The Bakken Magazine - September 2015

SEPTEMBER 2015

Answers

For Industry Event Review: Updates, Insight From Big Names on Big Issues Page 22

Plus

How Oil Prices Impact Shale Real Estate Page 36

AND

Oil’s Connection To Eastern ND Page 8

www.THEBAKKEN.com Printed in USA

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amine reboilers combustors dehydrators gas production units

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heated seperators incinerators line heaters treaters

1 - 8 0 0 - 2 2 7- 8 1 5 9

ROCK drill site

\\

Q M A T. C O M 5-ACRE MAT DRILL SITE

MAT drill site

AFTER ROCK DRILL SITE

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

WORLDS LARGEST SUPPLIER

AFTER MAT DRILL SITE

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

MANUFACTURING SINCE 1974

CONTENTS

Pg 22

SEPTEMBER 2015

VOLUME 3 ISSUE 9

EVENT REVIEW

Exhibiting The Bakken’s Mood

Facts, figures and expert perspective shared at the unique three-day Bakken Conference & Expo event featuring producers, service firms and networking receptions.

BY PATRICK C. MILLER

Pg 36

INFRASTRUCTURE & CONSTRUCTION

Real Estate Portfolio

Understanding the Shale Play Mike Elliott travels to every major shale play hub in the U.S. weekly. We caught up with him to talk about the trends, rates and expectations present for commercial and industrial real estate linked to the Bakken during the current oil price environment.

BY LUKE GEIVER

NEWS

12 The New Operator Message 14 Presidential Candidate Priorities 16 Grassroots Group Pushes To Extend The Ban

6 Editor’s Note

Bakken Information Overload

BY LUKE GEIVER

8 ND Petroleum Council

Bakken's Place In Red River Valley

BY ROB LINDBERG

10 Events Calendar ON THE COVER: Industry leaders talked about oil prices, challenges and the future. David Williams, CEO of tribal-based Missouri River Resources talked about work on the reservation.

PHOTO: THE BAKKEN MAGAZINE

THEBAKKEN.COM

5

EDITOR'S NOTE

Bakken Information Overload For this month’s issue, we had a layout logistics problem. Following the three-day Bakken event our team helped organize and Luke Geiver

Editor The Bakken magazine lgeiver@bbiinternational.com

produce content for, we were overwhelmed with story ideas, hard facts and unique perspective. Our embarrassment of riches included beautiful imagery, complex charted information and recordings of multiple conversations suitable for individual feature stories. As you know, regarding the Bakken, there is a lot to read, write and talk about, and spending three days with experts and executives from oil producing firms, midstream entities and service companies—established or startup—is a great situation to be in, at least until it’s time to condense that information into anything short of a Bakken documentary novel.

In “Exhibiting Bakken’s Mood,” on page 22, we wanted to capture the sentiment and takeaways from the July Bakken event held in Grand Forks, North Dakota. Patrick Miller accomplishes that in a special double feature ripe with images of speakers, lists of facts shared, charts explained and as the title indicates, moods felt about the state of the Bakken. His recap sheds light on several topics ranging from Continental Resource’s objective in fighting the U.S. crude oil export ban to future Bakken activity levels predicted by Houston-based energy analyst firms. The section on a multiwell pad project that suggests current setback limits in North Dakota are inappropriate was the topic of a blog written by our team the week after the event. If the print recap of the project generates anywhere near the interest it did online, I know our inboxes will be constantly dinging with requests for more information.

Mike Elliott, the main source in our look into shale play-based commercial and industrial real estate, is used to receiving requests for more information. His explanation of creating a shale play development timeline that compares one play to another was fascinating to learn about, and we’re confident everyone who picks up this issue will find it useful. Elliott also instilled confidence in us for the “Shale Play Real Estate” story simply by explaining his travel schedule to us––plus, we discovered our perspective in that story was spot on. When Elliott told us that he’s more than likely in a different energy hub city—Houston, Calgary, Willison—every week to talk with clients and assess the market in each location, we knew we were lucky to have caught him between flights and to have had the chance to bring valuable insight to life in a story. Enjoy the overload of information this month.

For the Latest Industry News:

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

The BAKKEN MAGAZINE SEPTEMBER 2015

ADVERTISER INDEX www.THEBAKKEN.com

32 AE2S

VOLUME 3 ISSUE 9

14 Allied Oil & Gas Services, LLC 20 Bartlett & West

EDITORIAL

21 Braun Intertec

Editor Luke Geiver lgeiver@bbiinternational.com

10 Clark-Reliance Corporation

Staff Writer Patrick C. Miller pmiller@bbiinternational.com

27 Convey-All USA

Copy Editor Jan Tellmann jtellmann@bbiinternational.com

24 Corval Group

PUBLISHING & SALES

25 Design Solutions & Integration

Chairman Mike Bryan mbryan@bbiinternational.com

26 Dunlop Protective Footwear

CEO Joe Bryan jbryan@bbiinternational.com

31 Enerplus

President Tom Bryan tbryan@bbiinternational.com

33 Fortis Energy Services, Inc.

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com

35 Granite Seed Company

Vice President of Content Tim Portz tportz@bbiinternational.com

42 iLevel Digital

Marketing & Sales Director John Nelson jnelson@bbiinternational.com

16 ISCO Industries

Business Development Manager Bob Brown bbrown@bbiinternational.com

17 Johnson Controls, Inc.

Account Manager Austin Maatz amaatz@bbiinternational.com

15 J-W Energy Company

Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com

40 KLJ

Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

38 KW Commercial

ART

43 Midwest Industrial Supply, Inc.

Art Director Jaci Satterlund jsatterlund@bbiinternational.com

18 New Prospect Company

Graphic Designer Lindsey Noble lnoble@bbiinternational.com

19 Presto Geosystems 2 Profire Energy, Inc. 3 Quality Mat Company

Subscriptions Subscriptions to The Bakken magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States.

To subscribe, visit www.TheBakken.com or you can send your mailing address and payment (checks made out to BBI International) to: The Bakken magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational. com. Advertising The Bakken magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about The Bakken magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to The Bakken magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgeiver@bbiinternational.com.

41 RDO Equipment Co. 11 Savage Services Corporation 39 SBG Energy Services LLC 30 Torrid Technologies Group 4 Tyco Fire Protection Products 34 United Piping, Inc. 44 Worthington Industries

COPYRIGHT Š 2015

by BBI International

TM

Please recycle this magazine and remove inserts or samples before recycling

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7

NORTH DAKOTA PETROLEUM COUNCIL

THE MESSAGE

Bakken’s Place In The Red River Valley

By Rob Lindberg

A public event hosted by the North Dakota Petroleum Council and Bakken Backers will bring stakeholders in the oil and technology industries together, in Fargo, N.D., on Sept. 21.

AG, OIL AND THE STATEWIDE CONNECTION: To showcase the link between the rig count of western North Dakota and places like Fargo, the North Dakota Petroleum Council's team will present case studies of businesses or entities that operate from Fargo, but work in the Bakken.

PHOTO: THE BAKKEN MAGAZINE

8

The BAKKEN MAGAZINE SEPTEMBER 2015

The public event titled Bits + Bytes, will highlight how Red River Valley firms have found opportunities to grow their businesses in the Bakken and includes an education session for the public with the Bakken's leading experts. Attendees will gain insight on the latest trends and practices in the oil industry, what makes the Bakken one of the most prominent oil fields in the world, and how Fargo, Grand Forks and other regional entrepreneurs are building new companies because of it.

For two decades or more, the Red River Valley, anchored

by North Dakota State University and the University of North Dakota, has expanded its economy with targeted growth in technology, advanced manufacturing and distribution. This strategy brought continual growth to the region before the Bakken and allowed its communities to take immediate advantage of the oil formation when the pace of drilling soared in 2010. A number of these com-

panies utilized the Bakken to not only expand their businesses within North Dakota, but to also gain experience in the oil industry that allows the businesses to expand into other oil and gas regions such as Colorado, Texas and Ohio.

Transformed State

Although the idea that the Bakken has transformed North Dakota is widely known, the magnitude of its impact is not always recognized.

In the mid-2000's, North Dakota had progressed substantially since the years when the state was pitched for the "Buffalo Commons." Yet, it was still known for outmigration and ranked far in the lower half of all states for income and business activity. However, discoveries at that time by wildcatters exploring for oil only a few miles into Montana would amplify North Dakota's economy to a level no one predicted.

