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CONTENTS
MAY 2014
VOLUME 2 ISSUE 5
Pg 40 INFRASTRUCTURE & CONSTRUCTION Pg 32 EXPLORATION & PRODUCTION
The Spyglass Project Industry pioneers form American Eagle Energy to develop a unique acreage position in Divide County, N.D. BY LUKE GEIVER
THE SPYGLASS STORY: The American Eagle Energy team includes industry veterans. The team's acreage allows the team to complete wells for $3 million less than typical wells, without sacrificing production.
Career Bakken Achievement
Neil Amondson dreams up and develops the Bakken’s biggest transload facility. BY THE BAKKEN MAGAZINE STAFF
Pg 52 LOGISTICS
A Business For Truckers, By Truckers As the trucking industry evolves, Brady Trucking has discovered an operations model that will help it thrive in changing times. BY SUSANNE RETKA SCHILL
PHOTO: CHRIS KOKIAS
THEBAKKEN.COM
7
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CONTENTS
MAY 2014
VOLUME 2 ISSUE 5
Pg 60 CONSTRUCTION & INFRASTRUCTURE
3 Men And A Crane
Ross Kovach starts Rossco Crane, following industry requests, and uses his business philosophy to navigate and stay ahead of oil industry trends. BY THE BAKKEN MAGAZINE STAFF
Pg 68 PRODUCTS & TECHNOLOGY
Forward-Looking Investors
Investment perspectives from Minot, N.D., and Calgary: How the Minot team beat Wall Street, and why the Bakken’s entrepreneurial spirit is attractive to Calgary. BY LUKE GEIVER
CONTRIBUTION
DEPARTMENTS
IN PLAY
76 Hess Goes Digital
Hess Corp has contracted with a global wireless solutions provider familiar with military operations to connect all of its Bakken equipment, people and contractors BY THE BAKKEN MAGAZINE STAFF
10 Editor’s Note
What Matters Most? BY LUKE GEIVER
14 ND Petroleum Council
Q&A On The 2014 Williston Basin Petroleum Conference ANSWERS BY THE NORTH DAKOTA PETROLEUM COUNCIL
16 Events Calendar
Bakken News and Trends
20 Bakken News
Bakken News and Trends
78 Classification of Crude Oil Transported by Rail From Shale Plays
Interek, a national third-party tester, speaks on the characteristics of Bakken crude shipped by rail. BY SCOTT BLAKELY AND KESAVALU BAGAWANDOSS
80 Why Back The Bakken?
The numbers that show why the Bakken is a boon to all. BY ROB LINDBERG
THEBAKKEN.COM
9
EDITOR'S NOTE
What Matters Most? Everyone says that in the Bakken, relationships matter, that the human element is often as crucial to forming a joint venture or developing a large-scale project as the geological location of a well is to an operator. After eating lunch with a group of local Luke Geiver
Editor The Bakken magazine lgeiver@bbiinternational.com
For the Latest Industry News:
www.TheBakken.com Follow us: twitter.com/thebakkenmag facebook.com/TheBakkenMag 10
land men, ranchers and major Bakken transload developers at Hotel Albert in Fairview, Mont., on a windy April day, I would argue in favor of the power of the face-to-face meeting in making a Bakken deal happen. I was at the hotel with Neil Amondson, the transload developer, to learn about the process he has undertaken to develop a new Bakken rail and logistics hub on the North Dakota-Montana border. As Amondson and the others sat at a high-top table joking and laughing about topics completely unrelated to oil and gas or the role each had played in helping him acquire land for the facility on the outskirts of Fairview, it was clear that knowing the people behind the impressive numbers of the Bakken is as important as knowing the numbers themselves. For this month’s issue, we have compiled several stories that highlight the important role of the person in the project. In “The Spyglass Project,” we cover the rise of a Denver-based exploration and production team, American Eagle Energy, whose core acreage is located in Divide County, N.D. Investors have been taking notice of this small operator because of the low well costs its team has been able to reach, and they are drawn to the people who make up the American Eagle Energy Team, according to Marty Beskow, vice president of capital markets. After spending a morning speaking with Beskow, Brad Colby, president, and Tom Lantz, chief operations officer, I have to agree with Beskow: the people are amazing, especially Lantz. How could anyone not be fascinated listening to one of the original members of the Halliburton team that fracked the first Bakken wells in the ElmCoulee field? Ross Kovach, a lifelong crane enthusiast and owner of a Minot-based crane service, is also someone who, once you meet, you’ll never forget. To help explain how changes in the Bakken impact nearly every segment of the industry, we toured Kovach’s facility and drank a pitcher of coffee with him and his executive team. Kovach’s is a story of adaptation and it epitomizes how change has and will impact the service providers who work with operators. Kovach and company are now positioned to service nearly any type of heavy equipment-moving need that arises. For investors trying to understand how to capitalize on change in the Bakken, the story “Forward-Looking Investors,” offers perspectives of two different investment entities that have found success in the play. Mike Morey of Integrity Viking Funds has helped his portfolio management team beat Wall Street and the rest of the U.S. in energy-based mutual funds for the past three years. The team did so by picking Bakken-based companies for the Williston Basin Fund, but as Morey notes, a company’s valuation on paper doesn’t tell the whole story. With this issue’s theme of pipelines, rail and trucking, the stories on the proposed transloader complex and a trucker-owned and operated firm allowed us to highlight some important transportation issues in the Bakken. And while these stories are not intentionally linked to that human element of the Bakken––the kind you would see at lunch with the local land men and ranchers, or you could feel when Lantz talks about the early days of the Bakken and how he applies lessons learned then to operations of today––understanding these folks offers a glimpse into how the Bakken is working today, and will in the future. And, it’s safe to say that we should never forget that in the Bakken, relationships matter.
The BAKKEN MAGAZINE MAY 2014
www.THEBAKKEN.com VOLUME 2 ISSUE 5
ADVERTISER INDEX
EDITORIAL Editor Luke Geiver lgeiver@bbiinternational.com Senior Editor Sue Retka-Schill sretkaschill@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 Business Development Manager Bob Brown bbrown@bbiinternational.com Account Manager Tami Pearson tpearson@bbiinternational.com Marketing Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com
72 AE2S
Art Director Jaci Satterlund jsatterlund@bbiinternational.com
Subscriptions Subscriptions to The Bakken magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States. To subscribe, visit www.TheBakken.com or you can send your mailing address and payment (checks made out to BBI International) to: The Bakken magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising The Bakken magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about The Bakken magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to The Bakken magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgeiver@bbiinternational.com.
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Williston Experience The Brooks Difference
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The BAKKEN MAGAZINE MAY 2014
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THEBAKKEN.COM HIS IS AN ADVERTISEMENT
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NORTH DAKOTA PETROLEUM COUNCIL
THE MESSAGE
BAKKE NST R OG N
Q&A
10 Questions on the
2014 Williston Basin Petroleum Conference
Answers from the NDPC staff
1. What is the history of the Williston Basin Petroleum Conference? The Williston Basin Petroleum Conference was started in 1992 by the Government of Saskatchewan, North Dakota Department of Mineral Resources and the North Dakota Petroleum Council. The conference had the same goal that it has today: to provide an opportunity for local, national, and international industry to gather and exchange new ideas, concepts, and technology to better serve the energy demands of our citizens. The conference alternates locations each year between Saskatchewan and North Dakota. The conference has grown substantially over the past 10 years as the Bakken and 14
Three Forks located within the Williston Basin have become recognized as a world-class resource. When the conference was held in Bismarck in 2012, it went down in history as the largest event to be hosted in the Bismarck-Mandan region, with 4,100 registrants from 47 states, seven provinces and nine countries. This year, we anticipate the conference to be even bigger.
2. What does the WBPC mean to the broader oil and gas industry, and on a more localized level, North Dakota, Montana and Saskatchewan? Technology is what has
The BAKKEN MAGAZINE MAY 2014
unlocked the Bakken and Three Forks formations, leading the way for an energy renaissance not only in North Dakota, but in tight oil plays throughout the United States. Since 2003, when the Bakken shale play initially began in eastern Montana and when the Bakken took off in North Dakota in 2006, all eyes have been on the Williston Basin to see how we are advancing technologies and efficiencies and handling impacts. North Dakota is the model of a modern, efficient, technology-driven oilfield that has changed the way we develop our energy resources in our nation. In this way, the WBPC helps highlight the Williston Basin, as well as North Dakota, Montana, Saskatchewan and Manitoba as national and
world leaders in safe, secure and stable energy production.
3. How will the 2014 event differ from the previous year? This year’s conference will be the biggest yet, featuring more than 500 exhibit booths in the Bismarck Civic Center’s newly expanded exhibition hall. We have a fantastic line-up of speakers, including renowned political commentator Sean Hannity and CEOs of five major companies active in the Bakken, including Harold Hamm of Continental Resources, Tommy Nusz of Oasis Petroleum, Matt Rose of BNSF Railways, Lee Tillman of Marathon Oil and Jim Volker of Whiting Petroleum.
