new production. That reality shows the true nature of the shale space and why he and his clients

are anxious for the impending activity ramp-up and resurgence of the industry.

“There is still plenty of energy,” he says.

“Energy is always an exciting space.”

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

Analyst Predict Activity

Like most analysts that cover the oil industry, Guffey believes the balance needed to stabilize oil prices will not occur until 2017. Excitement amongst investors will happen well before that balance actually occurs, however. “You just need a line of sight about the balance and the price at which it occurs,” he says. When that balance is in sight, many investors—along with producers—will make moves to become active in the space again. “U.S. production has been the lever that has been pulled shut the quickest,” he says of global oil production. “It will also come back the quickest.”

Wangler believes oil prices have to be significantly higher to maintain global supply, and, that OPEC will eventually refocus on making money and abandon its moves to defend marketshare. “They don’t produce corn or export goods,” he says. “Oil is what they do.”

Neither Wangler or Guffey believe drilled but yet to be completed (DUCs) wells will add enough production to the North American totals once they are completed. And, the possibility of exploration in emerging basins is unlikely, even when a price rally takes place.

“Even without going and finding

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