Exploration quickly moved eastward toward the New Town and Parshall regions, an area where the world discovered the full potential of the Bakken and North Dakota's place in the world.

Because of the Bakken,

NORTH DAKOTA PETROLEUM COUNCIL

North Dakota simply ignored the economic turmoil that plagued the rest of the country, including the state's neighbors.

North Dakota has seen its place in the nation rise for average income from 38th to 6th. Birth rates have skyrocketed and the population went from worries about keeping young people in state, to becoming the youngest state in the nation and a state that is routinely regarded as one of the best states in the nation to start a career and family. The state worked very hard to do so, and with a little geological luck, it achieved what it had wanted for so many decades.

Widespread Impact

While the Bakken, located in the northwest corner of our state, made the greatest impact in the cities of western North Dakota, the surge of oil activity created a boon for the entire state.

The data shows it well.

Across the state, more than 15 percent of all workers are employed directly by the oil and gas industry. Thousands of people in and around Fargo and Grand Forks work directly in the oil industry; in fact, each city has 1 percent to 2.4 percent of its total employment within the oil and gas industry, despite being 250 miles or more away from the nearest well. These numbers do not include the types of companies mentioned here that provide products and services to the oil and gas industry. In total, more than 80,000 workers in North Dakota owe their job

to the Bakken and $43 billion of economic impact is generated by the young oil field.

More than the data, we see it too. Technology firms are writing software that make operations in the Bakken more efficient. Students are choosing skilled trades and graduating to find six-figure jobs. Steel fabricators added people and acquired new locations while their national and regional competitors shrunk by roughly 60 percent. Imagine rebuilding Jamestown and Grand Forks in four years. Eastern North Dakota engineering and construction companies flocked to the western side of the state to help communities grow double, triple, and, in Watford City's case, eight times their original size.

About Bits + Bytes

Some companies benefiting from the Bakken are not widely known; others are local leaders applying their experience to opportunities in the Bakken with new, innovative products and services. Each company, however, has an interesting story to tell about how they hooked onto the one-in-alifetime opportunity that is the Bakken to create a company of long-term value.

Tammy Miller, CEO of Border States Electric and host of Bits + Bytes, will open the event by sharing the story of BSE's rapid expansion to become one of the largest businesses headquartered in the Valley, in part because of opportunities it found in oil and

gas regions across the United States. Miller will moderate an innovation panel with Jake Joraanstad, founder of mobile app maker Myriad Mobile, Glenn Mitzel from systems integrator JDP Automation and AE2S's Jason Sanden on the company's development of systems to monitor pipeline flows.

Tom Kenville will present how the oil industry has taken interest in UAS technologies in the Red River Valley to solve needs in western North Dakota.

In addition to learning how local companies work in the Bakken, attendees will hear the latest from three of the Bakken's most knowledgeable leaders: Kathy Neset, president of Neset Consulting Services; Lynn Helms, director of the North Dakota Department of Mineral Resources; and Gene Veeder, executive director of the McKenzie County Job Development Authority. The three presenters will discuss the basic geology and technologies of the Bakken, the effects of the slowdown, and what lies ahead in the Bakken.

The oil industry is here to stay and these companies hold a positive long-term outlook on the Bakken. The price per barrel might be down, but production has held steady. At the same time, homes, apartments, retail, and industrial construction continue to boom. We are seeing life and business normalize in the Bakken. For those who planned from the beginning to build long-term, well-managed businesses, the future is very bright.

Bits + Bytes celebrates the Red River Valley's opportunity to not simply take part in the largest reserve of crude oil in the continental United States, but to do so according to its own strategic growth and with its unique expertise. The public is invited to learn more about the basics of the oil and gas industry while hearing the impressive growth stories of these local businesses.

Author: Rob Lindberg Director, Bakken Backers 701-989-5432 rl@backthebakken.org

Long-Time Opportunity

Today, fewer than 10,000 wells have been drilled in the Bakken, far fewer than the 60,000 or more wells oil producers will drill in this formation over the next three decades.

New well costs continue to fall and oil companies have developed new techniques that have grown new well production 25 to 50 percent in only the past 12 to 18 months.

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The Bakken Conference & Expo

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BAKKEN NEWS

BAKKEN NEWS & TRENDS

Operator Themes RELIANCE ON TECH

EOG RESOURCES: Williston Basin net drillable locations recently increased from 580 to 1,540

TRIANGLE PETROLEUM USA: 79,000 net core acres and

WHITING PETROLEUM CORP: 135,835 net bopd and 7,541 future drilling locations.

CASHFLOW BOUNDARIES

Operators Push New Message

For Bakken-linked oil producers, the play has entered an unfamiliar stage. With historic oil price swings happening for most of the summer, producers have had to navigate the current commodity price environment by choosing when, if or how to drill new wells or complete those already drilled using pricing information that could change weekly. The producer community has shown many approaches and pushed many different messages during the second quarter reporting period, all of which have combined to yield loosely connected themes. A select few producers is sufficient enough to highlight the main messages and approaches now being deployed during this new stage of activity in the Bakken.

12

8-Rig Program

Three of the largest-by-volume Bakken producers—Whiting Petroleum Corp., Hess Corp., Continental Resources Inc.— operated the second quarter (or are now doing so) with eight drilling rigs. For each operator, the eight-rig operation model is a rig decrease from what each respectively set-out to run at the start of the year.

Price Determining Production

EOG Resources, Abraxas Petroleum and Triangle Petroleum USA agree on when to ramp up Bakken production efforts. Each entity has made it clear it will not drill or complete new wells until commodity prices begin to trade higher. For Triangle’s President and CEO Jon Samuels, oil trading above $60 will entice

The BAKKEN MAGAZINE SEPTEMBER 2015

the Denver-based operator to commence drilling new wells. Oil trading in the $50 to $60/b range will cause the team to “dig in and do some work,” he said.

“Many of you are asking, when will EOG grow oil again?

We have said all along that we do not intend to grow production until we see the oil market balancing,” said Bill Thomas, chairman and CEO of EOG Resources.

San Antonio-based operator Abraxas Petroleum is similar to Triangle and EOG on its philosophy of drilled but uncompleted wells. All three operators are comfortable deferring the completion of its wells until prices recover in 2016. Triangle has 18 gross wells drilled but yet to be completed.

EOG’s total grew in the second quarter and it said it will continue to have a high number of DUCs until prices recover. Bob Watson,

8-RIG president of Abraxas, said that although it is frustrating that his team shut in three offset wells during the drilling and planned completion of three other wells that have been deferred into 2016, his team is committed to operating with DUCs until prices recover.

Cashflow Boundaries

When Continental Resources updated its 2015 guidance by reducing its capital spending plan by roughly $300 million to $350 million, the operator cited a new ideal common among many producers. “While we do not believe today’s low commodity prices are sustainable long term, we are committed to living within cash flow until they recover,” said Harold Hamm, chairman and CEO. “We are reducing capital expenditures to protect our balance sheet

BAKKEN NEWS

EFFICIENCY GAINS

13,000 bopd. 20 years of low risk inventory development.

ABRAXAS PETROLEUM: 5,000 net acres, purchased/own walking drill rig

CONTINENTAL RESOURCES: 140,988 bopd, 10 years of drilling inventory (running 15 rig per year)

PROGRAM and to preserve the value of our world-class assets until commodity prices improve.”

Like Continental, Triangle’s team is committed to maintaining the health of its balance sheet during sub-$60 oil. Triangle has dropped its lone rig and suggested it will wait on completing wells. The company has already achieved the midpoint of its projected 2015 production estimates for daily production. “With our asset base, production is simply a matter of spend,” Samuels said, in his explanation of the company’s potential to grow production.

James Volker, president and CEO of Whiting, told investors that his company will now operate within discretionary cash flow for the remainder of 2015 and into 2016 as long as oil prices continue to trade at current prices.

PRICE DETERMINING PRODUCTION

Reliance on Tech, Efficiency Gains

Almost every Bakken operator has continued its stance on the importance of finding efficiencies. Most second-quarter messages contained at least some note of an operator’s work to lower lease hold expenses or find new equipment set-ups that will make a field operation more efficient.