NORTH DAKOTA PETROLEUM COUNCIL
In addition, more than 70 other speakers will address the latest technologies, efficiencies and impacts in the Williston Basin. New to this year will also be the Public Education Sessions. In 2012, members of the general public were very interested in the WBPC and learning more about the industry, so we decided to host two free educational session so they can learn more about oil and gas development, how it’s done in North Dakota, and how it impacts their daily lives. For the second time, we will also hold a seminar for area fourth graders. The program, Oil Can Power Kids’ Futures, will include interactive lessons about the oil and gas industry and a tour of the outdoor exhibits, which will include a pumping unit and a workover rig.
4. As the industry progresses, so do the topics and main discussions. During the 2014 WBPC, what will be the most important topics? Only six to eight barrels of every 100 barrels of oil that are in the Bakken are being recovered using current technology, so a hot topic continues to be optimization and recovering more of the resource in the Bakken and Three Forks Formations. Pipeline and rail infrastructure also continue to be important topics, and the study on Bakken crude qualities will also be of great interest to many attendees. And finally, many are interested in what the future has in store for the Bakken and will be paying close attention to our CEOs.
5. Why has the WBPC undergone such tremendous growth? The Bakken has become known across the nation and around the world as a world-class resource. Many of those operating here are pioneers of a new era for oil and gas development, and other states and nations with potential for developing shale resources look to North Dakota as an example. The WBPC highlights much of what is happening in the Bakken, which makes it a great event for investors, entrepreneurs, government leaders and others who are looking to capitalize on the opportunities available here or in other plays throughout the world.
6. How does the WBPC help the North Dakota Petroleum Council achieve any of its goals? The WBPC continues to be one of the premier conferences on oil and gas development for the Williston Basin, and more specifically, the Bakken. With more than 500 exhibit booths and a slate of well-known and knowledgeable speakers, the conference provides tremendous value to our members in terms of education and networking. The conference also helps the NDPC learn more about the industry and our members so we can continue to work with them and maintain a sound regulatory environment for the industry.
7. The event brings together an incredible range of exhibitors and attendees. What do you hope the exhibitors and the attendees take away from this year’s show?
We hope our exhibitors and attendees can walk away with a better understanding of the latest advancements in oil recovery in the Bakken and the challenges faced. Many of the attendees and exhibitors are entrepreneurs and businesses who are looking to capitalize on the many opportunities we have available, and we look forward to seeing them in two years presenting on or exhibiting their own technologies and solutions to make the Bakken even more efficient and sustainable in the future.
coming to the conference speaks to the importance of the Bakken in terms of domestic energy production, economic impacts and job creation, which has put the Williston Basin in the national and international spotlight. The CEOs will also attract a large audience. They are, after all, the leaders who will help determine the future of energy development in North Dakota. Many are interested in gaining insight on what these leaders and their respective companies have in store in the coming years.
8. For the NDPC specifically, what will the 2014 message to the audience be?
10. The 2014 WBPC will be the best ever in the history of the event. What will it take to make the next North Dakota event even better?
The Williston Basin continues to be a huge economic engine for our state and nation. Never before has North Dakota played such an integral role in our nation’s energy security and energy recovery. The world’s eyes are on us, and we must continue to develop our energy resources responsibly while minimizing impacts to our lands and environment.
The conference will move to Regina, Saskatchewan, Canada, next year, and the Government of Saskatchewan Ministry of the Economy always does a fantastic job in organizing that conference. The NDPC will host the event again in 2016. As the Bakken continues to mature, 2016 will bring new challenges and new ideas to the 9. The 2014 WBPC agenda includes several table. Although we have not yet big name speakers. selected the venue for 2016, we What are the mustare confident the success of the attend sessions and WBPC has resulted in a creation of why? The event will also a “must not miss” event that will offer some impressive continue to draw large audiences exhibits. What do we as the intrigue and opportunities in need to check out? the Williston Basin evolve. Thank The WBPC is designed to you, Bismarck, for doing such a have something for everyone, fantastic job of hosting the 2014 from the engineers and geologists WBPC. to investors to government affairs Answers by: representatives, so it’s difficult North Dakota Petroleum Council 701-223-6380 to single out any session; there truly is something for everyone. Sean Hannity will no doubt be a huge draw, and the fact that he is
THEBAKKEN.COM
15
EVENTS CALENDAR
January 12-14, 2015
Alerus Center | Grand Forks, ND In collaboration with
and
Bakken Technologies and Efficiencies Are Reshaping the Global Shale Oil Landscape
JAN 12
During the course of three days, attendees of The Bakken-Three Forks Shale Oil Innovation Conference & Expo will hear from 120+ industry experts about how new technologies, innovations and approaches are yielding greater efficiencies in the Bakken-Three Forks formations—and why upstream and downstream advancements in the Williston Basin are impacting shale oil E&P and logistics globally.
The Bakken magazine will be distributed at the following events: 2014 Williston Basin Petroleum Conference May 20-22, 2014 Bismarck, North Dakota
Issue: May 2014 - The Bakken magazine
Bakken & Three Forks Completions & Well Spacing
With a focus on improvements in oil recovery and transport arising out of North America’s most prolific shale oil play, The Bakken-Three Forks Shale Oil Innovation Conference & Expo will showcase the techniques, strategies and technological know-how accelerating the retrieval and movement of remote Williston Basin crude oil from resource to refinement.
May 28-29, 2014 Denver, Colorado
In addition to attendees learning from highly qualified presenters, exhibitors will have the ability to share their latest technologies and services with industry decisionmakers who are looking for solutions to the challenges they face in one of the most extreme climates. More importantly, these solutions are not just limited to the Bakken play—they are critical to the success of oil recovery from every shale formation across the globe.
July 16-17, 2014 Denver, Colorado
The Bakken-Three Forks Shale Oil Innovation Conference & Expo is the nation’s premier event featuring innovations that are driving new efficiencies and the profitability of oil recovered from shale formations.
Issue: August 2014 - The Bakken magazine
Issue: May 2014 - The Bakken magazine
Bakken Artificial Lift & Production Optimization 2014 Issue: July 2014 - The Bakken magazine
Unconventional Resources Technology Conference August 25-27, 2014 Denver, Colorado
NDPC Annual Meeting September 24-25, 2014 Dickinson, North Dakota
Issue: September 2014 - The Bakken magazine
16
The BAKKEN MAGAZINE MAY 2014
THEBAKKEN.COM
17
EPA APPROVED
The Issue Are you in compliance with the new EPA regulations effective April 2014? EPA’S AIR RULES FOR THE OIL & NATURAL GAS INDUSTRY Storage tanks used in oil or natural gas production are subject to EPA’s 2012 New Source Performance Standards (NSPS) for VOCs if they have the potential to emit six or more tons of VOCs a year. This legislation (40 CFR 60 Subpart 0000, “Quad 0”) affects existing older tank batteries built as far back as of August 2011. Additionally, all recently installed tanks that come online after April 2013 will have to have controls (VRU or combustor), to reduce tank VOC emissions by 95 percent and in place by April 15, 2014 or within 60 days after startup, whichever is later
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The BAKKEN MAGAZINE MAY 2014
The Solution MISSION™ Enclosed Vapor Combustors: MEVC NOV Mission introduces a full line of reliable enclosed combustors for the ever changing requirements of today’s regulation filled oil and gas industry. Mission’s MEVC design incorporates years of tank vapor experience with a highly effective combustor design— tested and EPA approved “99% plus” for destruction of vent emissions from oil and condensate tank batteries, loading operations and storage facilities. NOV Mission’s stainless steel enclosed flare design is capable of meeting strict environmental industry regulations while also offering significant cost savings. Scalable to customer application, this combustor is field-proven throughout the world. For more information visit: www.nov.com/tb/mission
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BAKKEN NEWS
BAKKEN NEWS & TRENDS
The Light Bulb. Flight. The Internet. Horizontal Drilling. The Operator Mantra Forget hydraulic fracturing or boomtowns, the story of the Bakken is about something completely different. Although fracking technology and the economic boon in the Williston Basin are often cited as the reasons the Bakken has become globally recognized, the Bakken’s best-known operator has another perspective. Harold Hamm, CEO of Continental Resources Inc., speaking at the DUG Bakken and Niobrara conference earlier this year, told the crowd that “we [operators] have changed the world.” The change, he said, has come through the advent of 20
horizontal drilling, not hydraulic fracturing—a practice in use for many years. Hamm even urged other operators to work together to tell that story of horizontal drilling and its impact on shale energy development. The entire Continental Resources team believes in the importance of telling the story of horizontal drilling. At an economic development event early this year, Blu Hulsey, vice president of government and regulatory affairs, provided a keynote address to a Minot, N.D.-crowd that included the same message as Hamm’s. “That [horizontal drilling]
The BAKKEN MAGAZINE MAY 2014
story is not being told,” he said, “about our ability to drill sideways.” The importance of horizontal drilling can be explained through a chronologic look at some of the world’s greatest technologic advancements, according to Hamm, or through a billboard. Continental Resources has created billboards displaying four lines of text as follows: The Light Bulb. Flight. The Internet. Horizontal Drilling. If the true importance of developing the shale energy industry—and telling the right story—is the main thing opera-
tors like Hamm are working to do, then answering the longevity question is second. During the same event that Hamm spoke at, Taylor Reid, CEO of Oasis Petroleum Inc., explained that he is constantly asked how long oil production and development will continue in the Williston Basin. For Reid, the easiest way to answer is with a baseball analogy. The Bakken “is still in the early innings,” he tells them. And, for Oasis, he usually says, it appears the game is just getting good.