The Abraxas team has already said it will invest in new equipment and processes. Triangle’s energy services division—RockPile Energy Services LLC—will try to maintain its presence in the fracking service portion of the industry due to what it said are indicators showing a strong future economic opportunity. According to Triangle, current frack crews are down significantly and offering services for unsustainable prices. Coupled with the fact that

some are foregoing maintenance on equipment to save money, a return of higher prices will present an opportunity to frack crews and services that can maintain a strong relationship with current and future clients.

Whiting will continue to rely on the strength of its geology team in Denver to drive decisions during this current downturn in activity. The company deploys what it calls the stiletto heel drilling approach. The approach has led to what it calls the holy grail.

Because Whiting has added scanning electroscopic microscopes to its Denver facilities, wells drilled in new locations can be drilled first vertically and then horizontally.

According to Volker, Whiting can drill a vertical well, ship the core to Colorado where it will be slabbed out by Weatherford and then sent to Denver. In Denver,

the geology team will work 24/7 to determine which places the drilling team should target for the horizontal.

THEBAKKEN.COM

13

BAKKEN NEWS

Unmanned aerial vehicles coming to ND energy industry The oil and gas industry is showing increased interest in using small unmanned aerial systems (SUAS) for tasks such as surveying and infrastructure inspection.

The ability to obtain an exemption from the Federal Aviation Administration for the commercial use of sUAS is attracting the interest of industry and other businesses related to energy production in North Dakota, according to Todd Madeen, survey account manager for RDO Integrated Controls.

“As more exemptions go through, it’s getting more popular—it’s snowballing, it’s gaining speed,” said Mike Schmaltz, account manager for RDOIC, which has been a sUAS dealer for two years.

Madeen said RDOIC is talking with crude producers in the Bakken shale play

UP IN THE AIR: The eBee unmanned aerial vehicle produced by SenseFly and sold by RDO Integrated Controls is best used for aerial mapping.

PHOTO: THE BAKKEN MAGAZINE

about using sUAS in their operations and is receiving a great deal of interest.

RDOIC and SenseFly Ltd. were at the Bakken Conference and Expo in Grand Forks to show the oil and gas industry how small unmanned aerial systems can benefit the business.

Based in Bismarck, North Dakota,

Depend on Us

RDOIC currently sells the SenseFly fixed-wing eBee unmanned aerial vehicle (UAV) and the company’s new eXom quadcopter.

Adam Zylka, SenseFly technical support engineer, attended the conference trade show with RDOIC to show the sUAS platforms and answer questions about the company’s products.

“Allied is committed to the Bakken. Over 47 years in business, we have developed a reputation of providing high quality people, innovative technology, and a personalized service every time.

When it comes to your cementing and acidizing needs, you can depend on Allied.”

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BAKKEN NEWS

SHOWING OFF UAS: RDO Integrated Controls exhibited its unmanned aerial vehicles at the Bakken Conference & Expo in July. From the left are Adam Zylka of SenseFly, and Mike Schmaltz and Todd Madeen of RDOIC. PHOTO: THE BAKKEN MAGAZINE

NEW KID ON THE BLOCK: SenseFly recently released the eXcom, a quadcopter UAV used for inspections of vertical surfaces.

PHOTO: THE BAKKEN MAGAZINE

“With the eBee, SenseFly, currently has the second most exemptions in the U.S., just behind DJI,” Zylka said. “In terms of mapping and surveying exemptions, we’re leading in the U.S.” He notes that the eBee and eXom are

complimentary mapping platforms. The fixedwing eBee is best used for horizontal mapping and covering large areas up to 250 to 300 acres per flight to create 3D terrain models, Zylka explained.

The eXom is better suited for conducting close inspections of vertical surfaces, such as the underside of a bridge or other infrastructure.

“It can be used to follow a pipeline with a thermal camera to see where potential leaks and hotspots are,” Zylka said. “It’s a higher resolution for close-in mapping.”

As part of its service, RDOIC provides training to its customers and works with SenseFly to help them obtain a commercial exemption from the FAA.

BAKKEN NEWS

PSC approves siting permit for NGL pipeline in McKenzie County

PIPEPLUS

ONEOK Bakken Pipeline LLC is planning to construct and operate a 4-mile long, 8-inch NGL pipeline in McKenzie County under a siting permit approved by the North Dakota Public Service Commission.

Expected to come online in December this year, the Lonesome Creek Pipeline will have a maximum capacity of 30,000 barrels per day with an estimated capacity of approximately 15,000 barrels per day.

The pipeline will carry a mixture of ethane, propane, butanes, iso-butane mix, pentanes and natural gas produced at the Lonesome Creek Gas Plant.

ONEOK said during a PSC hearing on the $6 million project that there is a need for the pipeline to transport materials out of the

200 1806

ALEXANDER

WATFORD CITY

85

23

85

Lonesome Creek Gas Plant

68

Garden Creek NGL Pipeline

Lonesome Creek Gas Plant, a 200-millioncubic-foot-per-day facility also expected to come online in December. The pipeline will start at the ONEOK Lonesome Creek Gas Plant in McKenzie County and will end at a connecting point with ONEOK’s Garden Creek Pipeline southwest of Arnegard.

“This is another small but valuable piece of infrastructure to support the capture and

85

processing of gas and the use of this valuable energy resource,” said Julie Fedorchak, PSC chair. “I particularly appreciate the efforts made by the company to colocate the pipeline with another line and to consolidate the associated reclamation.”

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BAKKEN NEWS

Factors in predicting production, oil transport The impact of North Dakota’s rig reduction could finally leave on mark on the state’s oil production figures, said Justin Kringstad, director of the North Dakota Pipeline Authority. This summer, Kringstad developed a recorded webinar detailing elements of production in the Bakken.

Although oil production between January and June 2015 fluctuated, oil prices were not the driving factor. Winter and spring weather conditions along with drilling decision made in 2014 were the reason for the production ups and downs.

To Kringstad, June through the end of the year will reveal the impact of the state’s rig count. “The second half of 2015 is when we are going to see and feel this reduction the most,” he said. It remains to be seen if higher producing wells drilled and completed in the core of the Bakken will offset the decreased number of rigs.

And, drilled but uncompleted wells that could be brought online at any time— and add to the production total—act as a wild card. Operators have the ability to “cherry pick” certain DUCs if necessary. “Those wells that in this basket of uncompleted are, for the most part, wellpositioned to be in the production mix,” he said. A real production decline may not be visible in the Bakken for up to two and a half years either, he added.

Kringstad’s role of tracking oil movement has not gotten any easier, he also said. Determining the method of oil transportation preferred by producers or midstreams is difficult.

TRACKING OIL TRANSPORT IS HARD TO DO: -

Future oil production is uncertain.

Market conditions are shifting.

Project commitments of pipe and rail companies are unknown.

Regulation of pipe, rail, exports, etc. is uncertain.

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17

BAKKEN NEWS

Brent Crude oil price projections by case with current crude oil export restrictions, 2010-'15 2013 DOLLARS PER BARREL

Allied Progress group favors maintaining export ban

Lifting the crude export ban may not be beneficial to the U.S. or gasoline prices, believes a new grassroots group led by a progressive talk radio fixture and a career political communicator. Karl Frisch, executive director of Allied Progress, is leading the group’s efforts to continue the U.S. ban on crude oil exports.

“For 40 years, the crude oil export ban has mostly forbidden big oil companies from shipping American crude oil to other countries. The policy has protected American consumers, kept good-paying refinery jobs here in the U.S. and set America on a path toward energy independence,” the group said.

Repealing the ban would pad the bottom line of oil companies already bringing in billions of dollars in profit each year, the group also said. Allied Progess has released a full ad campaign, including television commercials. The group is supported by the United Steelworkers and Consumers and Refiners United for Domestic Energy Coalition.

Although the group has received support thus far, the reports and government-related entities tasked with studying the debate are mounting in favor of lifting the ban. The U.S. Energy Information Administration, at the request of Congress and the White House, has worked on studying the ban. Recently, EIA produced a report that indicated lifting

EXPERIENCE MAKES THE DIFFERENCE

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history

projec ons

120

Ref

90

HOGR LP HOGR/LP

60

30

0 2010

2013

2016

2019

2022

2025

SOURCES: U.S. Energy Information Administration, National Energy Modeling System Reference, Low Oil Price, High Oil and Gas Resource, and High Oil and Gas Resource/Low Oil Price cases, with current crude oil export restrictions. Note: Projections from National Energy Modeling System.

the ban would not increase the price of gasoline for American consumers. “Petroleum product prices in the United States, including gasoline prices, would either be unchanged or slightly reduced by the removal of current restrictions on crude oil exports. The 58-page report also said that as Brent crude prices decreased with more U.S.-based West Texas Intermediate crude hitting the market, “there would likely be a somewhat greater positive effect on domestic production.”

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The BAKKEN MAGAZINE SEPTEMBER 2015

BAKKEN NEWS

API says energy policy should be presidential candidate priority

ensured,” Gerard says. “We’ve seen the mission creep of federal agencies on full display under this administration. Thousands of pages of new roadblocks and mandates are making their way through the regulatory pipeline.”

Gerard says Congress has rejected the Obama administration’s approach of restructuring the U.S. energy economy.

“They are selecting specific winners and losers, and by driving that, the ultimate loser is the American consumer,” he noted. “It’s very clear they have made an ideological choice to pick what they have as their preferred energy sources, and it’s not entirely by environmental issues.” turing lic Frac Continue Hydrau . f the U.S Remove Waters o ort Ban

Repeal Crude Exp

The Vote4Energy campaign run by the American Petroleum Institute is urging Republican and Democrat presidential candidates to focus on energy policy during the upcoming 2016 campaign.

“We’re calling on candidates—Republican and Democrat alike—to share with voters their vision for harnessing this American energy moment,” says Jack Gerard, API president and CEO. “And we’re asking debate moderators and political pundits to raise important questions about America’s energy future.”

The Vote4Energy campaign is encouraging presidential candidates from both parties to address such issues as ending the 1970s ban on crude exports, a policy Gerard says is driven by “an era of scarcity, dependence and uncer-

tainty.” The organization also favors a more efficient onshore permitting process, faster approval of energy infrastructure projects and a market-determined scope for LNG exports.

Gerard says that in the past 10 years, the energy industry has undergone a transformational shift brought about by hydraulic fracturing and horizontal drilling, as well as refinery capacity expansions and efficiencies. But he says the Obama administration’s policies are aimed at restraining energy production.

“This surging American production has marginalized the ability of other nations to dictate prices and created vast new economic opportunities for U.S. workers and consumers,” Gerard says.

He criticized administration policies such as the U.S. Environmental Protection Agency’s new ozone standards, new limits on refinery emissions, the Bureau of Land Management’s hydraulic fracturing rule, the Bureau of Safety and Environmental Enforcement’s blowout preventer rule, and increasing ethanol mandates under the Renewable Fuel Standard.

“Make no mistake—America’s role as an energy superpower is not

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BAKKEN NEWS

Schlumberger to buy Cameron for $14.8 billion To form the first-ever pore-to-pipeline product and service provider in the oil and gas industry, Schlumberger Ltd will spend $14.8 billion. The globally recognized reservoir and well servicing entity with locations in the North Dakota communities of Williston and Minot, has started the acquisition process of Cameron, a surface technology provider that has expertise in wellhead servicing and flow management.

The acquisition comes less than a year after Paal Kibsgaard, Schlumberger’s

chairman and CEO, called on the exploration and production industry to change its view on the industry in light of low oil prices and work to become more efficient in planning, drilling and completing unconventional wells. The new company—operating under the Schlumberger name— will be able to provide cost savings to customers through supply chain performance. None of the services offered by either entity overlap.

Schlumberger’s revenue base will increase by 20 percent through the pur-

chase that is expected to be complete in 2016. “With oil prices now at lower levels, oilfield service companies that deliver innovative technology and greater integration while improving efficiency—which our customers increasingly demand—will outperform the market,” Kibsgaard said.

Schlumberger put a 37 percent premium on Cameron’s average price per share and a 56 percent premium to Cameron’s most recent closing stock price of $42.47 per share.

COMPANY ADDITION: Schulmberger Ltd. has North Dakota locations in Williston and Minot.

In June 2014, the company called on E&Ps to rethink how they go about developing oil and gas resources.

PHOTO: THE BAKKEN MAGAZINE

20

The BAKKEN MAGAZINE SEPTEMBER 2015

BAKKEN NEWS

BENEFITS OF THE BUY: Cameron provides surface technology and flow infrastructure to the Bakken from its Minot, North Dakota, location PHOTO: THE BAKKEN MAGAZINE

Seeing Through to the End &Žƌ ŵŽƌĞ ƚŚĂŶ ϲϬ LJĞĂƌƐ͕ ǁĞ ŚĂǀĞ ƉƌŽǀŝĚĞĚ ĞŶŐŝŶĞĞƌŝŶŐ ĂŶĚ ƚĞƐƟŶŐ ƐĞƌǀŝĐĞƐ ƚŽ Ă ǀĂƌŝĞƚLJ ŽĨ ŝŶĚƵƐƚƌŝĞƐ ŝŶĐůƵĚŝŶŐ Žŝů ĂŶĚ ŐĂƐ͘ tĞ ŽīĞƌ ƚŚĞ ĨŽůůŽǁŝŶŐ ƐĞƌǀŝĐĞƐ͗ ŐĞŽƚĞĐŚŶŝĐĂů ĞŶŐŝŶĞĞƌŝŶŐ͕ ŶŽŶĚĞƐƚƌƵĐƟǀĞ ĞdžĂŵŝŶĂƟŽŶ͕ ĞŶǀŝƌŽŶŵĞŶƚĂů ĐŽŶƐƵůƟŶŐ͕ ŵĂƚĞƌŝĂůƐ ƚĞƐƟŶŐ ĂŶĚ ŵŽƌĞ͘ dŽ ůĞĂƌŶ ŵŽƌĞ͕ ǀŝƐŝƚ ǁǁǁ͘ďƌĂƵŶŝŶƚĞƌƚĞĐ͘ĐŽŵ

The Science You Build On. &Žƌ ŵŽƌĞ ŝŶĨŽƌŵĂƟŽŶ ĂďŽƵƚ ŽƵƌ ƐĞƌǀŝĐĞƐ͕ ƉůĞĂƐĞ ĐŽŶƚĂĐƚ͗ <ĞŶ :͘ ,ĂĂŐ / ϴϬϬͲϮϳϵͲϲϭϬϬ

THEBAKKEN.COM

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Exhibiting The Bakken's

MOOD

For three days, experts, producers and decision makers offered valuable perspective on the state of the Bakken at the Bakken Conference & Expo.

By Patrick C. Miller

If there was one word used the most by presenters during the three-day Bakken Conference & Expo at the Alerus Center in Grand Forks July 25-27, it was probably efficiency. From drilling to fracking to transportation to the processes used to run daily operations, there was information—and the data to back it up—on how to lower costs by being more efficient in the Bakken.

Nearly 550 attendees and 87 exhibitors took part in the three-day event that began with a special session on infrastructure called “The Bakken’s Backbone,” which focused on infrastructure issues important to the Bakken, including: rail, pipeline, water, gas processing, fleet transportation, power and commercial construction.

During the two days that followed,

presenters and panels were included that ranged from how national energy policy impacts Bakken production to which type of proppant works best to increase production efficiency.

The Bakken’s Backbone

Watford City mayor Brent Sanford delivered the keynote address during the first day’s infrastructure seminar. He outlined a brief history of the city’s growth, noting that its has a strategic importance through community expansion. From 2010 to 2015, Watford City has borrowed more than $300 million for projects that include a $54 million high school; a $92 million community events center; a $30 million wastewater plant; a $27 million special improvements district; a $58 million hospital and clinic; a $50 million county law enforcement

INDUSTRY OUTLOOK: Brandon Elliott with Northern Oil & Gas speaks during the industry roundtable. To his left are Kathy Neset of Neset Consulting Service and Luke Geiver, editor of The Bakken magazine. On the right is Dan Eberhart of Canary Wellhead.

PHOTO: THE BAKKEN MAGAZINE

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The BAKKEN MAGAZINE SEPTEMBER 2015

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THEBAKKEN.COM

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center; a $10 million apartment complex; and a $5 million day care center.