BAKKEN NEWS
Triangle Petroleum Anticipates Historic Q2 After Harsh Winter Harsh winter weather in North Dakota wasn’t enough to keep John Samuels, president and CEO of Triangle Petroleum, from showing optimism about the second quarter. During the company’s fiscal year 2014 conference call, Samuels said that the second quarter will be the greatest in company history. For most companies in the Williston Basin, the first quarter of the year was tough, but even with harsh weather in February, there were still signs of progress. From January to February, oil production increased by 16,000 barrels of oil per day in North Dakota. The drilling rig count did not change, but well completions increased to 70 for the month of February, a jump of 10 over the previous month. Days from spud to initial completion also decreased to 114 in February, according to the N.D. Department of Mineral Resources. Samuels and his team have several reasons to be optimistic about the spring and summer. Triangle has found a successful way to downspace wells into the Middle Bakken at 600-foot spacing. The spacing will allow the Denver-based exploration and production company to drill eight wells per drilling spacing unit in the future. The infill practice has also increased production. Its infill program will not rob reserves that would
Budget Allocation for FY2015 SOURCE: TRIANGLE PETROLEUM CORPORATION
E&P Operated Drilling Program (~71%) E&P No-Operated Drilling Program (~9%) Station Prospect (~2%) E&P Land Spend (~10%) RockPile (~4%) Infrastructure and Other (~5%)
(ENDED JANUARY 31, 2015)
otherwise be produced in nearby wells, the company said. Like many operators, the company has adopted using cemented liners for well completions. Along with a hybrid fracture design that utilizes a slickwater tail, production results using cemented liners have resulted in a 30 to 40 percent increase over wells completed using non-cemented liners. The use of slickwater has helped save up to $400,000 per well. The company is operating four drilling rigs and the rig teams are executing with impressive results. This year, two wells were completed in 12 days and 14 days, both records for the company. In addition to a new infill drilling program that will use cemented liners and a hybrid fracture design, Triangle’s
other entities are set for a great year ahead. RockPile Energy Services has a backlog of 15 wells waiting to be completed, including eight third-party wells. The company, owned by Triangle, also brought on a third pressure pumping spread that is already booked for the next two months.
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BAKKEN NEWS
TrainND’s Future Facility Geared TowardOil Industry Needs Statoil and Steel Energy Services Ltd. have donated $150,000 each to an oilfield safety program affiliated with TrainND, a workforce training system developed by the state legislature in 1999. The money will go towards the TrainND-Northwest Center in Williston, N.D., a proposed 19,740 square foot regional workforce training and education center. The facility will provide training space and classes for the oil and gas industry, along with other industry-specific programs. For any company looking to train current or future employees on safety protocols or ensure that employees are verified with certain safety courses, TrainND’s Williston location will provide documentation of training to its participating companies through employee transcripts, safety
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passport books, safety training cards, certifications and STATOIL INVESTS IN SAFETY: Statoil is one of two that have donated $150,000 to the TrainND-Northwest Facility. more, according PHOTO: EVA SLEIRE, STATOIL ASA to TrainND. If a business is audited the growth and diversification of CEO of Steel Energy Services. or a copy is need to “We fully understand the imverify past records, TrainND can North Dakota’s economy,” said Torstein Hole, head of Statoil’s portance of having professionally provide documentation. U.S. onshore group. trained employees,” said Steward “We are proud to have a The oil industry has already Peterson, Steel’s vice president contribution of this magnitude shown great interest in the of northern operations. “We are from a company that prioritizes facility. Board members on the happy to support our commuour safety first mantra and is TrainND-Northwest Center innity, especially as the economy very active in the community,” clude members from Halliburton, expands and the demand for adsaid Deanette Piesik, CEO of Hess Corp., Black Hawk Energy ditional workers increases.” the non-profit TrainND, when Services, SM Energy, Oasis PetroTrainND started providing the donation by Statoil was anleum Inc., Marathon Oil Co., and safety training classes in Williston nounced. several others. at Williston State College, but has “Statoil is very excited and “We are pleased to support since progressed into technical proud to be a part of helping to this important project as part of programs. The program has been bring this new training facility our commitment to fostering a given $2 million worth of oilfield to life. This center will enable well-trained workforce in the Wil- equipment to aid in training. current and future generations liston Basin,” said John Quicke, to gain skills in areas critical to
The BAKKEN MAGAZINE MAY 2014
Worthington Acquires Bakken Tank Manufacturer Worthington Industries Inc. wanted to expand its presence from the Utica and Marcellus shale plays. The company already has tank manufacturing facilities in Ohio and Kansas, and now through the acquisition of Dickinson, N.D.-based tank manufacturing division of Steffes Corp., Worthington will have access to the Bakken. According to Dave Cline, director of energy sales for Worthington, the acquisition was made for many reasons. “We are acquiring the people and culture of Steffes,” Cline said, “that is almost as important as the business.” Worthington has acquired
other energy related operations since 2012, and the company’s entry into the Bakken was a natural fit, Cline said. The Steffes facility currently employs 35 and builds 100- to 500-barrel capacity steel tanks used for oil and saltwater storage. Worthington will operate the tank manufacturing facility but will continue to work with Steffes. The company intends to expand the facility and to look for new opportunities, Cline said. The Steffes name, and location in the Bakken, gave Worthington a northern footprint in a place that is set for long-term growth, he added.
EMPLOYEES INCLUDED: Worthington Industries Inc. purchased the tank division of Steffes in part due to the existing worker base compiled by Steffes. PHOTO: WORTHINGTON INDUSTRIES INC.
In 2013, the tank manufacturing business generated $25 million in revenue. The terms of the acquisition were not disclosed. The division was started in 2007. The acquisition of the tank division will now give Worthington service offerings that include fiberglass storage tanks, gas separators, gas production units and wellhead equipment. “We are committed to
North Dakota in many ways,” Cline said. Initially, the North Dakota facility will mainly focus on providing oil storage tanks. As for the purchase of the Steffes tank manufacturing division, Cline said the company didn’t want to just build a building. The company also understood the importance of human capital.
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BAKKEN NEWS
Rail Veterans Form Bakken Mobile Repair Service
MOBILE REPAIR: Freedom Railcar Solutions will soon be adding another piece of equipment to the scene pictured here in the Williston Basin. A mobile repair unit will be able to work on rail cars, a process that could drastically cut the average service time of 90 days.
When railcars are sent to full service repair shops, time out of service can average 90 days, according to Freedom Railcar Solutions LLC, a new railcar repair and service provider formed by rail industry veterans. Because most third-party repair shops are located out-ofstate and do not provide mobile services, Freedom Railcar Solutions is looking to serve the Bakken. The company will provide a mobile repair unit for railcars in North Dakota and Wyoming, starting July 1. The services included in the mobile repair units will include the repair and replacement of vacuum relief valves, manway lids and eyebolts, load valves, bottom outlet valve handles, brake parts, stencils, AEI tags and safety appliances. The company’s leadership is well-versed in the rail industry. Kevin Goins, president, has 20 years
in the rail and transload industry, including extensive work in rail repair. As the president of Strobel Starostka Transfer, a national transload facility operator that has a large presence in the Bakken, Goins also brings an extensive understanding of the Bakken to the railcar repair business. Goins will be joined by Don Walsh, vice president of business development. Walsh helped add mobile repair services to Transco Railway Products Inc. in Iowa and Montana operations. “We formed Freedom Railcar to address the increasing demand for dependable, high-quality railcar services in the Bakken and other rapidly emerging crude-by-rail markets. We are a next-generation company,” Goins said. “We expect to expand our area of operations and offer additional services.”
PHOTO: OVERLAND AERIAL PHOTOGRAPHY
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The BAKKEN MAGAZINE MAY 2014
BAKKEN NEWS
Third-Party Testing To Verify Bakken Crude The 2014 Williston Basin Petroleum Conference will provide insight on the quality of Bakken crude. The North Dakota Petroleum Council has contracted with Dallas, Texasbased engineering and management consulting firm, Turner, Mason & Co. to perform a study on the quality of Bakken crude. To complete the study, the company will collect several samples of crude from 12 locations within the Williston Basin, including six rail depots in the region. The results of the multi-week collection efforts
will be discussed at the 2014 WBPC. Kari Cutting, vice president for the NDPC, said that Bakken crude is comparable to other light sweet crudes according to the most recent data available. “But we know that some have questioned whether it is somehow different,” she said. “This study will provide a thorough third-party analysis to help regulators and industry determine the facts so we can make decisions based on sound science.” The results of the study will be combined with proprietary data supplied to the U.S. Pipeline and Hazard-
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DESIGN/BUILD
Shale Crude vs Displaced Light Imports Property
Bakken
Eagle Ford
Eagle Ford Cond.