Dean Bangsund, research scientist with North Dakota State University’s agribusiness and applied economics department, provided information on the Bakken’s economic impact on North Dakota and the future economic outlook. For example, in 2013, he said $28.7 billion in oil and gas sales resulted in $5 billion in mineral royalties, $4 billion of which were private mineral ownership royalties.

A panel on rail infrastructure and transload facilities in western North Dakota featured Dave Thomson, CEO, New Frontier LLC, and principal with Engineered Rail Solutions LLC, who discussed finding efficiencies through rail. Neil Amondson, co-

founder of Northstar Transloading, spoke on developing a Bakken transload mega-site.

North Dakota Public Service Commission Chair Julie Fedorchak briefed attendees on oil and gas infrastructure projects regulated by the commission. She said North Dakota’s current pipeline crude export capacity is 827,000 barrels per day (bpd). By 2017, it’s projected to increase to 1.5 million bpd and reach 1.86 million bpd by 2020.

Commercial construction and property valuation was the subject of a panel moderated by Luke Geiver, editor of The Bakken magazine. Speakers included Mike Dunn, business development manager, Construction Engineers, and Mike Elliott, managing principal, Energy Real Estate Solutions.

Dunn noted that his company is

contracted to construct the new Watford City jail, a $52 million project scheduled for completion in 2017.

Dale Niezwaag, senior legislative representative at Basin Electric Power Cooperative, a generation and transmission cooperative with a service area spanning nine states, is working to meet electrical demands in western North Dakota. The cooperative forecasts that its electrical load will grow another 2,828 megawatts by 2035, with 1,850 megawatts of that growth occurring in the Williston Basin.

“The big part of the Bakken play is the clash of how to meet needs of the cultures from the oil side to the utility side,” said Niezwaag. “Sixty-five percent of all our growth is going to be in the Bakken, so it is a major part of our business and a major part of our

focus is making sure we have low cost power to get to people working in the area.”

The afternoon session included a presentation by Lyle Jensen, president of American Power Group, who detailed his company’s efforts to use its dualfuel technology in the Bakken.

It enables trucks to operate on a combination of diesel fuel and clean-burning CNG, offering the advantages of decreasing flared gas, reducing diesel emissions and higher operating efficiencies for trucks.

The impact of the Bakken’s growth on aviation was covered by Chris DeCrescente, general manager of the Tioga Aero Center.

He noted that from 2009 to 2014, there was a 46 percent increase in direct airport management employment; a 70 percent increase

EVENT REVIEW

in people arriving in general aviation aircraft; a 61 percent increase in visitors arriving on commercial airlines; and a 150 percent increase in state and federal funding for the state’s airports.

Tim Brown, senior vice president, MBI Energy Services, spoke on the company’s efforts to develop and use a world-class oil training facility. MBI has experienced 800 percent growth since 1979 and has 2,000 employees in multiple locations. It partnered with Diamond B Technology Solutions to develop and launch a certificatetracking solution to improve the administration and management of all training certification.

In a presentation on water infrastructure serving the oil and gas industry, Steve Burian, CEO of AE2S and its affiliated companies, reviewed the challenges

of supplying water to municipal, rural and industrial users in western North Dakota. He said that in 2013, the state’s oil and gas industry accounted for 5 percent of the state’s consumptive water use, with irrigation using 54 percent, municipal water 20 percent, industry and power 16 percent and rural water 4 percent. Of the nearly 30,000-acre feet of water used by oil and gas operations in 2014, 73 percent came from surface water sources and 27 percent came from groundwater sources.

Monday’s session ended with a special presentation titled, “Bakken Workforce Update,” which covered employment trends, challenges and opportunities for businesses in the Bakken. The panel included Cheri Giesen, executive director, Job Service North Daktoa; Michael Ziesch, manager of

HIGH-TECH EXHIBIT: Doug Penniston, regional account executive with Verizon Networkfleet, demonstrates the company's mapping software in the Alerus Center's exhibit hall.

PHOTO: THE BAKKEN MAGAZINE

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the Labor Market Information Center, Job Service North Dakota; Nancy Hodur, research assistant professor at the NDSU Agribusiness and Applied Economics Department; and Patrick Bertagnolli, human resource director at B&G Oilfield Services.

Despite the low price commodity, Giesen said, “We still have 60 people a day coming into our Williston office to get help finding a job.”

Ziesch said North Dakota’s oil and gas industry represents nearly 17 percent of the state’s total private employment with 7.4 percent in drilling, extraction, production and refining; 2.9 percent in infrastructure development; 1.7 percent in professional services; 3 percent in transportation; and 1.7 percent in wholesale and manufacturing.

“We’ve seen the workforce shift from jobs in manufacturing to the healthcare

and service providing side of the economy,” said Ziesch. "Our first (significant) change we expect to see is on the earnings side, rather than the employment side."

Hodur discussed preliminary results she’s obtained through a workforce survey of oil and gas employees. To date, her survey has more than 1,400 observations with 14 firms representing roughly 7,640 employees. Hodur said among those interviewed for her survey, most said housing continued to be the number-one issue because there’s not enough and it’s too expensive.

Bertagnolli outlined B&G’s efforts to retain quality employees during difficult times for oilfield services companies. Employee education, an emphasis on safety training, noting positive accomplishments, good benefits and community involvement are some of the steps B&G has taken with its employees, he said.

PROPPANT FRACKONOMICS: Ceramic proppants from Saint-Gobain Proppants, a 350-year-old French company, are displayed by Tiahana Fuss-Dezellic, global marketing manager.

PHOTO: THE BAKKEN MAGAZINE

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26 Dunlop_201505_OGM_03_USA_v10.indd The BAKKEN MAGAZINE SEPTEMBER 2015 1

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EVENT REVIEW

Upstream, Midstream Perspective

On the second day of the Bakken Conference and Expo, attendees heard from the Williston Basin’s largest producer—Continental Resource Inc.—about why it’s crucial to the Bakken and other shale plays to end the U.S. ban on crude exports. There was also big news about the largest construction project ever proposed for North Dakota, the Badlands NGL polyethylene plant which will use Bakken-produced ethane.

Keynote speaker Gary Gould, Continental’s senior vice president of operations, said OPEC’s manipulation of global crude prices and its predatory pricing program is trying to drive tight, light oil out of business. He made the case for ending the “archaic” U.S. export ban policy to become energy independent, help American allies, lower gasoline prices for consumers and become the world’s swing oil producer.

Gould said that since the policy against exporting U.S. crude was established in the 1970s, the U.S. has gone from oil scarcity to abundance, which has caused oil imports to drop 70 to 80 percent. Over the past 10 years, U.S. production has doubled and has represented nearly 40 percent of the world’s growth. In contrast, OPEC production increased just 3 percent in the same time period and other countries grew only 1.5 percent.

SCIENCE PROJECT FINDINGS: Heath Mireles, manager of resources development for Continental Resources, presented the scientific findings of research on the company's Hawkinson Unit through the EERC's Bakken Optimization Program.

PHOTO: THE BAKKEN MAGAZINE

“The United States has the resource, the people and the technology. So we’re in a very good place as a country,” Gould said. “There’s lots of good news here.”

He referenced OPEC statements indi-

cating the organization’s intention to control world oil prices by attempting to shut down light, tight crude from U.S. shale.

“Nobody wants $200 oil, and we don’t want $50 oil, either,” he said. continued on page 30...

THEBAKKEN.COM

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EVENT REVIEW

INFORMATION PLEASE: Nearly 550 people attended the three-day Bakken Conference & Expo at the Alerus Center in Grand Forks, North Dakota, July 25-27.

PHOTO: THE BAKKEN MAGAZINE

From The Show

FACTOIDS FROM BAKKEN CONFERENCE PRESENTATIONS 1 Continental’s Hawkinson Project—in partner-

ship with the EERC’s Bakken Optimization Program—drilled and completed 11 wells on a single unit from one pilot hole at a cost of $92 million for drilling and completions and $14 million for gathering and analysis of scientific data. Among the study’s findings were that 200-foot heel/toe setbacks result in uncaptured resources and that 50-foot setbacks would lead to greater recovery.— Heath Mireles, northern region resource development manager, Continental Resources Inc.

2 North Dakota’s current pipeline crude export ca-

pacity is 827,000 barrels per day (BPD). By 2017, it’s projected to increase to 1.5 million BPD and reach 1.86 million BPD by 2020. – Julie Fedorchak, chair, North Dakota Public Service Commission.