Brent
Bonny Light
API Gravity
41
45
56
39
34
Sulfer, wt%
0.20
0.20
0.15
0.35
0.24
Lt. Ends C1-C4
3.5
3.8
6.6
3.5
1.3
Naphtha
35.7
40.1
56.7
24.1
20.3
Middle Distillates
30.9
29.7
28.6
35.3
45.5
Gas Oil
24.8
21.2
7.6
27.0
27.4
Vacuum Residue
5.2
5.2
0.5
10.1
5.24
Distillation Yield, volume %
SOURCE: TURNER, MASON & COMPANY
ous Materials Safety Administration from several companies that produce or handle Bakken crude. At the time of the thirdparty testing announcement, the American Petroleum Institute had issued a release in regarding claims that crude handling companies were not supplying
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the U.S. Department of Transportation with information on Bakken crude. “We don’t know who the anonymous source is at DOT now saying otherwise, but we do know that their accusation is completely untrue,” the API said.
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BAKKEN NEWS
ND’s EERC Partners With Hitachi To Study Unknowns, Guide Discoveries The Energy & Environmental Research Center at the University of North Dakota has already worked with some of the Bakken’s biggest operators and now the EERC is set to work with a global force. Hitachi America and the research entity are partnering to develop technologydriven products, services and solutions for increasing production in the Bakken. The two entities will mainly focus on developing analytical data tools for the oil and
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gas industry. The analytical tools will be suited for oilfield operators and state officials to better understand the relationship between a well’s production and a variety of other factors, ranging from how the well was drilled to the geology of an area. The data will help with current and future wells, Hitachi believes. John Harju, a noted Bakken expert and associate director of research at the EERC, said that there is much about the Bakken that
The BAKKEN MAGAZINE MAY 2014
remains unknown. “We will be able to shed light on these unknowns and help guide the next round of discovery,” he said of the Hitachi partnership. “The collaboration with EERC compliments our inhouse strengths in big-data analytics with deep domainrelated expertise in shale oil and gas production. Such collaborations will prove to be instrumental for the success of our IT X OT Convergence program,” said Umeshwar
Dayal, vice president for the Big Data Research Lab of Hitachi American. The EERC is currently involved in several Bakkenrelated projects, including work to analyze the Three Forks formation, identify best practices for production and use CO2 for enhanced oil recovery.
BAKKEN NEWS
Mistral Midstream Chooses Modular Technology for NGL Recovery Mistral Midstream Inc. has chosen a modular UOP LLC technology to recover natural gas liquids (NGLs) from Bakken-based natural gas streams. The modular, cryogenic equipment is specifically suited to remove ethane from natural gas streams. In September 2013, Mistral Midstream announced its plans to join with SaskEnergy on a straddle plant situated alongside SaskEnergy’s natural gas pipeline system near Viewfield, Saskatchewan. The plant is located in an area
of the province that requires NGLs to be removed from a gas stream before it can be delivered to homes and businesses. The UOP technology is capable of processing 60 million cubic feet of natural gas per day through the use of cryogenic, mechanical refrigeration and adsorption systems designed to remove heavy hydrocarbons present in the gas stream while also controlling the dew point of the gas. Although the UOP technology
can be used with fractionators to produce propane or butane, the Mistral Midstream project is focused on producing ethane, a highly sought-after building block of ethylene. “This project with Mistral showcases UOP’s ability to work in the northern Bakken basin, especially as shale gas, remote gas and distributed gas play a more vital role in the global energy economy,” said Rebecca Liebert, UOP’s senior vice president and general manager for gas processing and
hydrogen. Mistral chose the modular technology, in part, Liebert said, to help speed up the time needed to bring the facility online while reducing overall capital costs of the $72.5 million facility expected to be online in 2015. Mistral Midstream is also working to complete the Vantage Pipeline, a high-vapor pressure pipeline designed to move ethane sourced from Tioga, N.D., to Empress, Alberta, Canada.
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EXPLORATION & PRODUCTION
THE SPYGLASS PROJECT
How American Eagle Energy developed a Bakken and Three Forks sweetspot By Luke Geiver Photos by Chris Kokias
American Eagle Energy Corp. doesn’t want to keep the Spyglass Project a secret. The Denver-based exploration and production company actually wants just the opposite for its Williston Basin acreage. “We have worked hard in the last year or two to get the story out that it [Spyglass] is a reasonable and economic area,” says Tom Lantz, chief operating officer for American Eagle Energy. Considering the unique geology and financial appeal of the Spyglass area, it may seem hard to believe that Lantz and the rest of the American Eagle Energy management team would have difficulties convincing investors and industry players about the potential of Spyglass. The acreage area features a well-defined geology offering operators excellent potential in the Three Forks formation as well as the
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The BAKKEN MAGAZINE MAY 2014
EXPLORATION & PRODUCTION
THE TEAM: Tom Lantz, chief operations officer, Brad Colby, president, and Marty Beskow, chief development officer, leverage their experience in the Williston Basin to make the Spyglass Project a noteworthy development outside of the core of the Bakken.
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EXPLORATION & PRODUCTION
PRODUCTION NUMBERS: Wells drilled in the Spyglass project produce at rates equivalent to good wells in the Williston Basin, but the costs per well are typically $3 million less due to the unique geology. The operator expects to exceed 3,000 barrels of oil per day of production by the end of the year.
'Once we realized that both the shale’s were mature, we realized there was a sweetspot there. We think we can grow production to north of 3,000 barrels per day by the end of 2014.' Brad Colby President and CEO of American Eagle Energy Corp.
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The BAKKEN MAGAZINE MAY 2014
Middle Bakken. Both the Bakken and the top two benches of the Three Forks in the Spyglass area are present at depths of only 8,000 feet. The shallower formation depths allow operators in the area to drill wells faster and complete them at a lower cost compared to most other wells in the Williston Basin drilled and completed at depths closer to 10,000 feet to as much as 11,000 feet. The production numbers from wells in the Spyglass may not be equal to the best of the basin, and are as good or better than most wells economic returns. But, there is a
catch: the Spyglass Project is not located in what has traditionally been considered the core of the Williston Basin in one of the top four oil producing N.D. counties—McKenzie, Dunn, Mountrail or Williams. The Spyglass area is in northwestern Divide County. For a company whose pitch to investors is pinned to the merits of the Spyglass area, the path to company growth has not been simple, says Brad Colby, president and CEO. “We had to convince folks. It has not been an easy job to tell people that Divide County is a good place to be,” he says.
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EXPLORATION & PRODUCTION
Although Colby, Lantz and the rest of the team might argue that the story, or the main pitch, of American Eagle Energy is about a specific geographic region on the border of North Dakota and Saskatchewan, the full story of the veteran-laden team has to include the people developing the place. Those people are a microcosm of the way the Williston Basin has, and will be, developed.
Making Believers
UNITED BY EXPERIENCE: To form the American Eagle Energy team, Colby brought together several industry veterans, "real-honest to goodness pioneers," he says.
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The BAKKEN MAGAZINE MAY 2014
Tom Lantz has spent the last 14 years of his career in the Williston Basin working to make people believe. In 2001,
Lantz was the team leader at Halliburton's Integrated Solutions Group, working in the Elm Coulee field in Montana to prove out the concept of hydraulic fracturing on fewer than 12 horizontal wells. “As an industry, we knew you might be able to make gas work, but it was sort of conventional wisdom at the time that you couldn’t economically produce oil out of that shale rock,” Lantz says. “You can imagine that when we started trying a few of these things [hydraulic fracturing and horizontal drilling] the kickback we got.” The kickback and industry skepticism is a natural part of
EXPLORATION & PRODUCTION
developing an oilfield, Lantz says. “It is representative of how the industry works and behaves.” During the early days in the Elm Coulee field when well completion costs seemed uneconomical, Lantz learned how to maintain his confidence in the process of horizontal drilling and hydraulic fracturing. “We would bring the wells on and they would come off really hard, but to everybody’s credit, there was a certain amount of willingness to stick with it and tweak the process,” he says. At the end of 2001, wells that had been on production for six to nine months were
ere Wh
showing reasonable production rates. During that time, the investors and the companies involved were nervous, he says. Before that time, the wells would show high initial production rates but fall off considerably. Although Lantz doesn’t point to a single moment when he, or his many team members from Halliburton or Lyco, knew the process they were tweaking was a success, he does recall a memorable moment. The group working on the wells would hold technical committee meetings. During a meeting at the end of 2001, Lantz explains, “I lightheart-
edly said at the beginning of a meeting that we might have a billion barrel oilfield. We had about six wells producing so we didn’t have the information to really prove that statement, but the comment turned out to be true and, if anything, it was conservative.” Lantz’s work in developing the first successful wells in the Williston Basin has enhanced his ability to withstand the pressure of industry skeptics. It’s also provided American Eagle Energy with a team member capable of comprehending an oilfield opportunity outside the traditional core acreage area of the play.
Something To Believe In The majority of American Eagle Energy’s current team has been involved with the Bakken since its breakout days in the early 2000s, but didn’t officially unite until 2011. In 2006, Brad Colby, then president of Eternal Energy Corp., led a deal for acreage in Saskatchewan that extended into Divide County. The Canadian acreage was eventually sold in 2010 to Crescent Point Energy for roughly $100 million; acreage that today is most likely worth $1 billion. Although Colby let the Canadian acreage go, he learned about a potential sweetspot along the U.S.-
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EXPLORATION & PRODUCTION
'You are seeing a consistency there that is starting to gain traction with a lot of the investment world' Tom Lantz Chief operating officer for American Eagle Energy
Canada border. The well helped prove the geology, and according to Colby, offered the epiphany moment when he and the other industry veterans working with Colby knew the area was special. “In those days, there was a lot of the industry, including us, that thought a lot of the shallower shale in Divide weren’t thermally mature so you might be dealing with a different kind of play. It was thought the oil might be migrated, and you would have to work harder and think harder to get it,” Colby says. “When we took that core from the well on the border we realized that the wells would definitely be in the oil generation window.” Colby’s team even proved the assumption through a vertical test that yielded 50 barrels of oil per day. Colby’s discovery, combined with the results from the vertical test, led him along with Lantz and industry veteran geologist Richard Finley, the former owners of American Eagle Energy Inc. to combine. In 2011, Colby’s company merged with Lantz and Finley’s. “In early 2012, we had about four employees, 150 bopd to our name, a little bit of capital and 4,000 to 5,000 net acres in Divide County.”
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The BAKKEN MAGAZINE MAY 2014
Since the formation of American Eagle Energy Corp., Colby and the rest of the team have increased production to 1,900 bopd, employee count to 25 and the acreage position in the area to roughly 45,000 net acres. In two years, the company has drilled 43 wells. “Once we realized that both the shale’s were mature, we realized there was a sweetspot there.” The team is currently running a two-rig drilling program to drill 14 net wells in 2014. “We think we can grow production to north of 3,000 barrels per day by the end of 2014” Colby says.
Sweetspot Proof When Lantz and the Halliburton team were completing wells in the Elm Coulee Field in 2001, well costs were roughly $2.5 million to $3.5 million. Lantz laughs when he talks about the “unheard of sized frack jobs,” used then that amounted to roughly 300,000 pounds of proppant per well in only a few fractures per well. “They were huge then, but comically small in today’s world.” Although American Eagle Energy is completing wells in the Spyglass area today at a higher price point than the early wells
EXPLORATION & PRODUCTION
THE PITCHMAN: Marty Beskow is working to spread the word about the company's unique geology and of the experience of the team to investors who are more focused on the core of the Bakken.
Lantz worked on—approximately $6 million—the wells are still much cheaper than most in the basin. According to Lantz, the shallower depth of the Spyglass is the key component to the whole thing. The area presents both the Middle Bakken and the upper two benches Three Forks at depths of 8,000 feet, compared to depths in the 10,000 to 11,000 foot range in other parts of the basin. “It doesn’t do you any good to drill cheap wells if they are poor wells,” Lantz says. Results from producing wells reveal that American Eagle Energy has nothing to worry about. Wells in the project area show an estimated ultimate recovery of 450,000 barrels of oil equivalent. The internal rate of return on the wells is almost 50 percent and the payback period for each well is 1 to 2 years. The rock in the Spyglass area is actually better than most in the basin, according to Lantz, and it is normally pressured compared to other parts of the basin that are over pressured and have tighter rock and lower porosity that require higher volumes of proppant to keep the fractures open and the wells flowing. The shallower depths allow the drilling process to be quicker and cheaper,
FROM THE START: Tom Lantz worked on the first Bakken wells in Montana. His time working with Lycos Energy and Halliburton has helped him understand how the Bakken has been, and will be developed.
but more importantly, Colby says, it is much cheaper to complete the wells. “We have always been using sand proppant instead of the more expensive ceramics. And, with the better quality reservoir, we complete our wells with stage fracks ranging from 30 to 40 stages. We do so with 2.5 million pounds of proppant compared to most of the basin’s wells that are currently using 4 to 5 million pounds.” The combination of the lower completion costs and the quicker drilling times lead to the cheaper well costs. The lower costs for wells that offer 450 million barrels of oil equivalent estimated ultimate recovery is the reason Lantz, Colby and Marty Beskow have been working hard to tell the story of American Eagle Energy to those looking for investment opportunities in the core of the Bakken. “We have a very experienced management team that has been in the Williston Basin for many years,” Beskow says. “The area that we are in, as more wells are being developed in Divide County, people are learning that the types of wells we have are a little different and that not everything is equal and not all locations are alike. But, we can still develop strong
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EXPLORATION & PRODUCTION
results and well economics,” he says. “Shareholders can benefit from that.” “When you are starting with a $3 million head start on your economics, it goes a long way on having some pretty impressive results,” Lantz says. The well economics generate rate of return on capital invested that rival what people are doing in McKenzie or Williams Counties, Colby says, “and in some cases better.” The results from Spyglass don’t speak for themselves, however. Beskow and Colby continue to tell the American Eagle Energy story to the investor community to make
sure that investors know the team is out there. “We have some other geologic ideas in the Williston Basin, but we think the returns that we can generate for our shareholders are so significant that we have to keep doing what we are doing,” Colby says. Almost three years after uniting with Lantz and other industry veterans to develop the Spyglass project, Colby says the entire team is now working on a single vision. “Our world is fairly welldefined. When we wake up in the morning, we know what we need to do,” he says. The work for the team is now about optimizing the acre-
age in Divide County. “We now have some real history with our wells,” Lantz says. There are also other operators in the area, including SM Energy and Samson Resources that have had similar results. “You are seeing a consistency there that is starting to gain traction with a lot of the investment world,” Lantz says. Until the entire world sees the promise and production possibilities from the Spyglass, Beskow says he will continue touting both the geology and the industry experience on the team. It’s that experience that has uncovered the secret of the Spyglass and reminded
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everyone in the industry why the Williston Basin’s production output can still be tweaked for increases, regardless of the location of the well. As Colby says of Lantz’s early work in the Elm Coulee field and Beskow reiterates when he talks about the current success of American Eagle Energy in a less-popular acreage area, “Good for all of us they didn’t give up.” Author: Luke Geiver Managing Editor, The Bakken magazine lgeiver@bbiinternational.com 701-738-4944
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THE PROJECTED PLACE: When construction begins this spring on the Northstar Transload facility near Fairview, Mont., Neil Amondson's four-year effort will be validated and the Bakken will have it's biggest transload site ever. PHOTO: BBI INTERNATIONAL
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INFRASTRUCTURE & CONSTRUCTION
Career Bakken
Achievement Neil Amondson’s journey to creating the Bakken’s biggest transload facility By Luke Geiver
We are creeping up the backside of a hill on a barely used gravel trail, the truck scrunching the light brown pasture grass and gravel bits beneath us. The wind is
howling but we can still hear the tires. The cattle gate behind us rests on the side of the trail where we left it, Neil Amondson, the driver and developer of what we are about to see, too excited to reattach the gate. After two hours of driving in and around Williston, N.D., we’ve made it to a trail leading up to the top of a hill—our destination. When we reach the top of the hill, Neil parks the truck and we pause before stepping out. “We can see it all from here,” he says. The all he is referring to is the culmination of four years Amondson
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'The biggest thing I learned from Washington is to have determination. In order to see a project through, you have to stick with your dream and actually try and live it out.' Neil Amondson Driver and Developer of Hunter Light
spent negotiating with landowners, meeting with site developers and convincing investors that building the Bakken’s biggest transloading facility ever on the border of North Dakota and Montana makes sense. For the first two hours of the day, Neil tells me everything about this transload facility and about this hill and the view that it offered. When we step out of the truck, Neil walks out ahead of me, places his hand over his forehead to block the early morning sun. The hard wind messes his hair in only seconds. I take his picture on the top of that hill without him knowing, and then turn the camera to the direction of Neil’s stare down below the hill. There is nothing there.
The Vision Neil Amondson has the eye of a developer, of someone with the ability to envision future large-scale projects on the huge flat wheat fields of North Dakota that exist today. Like so many impacted by a struggling economy in other parts of the country circa 2008, Amondson has endured success and hardship in less than the past decade. His hardships happened in the state of Washington, something unique to him, his success is happening in the Bakken, something common to many. When Amondson arrived in Williston, N.D., five years ago, he knew he had the opportunity to rebuild his life and career as a major land and commercial developer. His only problem was that he didn’t
INFRASTRUCTURE & CONSTRUCTION
know where to start. “Five years ago I was looking for an opportunity to rebuild and to reengage. When I got to Williston, I remember calling home and telling them that this was exciting, but at that time there was nothing in the news. If there was, they would call this the bacon.” During his first year in the Bakken, Amondson put more than 100,000 miles on his truck. He was looking for developments ranging from truck stops to clinics to transload sites. Like so many others, Amondson was paralyzed by the endless possibilities for developments. “The biggest thing I learned from Washington,” he says, “is to have determination. In order to see a project
through, you have to stick with your dream and actually try and live it out.” To do that, he lived in an RV before renting an apartment in Williston. His immersion into the local Bakken scene of Williston and the surrounding communities helped him understand what it would take to build a massive project. His wife and family remained in Washington. As we stopped at a BNSF crossing line running into Williston, it was easy to see his interest in freight, products and creating a facility for both. As each rail car zoomed past, he named their origination and, though it may be hard to verify, their contents. His desire and experience with aggregates and freight combined with his in-
THE MASTER PLAN: Amondson worked with investors from Minneapolis, the locals from Fairview and land developers from the region to design the plan based on industry needs, not capital available. PHOTO: BBI INTERNATIONAL
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'It was a challenge to really get people to believe in the idea of this being so far out. Fairview is not on the normal map of where things are like Tioga, Dickinson, Minot or Williston.' Neil Amondson Driver and developer of Hunter Light
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terest in building a hub for inbound and outbound products led him to a smallbut-growing town on the border of North Dakota and Montana: Fairview. Just north of the town, there is a 2-mile stretch of flat land. It is interrupted by an irrigation ditch, a few houses, a cemetery, an old gravel pit and some random trees. On one side is North Dakota, on the other, Montana. A BNSF-owned and operated line intersects the property, connecting BNSF’s mainlines to the north and south. When we drove to the top of the hill, Amondson wanted to see the ground in its entirety. He even joked about building a cabin on the hill, but, after construction starts this spring, the sound of cranes, bulldozers and trucks will be a constant before someday evolving into the clang of railcars joining together. “I don’t think my wife would enjoy that,” he said, smiling at the site of the ag fields, the gravel pit, trees and cemetery below us, knowing that it would all transition from a career daydream to a Bakken reality. After working on three other projects that had only made it to the design phase in the Bakken, the transload facility Amondson spearheaded will someday be operational. He had to earn the trust and support of several local community members including ranchers, landmen and everyone in between, a trust on display when we visited a rancher’s house and had lunch with a handful of Fairview residents later that day after our stop at the top of the hill. Amondson is more satisfied with his ability to gain their trust and in helping the entire group to reshape the Fairview community in a positive way than he is in leading the development of the transload facility, it seems. As we drove around during that windy, blue-sky day looking at other transload facilities for comparison, it was evident that the success of Amondson has enough resonating power to be told by itself. But for anyone interested in learning the ins and outs of a grand development in the
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Bakken, or the history and early days of a site set to become a Bakken hub for years to come, look no further than the Northstar Transload facility.