28

The BAKKEN MAGAZINE SEPTEMBER 2015

3 From 2010 to 2015, Watford City has borrowed

more than $300 million for projects that include a $54 million high school; a $92 million community events center; a $30 million wastewater plant; a $27 million special improvements district; a $58 million hospital and clinic; a $50 million county law enforcement center; a $10 million apartment complex; and a $5 million day care center.—Brent Sanford, mayor, Watford City

4 North Dakota’s oil and gas industry represents

nearly 17 percent of the state’s total private employment with 7.4 percent in drilling, extraction, production and refining; 2.9 percent in infrastructure development; 1.7 percent in professional services; 3 percent in transportation; and 1.7 percent in wholesale and manufacturing.—Michael Ziesch, manager, Labor Market Information Center, Job Service North Dakota

EVENT REVIEW

5 According to a North Dakota State University

study on the economic impact of the oil and gas industry on North Dakota for 2013, $28.7 billion in oil and gas sales resulted in $5 billion in mineral royalties, $4 billion of which were private mineral ownership royalties.—Dean Bangsund, Department of Agribusiness and Applied Economics, NDSU

6 In 2006, the average lateral length was 6,167

feet for a Bakken well with 9,925 barrels as the average fracturing fluid volume. In 2014, the average lateral length was 9,719 with an average fracturing fluid volume 89,747 barrels. Also in 2014, the total volume of fracturing fluid for Bakken wells was approximately 179 billion barrels.—John Harju, associate director for research, University of North Dakota Energy & Environmental Research Center

7 Wells waiting on completion has helped drive

the success of North Dakota’s gas capture program.

Statewide, 82 percent of gas is being captured rather than flared. The next target is an 85 percent gas capture rate by January 2016.—Alison Ritter, public information officer, North Department of Mineral Resources

8 From 2010 to 2014, traffic increased 26 percent

on all North Dakota highways and 71 percent in the oil-impacted counties. The state’s Department of Transportation has received $2.26 billion in funding for road projects in the 2015-2017 biennium with $1.44 billion designated for projects in western North Dakota.—Grant Levi, director, North Dakota Department of Transportation

9 The highest IPs and declines in the Bakken shale

play are in the Nesson Anticline sub-play because of mature, over-pressured and naturally fractured shales around the geologic structure. Sub-plays neighboring the Nesson Anticline have mature shales and are also over- pressured. These sub-plays exhibit high IP rates, but shallower declines than along the Nesson Anticline.—Jonathan Garrett, principal analyst, Wood Mackenzie Ltd.

10 Saint-Gobain Proppants, headquartered in

France, was started in 1665, making the company 350 years old.—Tihana Fuss-Dezelic, global marketing manager, Saint-Gobain Proppants

THEBAKKEN.COM

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EVENT REVIEW

Gould said there is growing bipartisan support for Congress to pass legislation to end the crude export ban. He urged the audience members to contact their elected representatives to support such measures.

William Gilliam, CEO of Badlands NGL LLC, used the conference as an opportunity to announce that the company’s massive construction project has grown from $4 billion to $6.5 billion. When crude prices return to the $70 per barrel level, he said, “We think with that we can

build 2 million ton ethane cracker in North Dakota. We will have something world-scale—or perhaps bigger—in North Dakota.”

Last year, Gilliam and North Dakota Gov. Jack Dalrymple announced Badlands NGL’s plan to build a polyethylene plant in North Dakota that would use ethane from the Bakken to produce consumer and industrial plastics, as well as other byproducts such as hydrogen, nitrogen, CO2, propane and propylene.

Gilliam explained how the market poten-

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tial was so great that the company was now planning to build two plants. The first plant will be smaller and constructed within three years in the continental U.S. at a site that’s been selected, but Gilliam referred to only as “Shangri-La.” Gilliam said Badlands NGL is close to selecting a site for its North Dakota plant and construction would begin as soon as binding agreements are signed. Although building the North Dakota plant is complicated by weather, transportation and workforce problems, Gilliam said a North Dakota polyethylene facility is closer to U.S. and Asian markets. In addition, it provides less expensive and faster rail and shipping transport options.

John Harju, associate director for strategic partnerships at the University of North Dakota Energy & Environmental Research Center, provided a look back at the technological changes and people who helped make the Bakken a world-class oil play.

Allison Ritter, public information officer with the state Department of Mineral Resources gave a rundown on regulatory changes from the last legislative session that include pipelines, flaring and oil conditioning. She said North Dakota needs to complete an average of 115 wells per month to retain production of 1.1 million barrels per day and thus far is averaging 120 completions per month.

David Williams, CEO of Missouri River Resources discussed efforts to get into the oil production business on the Fort Berthold Reservation and plans to further expand. He also covered the workforce development project started at New Town.

“Someone has to take the baton and move the play and industry forward,” Williams said. “We felt there’s a great need for this.”

Geiver moderated a wide-ranging industry roundtable that included geologist Kathy Neset, owner of Neset Consulting Service; Brandon Elliott, executive vice president of corporate development and strategy for Northern Oil and Gas Inc.; and Dan Eberhart, Canary Wellhead CEO. Eberhart said that in the current lowprice environment, the Bakken “has played

EVENT REVIEW

with one hand tied behind its back compared to other shale plays” because of lack of people and infrastructure. However, he believes that the play will emerge stronger and be “the biggest winner” because the state is taking the correct approach to fix problems during the downturn.

Neset admitted that the slowdown in drilling activity has hurt her company, but that it is becoming more efficient and keeping employees busy—even if it means having them wash windows and do landscaping rather than outsourcing work.

“We’re being efficient, being effective and showing the rest of the world the standard America goes by,” she said. “We have a choice as to how we deal with it.”

Elliot provided the non-operator perspective on investment trends in the Bakken.

He said that initially with oil prices falling, there was a flush of capital leaving North Dakota that shifted to other shale plays where costs were lower and returns were higher. But time has shown that the core areas of the Bakken remain profitable and provide good opportunities for those who understand it.

“The downturn will give this basin the opportunity to show why it was such an exciting place to discover,” Elliot said.

Geiver asked each member of the panel what it is that people outside of the Bakken didn’t know about the play or perhaps misunderstood.

“I think there’s slowly becoming a realization that we do have a core of this play that’s economic to very low WTI prices—and that’s with service costs only coming down 15 or so percent,” Elliott said. “When we get a little bit more service cost relief and we get the engineering and geology side focusing on completion designs and recoveries, we’ve got some tight curves and we’ve got some areas in this play that are clearly very profitable.”

Neset said, “I hear so many misconceptions about what the Bakken is, what the Three Forks is, how we’re going about it, and I think it’s so important that we continue to work on that perspective because—like it or not—we do need the support of the general public in understanding what this energy industry is.”

In Eberhart’s view, “The thing that will help the Bakken the most is if in this difficult time we can get some infrastructure improvements in place and get some more takeaway capacity in place and really close some of that gap between the cost structure of the Permian and the Eagle Ford and the Bakken. I think that’s in the Bakken’s best interest. That will help it to grow over time and become even more important in the U.S. energy picture.”

The afternoon session opened with an in-

depth look at Continental’s Hawkinson Project which—in partnership with the EERC’s Bakken Optimization Program—drilled and completed 11 wells on a single unit from one pilot hole at a cost of $92 million for drilling and completions and $14 million for gathering and analysis of scientific data.

Project results were presented by Harju and Heath Mireles, manager of resources development, Continental Resources. According to Harju, in 2006, the average lateral length was

THEBAKKEN.COM

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KEEP ON TRUCKIN': The crew from Bert's Truck Equipment Inc. poses with their display in the exhibit hall. Bert's sponsored the Tuesday Evening Bash during the Expo.

PHOTO: THE BAKKEN MAGAZINE

to greater recovery. He provided a video rendering detailing the studyâ&#x20AC;&#x2122;s results. The idea behind the â&#x20AC;&#x153;science projectâ&#x20AC;? is to give Continental and other operators in the Williston Basin a better understanding of the appropriate well pad design, spacing between laterals and how several geologic formations react to certain fracking designs.

Based on the results, Mireles believes the data is strong enough to change the way the North Da-

kota portion of the Williston Basin is developed. He proposes that the state should place its setbacks (the space minimum a well bore must be from the spacing unit's invisible boundary) at 50 feet. Doing so, could increase oil production in a given spacing unit by up to 10 percent.