The Largest of Its Kind After choosing the spot, Amondson sought out the Minneapolis-based investment group Hempel Companies. The Hempel team arranged the financing for the facility. According to Amondson, the transload facility will create a payback period of roughly three to five years. The design of the facility includes more than 800,000 barrels of storage, 160,000 barrels of oil per day outbound capacity, proppant storage and a train track design that features linear tracks instead of circle tracks, a design element that doesn’t cost
WELCOME VIEW: After working with local landowners, ranchers and others from the North Dakota, Montana border town of Fairview, Amondson was able to move the project past the conceptual stage. PHOTO: BBI INTERNATIONAL
Northstar acreage in the middle of a circle track. Just north of the facility there are four other transload facilites: Hiland Crude, Pioneer, Musket and Savage. BNSF will serve the transload facil-
BNSF to take over the line running between the shut-down line and BNSF’s other mainline south of Fairview. Now, the line that runs through the Northstar site is a freight-only mainline operated by BNSF.
ity, thanks to a unique set of circumstances. “When I first found the site I didn’t really appreciate the location,” he says. In 2011, a winter storm shut down the BNSF mainline to the north. The storm prompted
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WELL CONNECTED: In addition to the Northstar site, Amondson has helped to develop a handful of industrial sites within close proximity, including a proppant storage site and a gravel pit that will be used to supply aggregate for the Northstar location. PHOTO: BBI INTERNATIONAL
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THE ULTIMATE VIEW: Although Amondson developed three other sites on paper, he never found the success he is having with the Fairview site. He says others looking to develop projects on a large scale have to be committed to a long-term effort. PHOTO: BBI INTERNATIONAL
The geographical location of the site allows customers coming from the Montana side to bring loads to the facility at a lower price than loads coming from North Dakota. Montana has bigger payloads for hauling materials on its road system, according to Amondson, a benefit to the customers. The facility is also closest to the western U.S., Amondson is already planning to receive continued shipments of Asian proppants and other manifest loads. “We’ve been encouraged by early interest,” he says, but as is typical of the Bakken, “they want to see you build it before they commit.” Although there some potential customers of the site are hesitant to sign on, others have signed contracts to use the facility. “We have a lot of people saying great idea, great
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concept, and to give us a call when we complete it. We will actually have more growth after the project is built.” No other transload facility will have the oil storage capacity or the proppant storage capacity of Northstar's, although Amondson hadn't planned it that way. “It has become a bigger project than what we envisioned. It is a blessing but also requires more financing, and a little bit more of everything,” he says. After meeting with several transload experts and site developers, Amondson realized that bigger would be best for the Bakken and that he couldn’t worry about the size of the project and it’s accompanying price tag. When all of the developments surrounding the facility are complete, the total could surpass $1 billion. Because the facility is going to be big,
INFRASTRUCTURE & CONSTRUCTION
it allows the unit costs associated with it to be lower due to higher throughput and storage capacity. The NorthStar facility will generate revenue on a per barrel price for crude and tonnage basis for proppant or other bulk commodities. Although the facility is in McKenzie County, it is still somewhat far away from the main oil action. “It was a challenge to really get people to believe in the idea of this being so far out. Fairview is not on the normal map of where things are like Tioga, Dickinson, Minot or Williston,” he says. The facilities proximity to gravel pits, to existing and planned pipeline and the skeleton of the site, however, made the site incredibly attractive to investors even as the price tag to complete it grew. When the facility is officially operational, Amondson’s work in the Bakken
won’t be over. He is also in favor of a refiner looking to build adjacent to the transload facility, he is planning a truck stop and other industrial sites next to the transload site, he will continue to operate gravel pits nearby and when he is all done with that, he will most likely get back in his truck with the confidence of knowing what it takes to develop a pillarscale location in the Bakken. Author: Luke Geiver Managing Editor, The Bakken magazine lgeiver@bbiinternational.com 701-738-4944
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LOGISTICS
BUSINESS CORNERSTONE: Brady Trucking's pneumatic trailers are used to haul frack sand, cement, fly ash and similar materials. PHOTO: BRADY TRUCKING, INC.
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LOGISTICS
A BUSINESS FOR TRUCKERS, BY TRUCKERS Company culture focuses on helping all employees succeed. By Susanne Retka Schill
Chuck Johnson at Brady Trucking Inc. focuses on the company culture in his quest to find drivers and manage a successful company, which he describes as a company built by truckers, for truckers. “Larry Brady, the founder and principal owner of the company, is a trucker. He started his career as a single truck owner and operator,” Johnson explains. “That permeates throughout the organization. I’m vice president and chief operating officer and I started as a trucker. My general operations manager was a truck driver, my safety director was truck driver.” Being trucker-centric is not only good for attracting and keeping drivers, but in keeping a competitive edge providing trucking services in the Bakken. The cornerstone of the company’s business is serving the gas and oil industry with a fleet of pneumatic trucks for hauling frack sand, fly ash and cement. It also has flat beds and drop beds used to help with equipment and rig moves and, recently, Brady expanded to haul chemical, hazmat, agricul-
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Out of the 60 drivers in Williston, only five live in the area and share equipment, the other 55 are assigned their own rig to be their home away from home. tural and construction materials. Larry Brady started growing the business in 1996 after operating 16 years as an independent driver owner. Today, Brady Trucking Inc. owns and operates 140 tractor units and more than 175 trailers, based in terminals in Utah, Colorado, Wyoming, New Mexico and, now, North Dakota. Brady Trucking came to the Bakken at the request of a customer. After surveying the market, Johnson says, “We found there was a need and determined if we were going to come to the Bakken, we were going to do brick and mortar and become permanent residents. We’re happy with the decision, we’re happy with the town of Williston. It’s been a good partnership and we’re continuing to grow our presence.” The company’s largest customers are Halliburton and Baker Hughes, but they also work for Schlumberger, Novo Group, among others. Building in northwest Williston, Brady Trucking services 60 trucks out of the new terminal, which, most importantly, includes a well-equipped trucker lounge. “We put a lot of effort into making sure the facility is accommodating and allows the driver who doesn’t necessarily live in the area to have a place to relax with the comforts of home,” Johnson says. There are private bathrooms so drivers can shower, laundry facilities, a full kitchen, storage for personal items, not to mention television and video games. “The other thing we really strive to do is provide the right kind of equipment with big sleepers, roomy, with all the amenities of home,” Johnson continues. Virtually mini-apartments, the truck sleepers have auxiliary power units for TVs and microwaves. “It’s a tiny space, don’t get me wrong,” Johnson says, “But it has a nice double bed, refrigerator, microwave, a closet for clothes and a writing desk to do paperwork and ample storage.” Out of the 60 drivers in Williston, only five live in the area and share equipment, the other 55 are assigned their own rig to be their home away from home. “That’s one of the things
LOGISTICS
TERMINAL HOME: Brady Trucking built a terminal in Williston to service its trucks working the Bakken, and to provide a place for off-duty truckers. PHOTO: BRADY TRUCKING, INC.
that may not make the most business sense all the time, but it certainly is one of the things that works to the drivers’ advantage. Gives them a sense of home. Especially those that don’t live in the area.” Brady accommodates the drivers coming from across the country with flexible scheduling and travel stipends. “It would be easy to rubber stamp a schedule and say these guys work these weeks and are gone this week, but that may not be when there’s something important going on at home,” Johnson explains. “We would like to be able to shift that paradigm and focus more on families coming into the market and moving and staying. But, that’s really the decision for the family. In a lot of cases, they have deep roots, interests and family and activities at home, but dad or mom still have to make a living, and we try to accommodate that. It’s a difficult business model, but it is what it is. We’re working with it. The demand for people in the area is very intense.” The focus on doing right by his people permeates Johnson’s conversation. “We want to make sure [the drivers] understand just how important they are to us. Our company is by truckers and it’s built for truckers. That has helped us at-
tract people because we can speak to them on the issues, that are important to them and when they speak to us about those issue we feel we understand them fairly well, and we can respond.” Driver recruitment is ongoing, utilizing a range of media from print to radio to Craig’s list in several areas nationwide where the economy is still lagging. “I could use 20 drivers today,” Johnson says, adding that there is a longer term need to improve the trucker image. “I want to help in any way I can to change the perception the public has about driving, and about driving as a career. I’ve raised my family as a truck driver, and everybody who works for me has raised their family as a truck driver. It’s been a good life. We’ve made a good wage and have made good benefits. It should be a tangible alternative for somebody who’s looking for a career.”
Company Culture The Brady Trucking company culture goes beyond finding the winning combination of working conditions and perks for drivers. Johnson’s goal is that everybody who works for him succeeds, which sometimes may mean finding a different
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LOGISTICS
SAFETY FIRST: Driving in the oil patch, drivers have multiple safety certifications. PHOTO: BRADY TRUCKING, INC.
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role for someone who’s perhaps lacking a necessary skill set. “When it comes to the people that we have working for us,” he explains, “the No.1 thing that I preach to my management team all the time is I want everybody who works for us to feel better about themselves because of the fact they work for us.” He learned this approach from watching family members and acquaintances involved in a multilevel marketing business. “I thought, why are all these people, who I know aren’t making a dime, staying involved? What I came to find out was that it was because that group somehow made them feel better about themselves. They felt special, they felt part of something bigger, they had a cause, they had a purpose every day,” he says. The questions he poses
to his management team follows that insight: “What do we have to do to be that company? How do we come to the table to allow that to be part of our narrative every day—that I feel better about me because I work for Brady. If I’ve accomplished that, I’m successful.” Building on that principle, Johnson adds another insight: “I heard a quote early in my career: ‘A man will do a lot for money. He will do more for another man, but he will do the most for a cause.’” When the firm first started working in the Bakken, the cause was to establish the company, he says. “In 2011, there was a whole litany of established companies that worked in the same industry that we worked in. So early on, [the cause] was to get established and to prove ourselves against the rest of the competition. And I think we achieved that to some degree.” The cause is shifting, he adds, “from just being established to being the very best at what we do in every aspect—from a service standpoint, a safety standpoint, a driver’s satisfaction standpoint—to be the very best in every aspect.” Being the biggest in the Bakken isn’t the goal, he adds, “it’s to meet our standards and be the very best, and to make sure that everybody that works for us is successful.” Johnson is proud of the recognition the company has gotten for its efforts in receiving the 2012 trucking company of the year award from Rocky Mountain Oil and Gas Awards and the safe trucking company of the year from its insurance company last year. Equally important is an internal accomplishment, he says. “One of the things our back office is very proud of is that last year they did 20,000 invoices for one customer, and they had less than onehalf of one percent of those invoices disputed. That’s huge!” And, it’s important for the customer, he adds. “If we’re able to be that efficient, we’ve saved
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The approach to the company culture plays out in how the company views its customers’ needs. Safety requirements, for instance, can be difficult to meet because different customers want different certifications that have to be renewed annually. One hurdle is simply the logistics of getting drivers to multiple scheduled training sessions. “It’s a challenge,” Johnson says, but adds simply, “It’s part of the requirement.” The company has developed a safety passport, so the drivers has a single document to show when asked. Each of the major oil companies have safety certifications, so while Brady actually works for the service providers, the majors’ safety certifications have to be acquired for drivers’ to enter their locations. Drivers also need certifications for H2S, CPR and safe land training (demonstrated understanding of how to manipulate the tractor trailer safely through all conditions, on- and off-road), among others.
LOGISTICS
SAFE LAND: Among the safety certifications, drivers must demonstrate they know how to safely maneuver their tractor-trailers through all conditions. PHOTO: BRADY TRUCKING, INC.
“We‘re trying to run a world-class organization. We’re technically a small mom and pop company, but our customers are international, global, multibillion dollar companies. So we have to be able to be as sophisticated and complex as they are,” Johnson explains. “Service and our reputation are the most important things to us. That’s what we focus on—making sure we meet our customers’ expectations and providing the service that they demand and that we indicated we could provide. That’s huge to us. “We’re just a regional, privately owned company. It creates some unique challenges for us to be able to perform at that level and meet those expectations. But that’s the requirement and if we’re going to be in this business, we’ve got to be able to do that. And that’s my challenge, to make sure my organization can do that.” Author: Susanne Retka Schill Senior Editor, The Bakken magazine sretkaschill@bbiinternational.com 701-256-2377
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INFRASTRUCTURE & CONSTRUCTION
MARKET ENTRY: Rossco Crane has become a Bakken brand by perfecting the art of the drilling rig move. It has grown as a company by offering other services. PHOTO: ROSSCO CRANE
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INFRASTRUCTURE & CONSTRUCTION
3 MEN AND A CRANE What a forward-thinking crane company can teach you about Bakken business philosophy By The Bakken Magazine Staff
The Bakken has been an economic juggernaut for several years. Today, it remains strong, but is different. Some elements responsible for creating the positive economic environment have remained and others have not. The boom of the Bakken is still impossible to ignore, and, if anything, is getting louder, but to stay competitive or to enter the market, all entities need to understand how the play is evolving. Ross Kovach and father Jere, founders of a crane and trucking company operating out of Minot, N.D., with roots in the Pinedale, Wyo.-gas play of the early 2000s, have grown their business from fewer than five employees to more than 60, at a time when the company heavily-linked to drilling rig moves has witnessed the industry transition to multi-well pad drilling and a decrease in the number of operating rigs present in the Williston Basin. The rig count today hovers around 188, down from the all-time high of 218 in late-May 2012. Walking rigs used on multi-well pads can stay on a well pad for a month or a year in today’s Bakken of multi-well pad development. When Kovach started offering drilling rig moving services, his team was moving a rig every 20 to 25 days as operators were drilling one hole per well. Although the time each drilling rig spends on a wellsite has increased, Kovach hasn't let the change impact his business. As Kovach would tell you, he’s been proactive and it has paid off. To understand how pursuing a forward-looking business model in a bullish market or diversifying when a firm is too busy to keep up with work orders and branching out seems impossible is worth the effort, starts with understanding the story Rick Long, general manager of Rossco Crane, likes to tell about three men and a crane.
Entering The Market Within days of arriving in North Dakota four years ago, Kovach knew the Bakken was advantageous to his future in the crane business. Kovach grew up watching his father operate cranes
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'It just got to the point that we were so dependent on everyone else. It made sense to move that service in house. We took a big leap.' Ross Kovach Owner, Rossco Crane and Rigging, Inc.
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The BAKKEN MAGAZINE MAY 2014
and work in the business. He's even gone through the process of acquiring and selling a crane company with two other partners before selling his interest. Kovach visited North Dakota to gain a sense of a possible opportunity after taking a break from the business to spend time with his father. “We’d never had a vacation our whole lives,” he says. “We were always working.” Previous work in Wyoming had helped him establish a relationship with Halliburton, and a cousin offered him a place to stay while he was away from his home in Wyoming. “Halliburton wanted me to get back in the crane business and come to North Dakota,” he says. During a visit to Stanley, N.D., he learned why. “Every place I stopped said that if I had a crane and could use it that they could put me to work the same day I got it there.” The incredible need for crane services inspired Kovach to move to North Dakota with his father Jere and his brother Karl
Porter, the current crane superintendent for Rossco. Without the participation of Karl, Kovach says, the Rossco dream would have never been realized. Porter has earned the respect of his crew and they look up to him, Kovach says, in more ways than one. Porter stands over 6 feet 4 inches tall. He has also acquired a valuable knowledge base of downhole operations, something the Rossco team has been able to utilize in it's own planning. The team has also benefited from Rusty Mixen, trucking manager, who has been with the company a year. Mixen has brought a high-level knowledge of the trucking industry from his previous role with a different trucking firm. With Mixen's guidance Kovach was able to successfully acquire and impliment a trucking division into Rossco's main suite of crane operations. They started working with a single crane and a semi to move the needed parts used in crane operations. Initially, the three man crew focused on moving drilling rigs. Kovach remembers
INFRASTRUCTURE & CONSTRUCTION
a stretch when he spent nearly a year working on the same road, moving drilling rigs for EOG Resources and Whiting Petroleum. “I just started handing out cards. I started calling people,” he said. Although Kovach and his father had always shied away from the trucking industry, the two knew that renting, and waiting on truck services required to perform crane operations was putting the small team at a disadvantage. After finding the capital to acquire a struggling trucking company’s assets, the Rossco team changed from a smalltime operation to a multicrane, multi-truck company overnight. “It just got to the point that we were so dependent on everyone else. It made sense to move that
HEAVY HAUL: A Rossco truck used in hauling a coiled tubing reel used in completing wells. Rossco has adapted its revenue streams to add the service. PHOTO: ROSSCO CRANE AND RIGGING, INC.