Dave Johnson, director of total environmental management systems with Nuverra Environmental Solutions Inc., described operations at the companyâ&#x20AC;&#x2122;s new

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6,167 feet for a Bakken well with 9,925 barrels as the average fracturing fluid volume. In 2014, the average lateral length was 9,719 with an average fracturing fluid volume 89,747 barrels. Also in 2014, the total volume of fracturing fluid for Bakken wells was approximately 179 billion barrels.

Mireles said that studying the Hawkinson Project showed that 200-foot heel/toe setbacks result in uncaptured resources and that 50-foot setbacks would lead

Terrafficient Processing Facility at Watford City. The process turns wet drill cuttings into an â&#x20AC;&#x153;earth friendlyâ&#x20AC;? product that can be used for applications such as road bases, gravel additives, construction fill and flowable fill. Johnson noted that the process also recovers water and hydrocarbons for reuse while reducing carbon emissions.

Bilu Cherian, director of reservoir engineering with Sanjel, continued the afternoonâ&#x20AC;&#x2122;s exploration and production theme with a

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The BAKKEN MAGAZINE SEPTEMBER 2015

EVENT REVIEW

presentation on well completions in the Bakken. He was followed by a panel on the future of hydraulic fracturing which included presentations by Hema Prapoo, senior account manager with Allied-Horizontal Wireline Services; Jeremy Dockter, co-founder and managing direction of Expansion Energy; Mahmoud Asadi, director of oil and gas technology for Praxair Services Inc.; and Dax Cornelius, CEO of Torrid Technologies Group.

Hesham El-Rewini, dean of the UND College of Engineering and Mines, ended the second day with a presentation on the school’s petroleum engineering program. Enrollment in the program has grown from four undergraduate students in the fall of 2010 to 300 students in the spring of 2015, including 31 females and 13 graduate students.

Day three of the conference got underway with Grant Levi, director of the North Dakota Department of Transportation (DOT), who described the tremendous growth the state has

experienced in agriculture, manufacturing and energy, which has resulted in record population and a 29 percent increase in employment.

According to Levi, from 2010 to 2014, traffic increased 26 percent on all North Dakota highways and 71 percent in the oil-impacted counties. The state DOT has received $2.26 billion in funding for road projects in the 2015-2017 biennium with $1.44 billion designated for projects in western North Dakota.

Levi outlined work on major road projects such as the fourlaning of U.S. 85 between Watford City and Williston and truck bypass relief routes for Watford City, Alexander, New Town, Dickinson, Williston and Killdeer totaling more than $350 million in construction. He said total costs for North Dakota’s 2015 construction season would be approximately $807 million.

Focused Experts Explain Williston Basin

Bakken operations in a low-

oil-price environment was the focus of a presentation by Jonathan Garrett, principal analyst and Bakken expert with Wood Mackenzie Ltd. Although the firm expects U.S. onshore production to flatten and Bakken rig counts to significantly decline, Garrett said North Dakota’s production is expected to hold steady at near 1.2 million barrels per day throughout 2015 and 2016.

Low oil prices have caused producers to concentrate operations in the Bakken’s “sweet spot,” which has enabled drilling to continue. Garrett said more than 95 percent of rigs in the Bakken during April 2015 were focused on the higher return sub-plays of the Bakken and Three Forks formations.

According to Garrett, the highest IPs and declines in the Bakken shale play are in the Nesson Anticline sub-play because of mature, over-pressured and naturally fractured shales around the geologic structure. Sub-plays neighboring the Nesson Anticline have mature shales and are also

BAKKEN EXPERTISE: Wood Mackenzie's Bakken expert, Jonathan Garrett, described how oil producers are coping with the low-price environment.

PHOTO: THE BAKKEN MAGAZINE

THEBAKKEN.COM

33

EVENT REVIEW

Cumula ve Water Requirements (million bbl)

900

Projected Future Fracturing and Maintenance Water Needs

800

805

700

703

Maintenance Water(@ 32.5 bbl/day/well) Fracturing Water Scenario 1

600 500 426 380 324

400 300

Fracturing Water Scenario 2 Fracturing and Maintenance Water Scenario 1

200 100

Fracturing and Maintenance Water Scenario 2

0

FRACK FUTURES: In his conference presentation, John Harju14with the UND EERC outlined trends based on the evolving optimization needs of the Bakken play.

SOURCE: UND ENERGY & ENVIRONMENTAL RESEARCH CENTER

34

The BAKKEN MAGAZINE SEPTEMBER 2015

over-pressured. These sub-plays exhibit high IP rates, but shallower declines than along the Nesson Anticline, he said.

With perhaps one of the most attention-getting titles of the conference “Proppant Frackonomics in the Bakken,” Tihana Fuss-Dezelic, global marketing manager with Saint-Gobain Proppants, discussed how to select a proppant that’s technically, environmentally and economically sound. She also noted that French-based Saint-Gobain has been in existence for 350 years. Her presentation covered the purpose of proppants and the company’s research on the differences between sand, bauxite and ceramic proppants.

Jed Tallman, manager of U.S. market development for Ferus CNG provided an overview of how the company is turning flared gas into CNG to power operations.

He noted that the process can result in diesel cost reductions of 20 to 40 percent, reduces flaring, lowers emissions of particulate matter and greenhouse gases, and reduces NOx and Sox emissions.

A panel titled “Finding Oilfield Efficiencies” included four representatives from three companies who described how to improve operations through automation, repairing and restoring parts and optimizing well operations through a better understanding of flow measurements. The presenters were Ken Olexa, general manager, and Ryan Bacon, project development team lead, with JDP Automation Inc.; Dale Wietzema, sales manager with Gremada Industries—AIM Machining; and Nicholas Sikes, account manager with Emerson Process Management.

As expected, flaring was a hot topic at the conference, and a panel of four experts discussed the latest advancements in gas processing technology. Audrey Mascarenhas, president and CEO of Questor Technology covered power generation and treating produced water using flared gas. Mike Mayers, corporate business development manager with Aggreko, described the company’s technology, which uses stranded Bakken-associated gas for temporary power production. Leo Eskin, president of LPP Combustion LLC focused on how LPP’s unique flex-fuel power system turns flared gas into electricity. Russell Goss, territory manager for Caterpillar Oil &

EVENT REVIEW

Operators will begin to trim well backlogs in 2H 2015 Impact of completions pace on production growth

North Dakota uncompleted well backlog

The Bakken needs an estimated 100 completions per month to keep production flat over 2015. An average number of monthly completions between Q4 2014 and Q2 2015 of 110 wells per month will allow Bakken production to continue to grow at a modest rate this year Base Decline

50 Completions/Month

100 Completions/Month

150 Completions/Month

With oil prices low, the uncompleted well backlog in North Dakota has grown as operators wait on further service cost reductions and a rebound in prices Winter weather at the beginning of 2015 also greatly impacted the pace of well completions in ND which further enlarged the backlog

300

Completions

Uncompleted wells

1,200

000's b/d

1,000 800 600 400 200

-

Source: Wood Mackenzie

250

800

Monthly ND well completions

1,400

1000 900

1,600

700

200

600

150

500 400

100

300

Uncompleted well backlog

Gas, highlighted the company’s flare-to-power success stories.

To close out the conference, Geiver moderated a panel on environmental issues that included waste handling, remediation, preventative strategies and environmental law enforcement. Kurt Rhea, general manager of SECURE Energy Services on-site services division, provided a regulatory update on TENORM (technologically enhanced naturally occurring radioactive material) and discussed disposal and treatment options for it. Wes Dickhut, senior geotechnical engineer with Braun Intertec, showed how the company designs stable well site pads in difficult, remote locations, as well as how to repair them when slides occur.

Jeff Martinez, special agent in charge of the Denver office of the U.S. Environmental Protection Agency’s Criminal Enforcement Program, outlined the conditions under which the EPA pursues charges for environmental crimes. He said the program’s mission is to investigate and refer for prosecution the most significant and egregious violators of environmental laws that pose the greatest threat to human health and the environment.

The environmental impacts of oil and gas activities on groundwater are frequently in the news. Joel Galloway, associate director of the U.S. Geological Survey’s North Dakota Water Science Center, presented the results of a USGS groundwater study in the Williston Basin. Randomly sampled water from 34 wells found no indication that energy development activities affected groundwater quality in the upper Fort Union Formation, according to Galloway.

Although many conference speakers acknowledged the challenges ahead until oil prices rebound, the number of potential solutions available to improve efficiencies and lower costs—combined with the increasing level of knowledge of the Bakken formation and the evolution of technologies that will assist in capturing a larger quantity of the energy resource—the overall mood was upbeat and positive.

200

50

100 0

0

Source: Wood Mackenzie, NDIC

13

Trusted commercial intelligence COMPLETIONS © Wood MackenzieVS. PRODUCTION: Data provided by Jonathan Garrett of Wood Mackenzie shows how many wells must be completed per month to maintain current Bakken production levels.

SOURCE: WOOD MACKENZIE

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

THEBAKKEN.COM

35

INFRASTRUCTURE & CONSTRUCTION

Life Cycle of a Shale Play Developer Demand and Supply STAGE 1 Land, Cars/Trailers, Parking Lots & Man Camps

STAGE 3 Hotels & Start of Industrial Buildings

STAGE 2 Mobile Homes & Motels

STAGE 4 Multi-family

TIMELINE DEVELOPMENT: Energy Real Estate Solutions has created a timeline of shale plays to compare one play to another.

IMAGE: ENERGY REAL ESTATE SOLUTIONS

36

The BAKKEN MAGAZINE SEPTEMBER 2015

STAGE 5 Single Family & Retail

STAGE 6 Office Buildings

INFRASTRUCTURE & CONSTRUCTION

Understanding the

SHALE PLAY REAL ESTATE

Portfolio

Mike Elliott is fully aware that he could be in a different shale city every week, talking to commercial real estate clients looking to buy, sell, build or move. In 2014, Elliott founded Energy Real Estate Solutions, a unique, shale-play focused firm with headquarters in Denver. “We knew from Denver we were only a flight away from every major energy city,” he says.

In only one year, Elliott’s team has established four divisions: commercial brokerage, property management, facility management and project (construction) management. “We are really the only company that focuses on the energy sector like this,” he says. In the Bakken, ERES already holds roughly 85 percent share of the industrial market.

To understand what he has learned through his travels from Calgary to Williston to Houston, we spoke with Elliott for perspective on commercial construction and real estate in the Bakken and beyond. Elliott has insight on how oil prices will or have impacted the markets he serves, along with future opportunities, elements of the market that may surprise and how the life cycle of the modern-day shale play has evolved.

Oil price impact and trends present in the modern day shale play property landscape.

By Luke Geiver

Founded On Shale

For 25 years, Elliott has worked in the institutional real estate industry, creating lease packages, negotiating property management plans and building commercial offerings. When he started ERES after leading other major institutional real estate brands, he knew what he wanted for his approach and for his team. “People in our company have a background in real estate and the energy markets. It is hard to find people in both markets,” he says.

Before helping to start ERES, Elliott and his other founding members knew that markets like that of the Bakken or the Eagle Ford were new and for major companies it would be hard to entrench themselves there. In most cases, they didn’t have a back office to manage the area properly. “There are a lot of companies that will fly in once in a while for a specific tenant or client but they don’t have boots on the ground. We have that, we have boots on the ground in the Bakken,” he said. ERES’ physical presence in the Bakken—they have a Williston office—isn’t the only strong point that links the team to energy service clients, banks and investors looking to do business.

ERES has created and now offers investors and potential clients an understanding, or timeline, explaining the lifecycle of a shale play. “Ever since the

beginning of this recent surge in the Bakken and other markets, we have always got people who are investors or users that are asking us how one market compares to another,” he says. “We started doing some research to look at what it looked like.”

The team developed a timeline that outlines the stages of a shale play, like that of the Bakken or Eagle Ford. Recently, ERES updated its timeline, explaining to where each major U.S. shale play has arrived at. The timeline consists of six different stages, and, according to the ERES research team, each of the seven major plays in the U.S. are in different time period stages. The Bakken has just surpassed stage 4, and begun to meet the needs of those interested in multifamily housing. The play has already gone through stage one: campers, cars and mancamps; past stage two: mobile homes and hotels; through stage 3: hotels and industrial buildings, and now into stage 4.

“It has been pretty helpful to get people to understand how one shale play compares to another,” Elliott says.

The updated timeline shows where the Bakken stands in relation to other plays developed status. For investors in particular, it helps to show them how one play compares to another, especially if they understand a certain play. “If you can show investors opportunities and

THEBAKKEN.COM

37

INFRASTRUCTURE & CONSTRUCTION

IMPACT ON THE ENERGY REAL ESTATE INDUSTRY TWO SCENARIOS

Oil prices lag throughout 2015-2016

Oil prices rebound before end of 2016

Debt market not available; equity will dry up All cash required to close development deals Most private equity companies looking for opportunistic plays Significant consolidation in the energy sector Land sales come to a complete halt

Large construction projects resume Demand increases Speculative developers to return to the market Debt and equity markets bounce back Real estate world is happy

SOURCE: ENERGY REAL ESTATE SOLUTIONS

how they compare to something they are familiar with,” he says, “they get pretty excited.”

How Oil Prices Impact Shale Real Estate

Armed with the timeline tool and the data on housing vacancies, commercial lease rate averages and more, Elliott has

much to share about the Bakken’s current state in the context of low oil. “What we notice in the Bakken, or any of these shale plays, is that real estate is a lagging indicator to oil and gas prices. A lot of energy companies expect a big decrease in real estate, but the fact of the matter is there haven’t been.”

According to ERES, the lack of price

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decline stems from simple supply and demand. In the Bakken, vacancy rate for commercial industrial real estate is still below 2 percent. And, because other primary or secondary real estate markets are starting to pick back up, speculative developers once focused on the Bakken are moving back to traditional markets.

“That is keeping the leasing rates the highest in the country,” he says. Also, as mergers and acquisitions happen, many think real estate space will be freed up.

But, the ERES team says they see a surge in real estate activity when M&A activity heats up because expanded entities need expanded space.

Some elements of the industrial real estate scene have changed because of oil prices and activity slow down. Many energy companies are now outsourcing their energy real estate work. “They don’t want to play in the real estate role,” he says. They no longer want to manage, work to develop or sell existing assets.

“It’s not their core business.”

Low oil prices have decreased the demand for land as developers have left for other markets, Elliott says. Leasing terms have also decreased. Up until six months ago, lease terms were typically for 10 years. Now, they are for five years.

Land prices for commercial and residenHotels, RV Parks, Workforce Housing and Apartments tial sectors have decreased in the Bakken and the supply of zoned property is now out pacing demand, ERES data shows.

Elliott believes it could be a good time for longer-term investors to buy land, but believes there is no current incentive to overpay.

INFRASTRUCTURE & CONSTRUCTION

UPDATE! Life Cycle of a Shale Play Developer Demand and Supply

UTICA

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STAGE 3 Hotels & Start of Industrial Buildings

STAGE 2 Mobile Homes & Motels

STAGE 5 Single Family & Retail

STAGE 6 Office Buildings

STAGE 4 Multi-family

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INFRASTRUCTURE & CONSTRUCTION

On the residential real estate side, ERES believes that man camps and large scale employee housing demand is diminishing due to a shift to multi-family offerings. There could be a good buying opportunity for investors looking to purchase existing product as overbuilding may occur while vacancy may increase if oil prices continue to keep new well drilling activity stalled.

‘What we notice in the Bakken, or any of these shale plays, is that real estate is a lagging indicator to oil and gas prices. A lot of energy companies expect a big decrease in real estate, but the fact of the matter is there haven’t been.’

Mike Elliott, Managing Principal, Energy Real Estate Solutions

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The BAKKEN MAGAZINE SEPTEMBER 2015

Through its client meetings and shale play life cycle updates, Elliott says his team is trying to get people to understand that much of the mayhem once linked to the Bakken has passed. He also wants people to know that good or bad, much of the activity in the Bakken and the resulting real estate needs, is tied to oil prices. However, Elliott’s team has confidence in itself. With offices planned or under construction in Calgary and Houston, the life cycle of ERES is in need of update. “We are pretty bullish on the future,” Elliott says. “Our whole entire business is based on the energy market so we wouldn’t be doing this if we weren’t.”

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

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