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UNFORGETTABLE CRANE MAN: Ross Kovach runs FIELD DIRECTION: Karl Porter, crane superintendent, his business with a philosophy aimed at employee leads the crane crews, and supplies oil production happiness, equipment performance and an eye towards knowledge from previous downhole work experience. company growth. Meet him in person and you’ll smile when you see a crane too.
TRANSPORT VISION: As the trucking manager, Rusty Mixen helped guide Rossco in the acquisition process of a trucking firm's assets. He now supervises the trucking division and advises Kovach on that segment of their business.
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service in house,” Kovach says. “We took a big leap.” That leap was the basis for what Rossco is today, an 60-person-plus operation with General Manager Rick Long helping to guide the business. The rise of the crane company may seem to trivial so many other stories in the Bakken, but the Kovach’s and Long have shown that growth doesn’t have to come through attrition, it can come from a constant eye on the future of the oil patch and the ancillary economic stimulus created from it.
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Drilling Rig moves were once the main revenue stream for the Rossco team. Today, Long and Kovach have expanded the team’s capabilities to include moving yellow iron, equipment or anything else requiring a crane or heavy haul trailer in nearly every stage of a well site’s existence. The team can work on drilling rig moves, help with coiled tubing operations and install tanks or pump jacks. The Minot water tower was installed by the team, and work at the Minot Air Force base was completed by Rossco Cranes. “The business culture has changed,” says Long. “You have to have your internal
'As the Bakken changes, it changes us. We are okay with that, others might not be. To grow our brand of service, we have to stay on the leading curve of where this is going.' Rick Long General Manager, Rossco Crane
employees rise up to new challenges in order to succeed.” Change does not scare Long. “The oil is what brought us here, but there are still all of these other opportunities. For any company that is in the Bakken, they have to look for ways to diversify as it changes.” Long takes several trips each year to Denver and other oil hubs to stay current on oil production trends. At times, he will be sitting next to career petroleum engineers and at others, he’ll be talking with CEOs. “It is part of the added expense to keep up with what is going on,” he says. His research efforts have helped Rossco stay relevant with several operators. Since Rossco’s story changed from three men and a crane, the company has had to alter its protocols and reinvest in its own operations. “Over the last four years, companies have shown up from all over the country. As the big players grow their vendor list, they have to start weeding some of them out,” Kovach says. That process happens through pricing, scheduling and safety.
The Falsity of Price When Kovach acquired trucking assets from a struggling firm, the team soon
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INFRASTRUCTURE & CONSTRUCTION
learned that the price of the purchase was actually higher than the dollar amount it had paid. The equipment, according to Kovach, had not been kept in a regular maintenance schedule and some of the equipment did not perform to the level that the Rossco team had planned. In addition to performing unplanned maintenance on the trucks, Rossco has had
to invest in new cranes as previously suitable cranes have become undersized. When Kovach first started working with coiled tubing in Wyoming and then later in North Dakota, the spools would weigh 50,000 to 60,000 pounds. Now, he says, they are up to 128,000 pounds. “We are getting rid of our smaller-sized cranes because they just don’t cut it anymore. We need 140 ton machines or larger."
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It’s not just the companies using larger coiled tubing spools. Many of the newer drilling rigs in the Bakken are drilling deeper, and to do that, they are built bigger and heavier. “We are going bigger because everything is getting bigger,” he says. It’s not just cranes. The team has gotten bigger trucks with more axles to meet the ever-present thaw laws in the spring. Adding the trucks designed to work during the spring has allowed the company to provide service when, and where, others are not able. Insurance rates and coverage amounts for service providers are also going up as the push for safety in the Bakken continues. “The amount of coverage required is pretty staggering now,” Long says. “But it is non-negotiable.” Because safety is now receiving such high priority, Rossco also has to constantly maintain a clean safety record through ISNetworld, an online database that tracks the safety records of companies so that others can verify that vendors are accurate in their reporting. “Our safety record is awesome. We have been here four years, no incidents, no accidents, no lost time,” Long says. “We are a small company, so if something does happen we are done, it will take our safety record down to nothing.” Maintaining that database requires constant monitoring from a dedicated employee. ISN collects self-reported information for contractors in a centralized database. Information includes: management systems used; written health and safety programs; incident and accident records; audit results; insurance certificates; workers compensation and emergency letters. Some firms, like Continental Resources, he points out, are so committed to safety that a service provider cannot have a bad safety record, and often a contractor must pass a safety class or process with the actual entity it is work-
INFRASTRUCTURE & CONSTRUCTION
ing for before performing any work. In addition to the costs associated with new equipment and insurance coverage, Long says the team will always be in a battle with other similar companies over price of service. Because Kovach is committed to a maintenance plan and utilizing the best possible equipment the company can afford, he knows what the overhead costs are for all services. When others quote a job for lower than Rossco, he knows that a lower price means something is being sacrificed, from equipment maintenance to equipment performance. “There is nobody that moves a rig—I don’t care who it is—more efficiently than us. But, it costs more,” Kovach says of the importance of having the right set-up and maintained equipment. Kovach doesn’t let lower-price offerings from competitors sway his vision for the company, however, and it is one of the main reasons Long joined the team and others have made a career under the Rossco name. “I run my business with one mindset,” he says. That mindset starts with people. Kovach doesn’t look for new hires who have worked at several locations because he believes that there is a reason they weren’t retained—a reason that isn’t good. His motto with employees is to pay them well and give them the best equipment possible. “They will not only take care of your equipment, they will take care of you and your customer's bottom line,” he says. “When your customer is happy, you are happy. And, when you are happy, your employees are happy,” he says. “There has been a huge change in workforce across the entire Bakken. Employers, including us, are doing what they can to retain the talented workforce.” The logistics of the Bakken have also forced Rossco to rethink how it operates. At one point, the team was working strictly out of Minot. But, as the Bakken has moved and developed, the workers were having to drive further and further from Minot. A
Watford City, N.D., housing facility owned by Rossco now allows the company to serve clients from two different hubs. “As the Bakken changes, it changes us. We are okay with that. To grow our brand of service, we have to stay on the leading curve of where this is going,” Long says. The change is worth it, he adds. “For us to get 2 more percent of what we are chasing
is a whole new challenge, but a huge opportunity.” To meet that challenge, the Rossco team participates in industry events that might not appear to be related to the crane business. “We try to follow what everyone is doing and what they are planning,” Long says, “because it is all related.”
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ForwardLooking
Investors An award-winning team and an expanding duo reveal their successful Bakken investment strategies By The Bakken Magazine Staff
The Bakken oil and gas play is a challenge to investors for all the right reasons. To invest-
ment bankers looking for buy and sell side opportunities, the entrepreneurial spirit of the businesses serving the play makes the Bakken impossible to ignore, but difficult to navigate. For investment portfolio managers choosing the best that the Bakken has to offer for its shareholders, the pool of worthy companies to add to a portfolio looks like a high-end grocery store to a chef planning dinner—the possibilities are endless, depending on preference. We spoke with an investment group that helps in the buying and selling process, and with an investment portfolio manager, who has helped build an award-winning fund. Both are bullish on the Bakken (but for different reasons); both are located in Northern Plains, but vastly different geographical locations (Calgary, Alberta, and Minot, N.D.), and each discussed how investors are looking to capitalize on the side effects of oil production in the Bakken.
FROM THE SOURCE: Jason Orr and Paul Fejtek, both from Hunter Wise Financial, visit well sites, drilling rigs and other client locations in the Williston Basin to gain a better understanding of the current state of the Bakken.
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The Best Energy Fund In the Country.
not and we were beating every single fund in the country in the energy category. If you In 2003, a Minot, N.D.were to ask someone on Wall based investment fund purchased the Integrity Small-Cap Street or in New York, they probably wouldn’t know who Fund. Within five years of we are, but we are beating managing the fund, the portthem on a performance basis.” folio management team of The fund wasn’t a one-hit Mike Morey, Shannon Radke wonder. Since 2011, it has and Monte Avery renamed the received the same award for fund to the Williston Basin/ three consecutive years. The Mid-North America Stock fund is based on an approach Fund. “When we changed that is different compared to the name of the fund, we other natural gas or energy were trying to get it focused investing strategies. “We look on the resource potential of for a more thematic approach. the middle part of America. We invest in a lot of compaWe saw that potential in the nies that a lot of people don’t Bakken,” Morey says. “The thought process was to get the classify as energy but are tied to the energy and shale energy fund linked to the Bakken.” revolution,” Morey says. By 2011, the portfolio When the fund first management team received started under the new direcvalidation that the name tion of the Minot team, they change and tweaked fund philosophy was a success. The worked to find the best companies in the Bakken linked to nationally recognized Lipper exploration and production, Fund Performance Awards oilfield services and equipranked the fund the best in ment. Eventually, the team the nation over a three-year recognized a trend linked period. “It was an exciting time for us,” Morey says. “We to energy production in the are headquartered out of Mi- Bakken and other shale plays,
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and they began to focus on companies that benefited from lower energy-input costs, specifically natural gas. Firms that used natural gas for chemical production, or were in the business of building out natural gas infrastructure were also added to the fund. In addition to the energy input costs, the team has also invested in companies impacted by the fluctuating price of oil. “They have been a roller coaster over the past several years. After seeking out the industries that benefit the most from the variance in price of WTI [West Texas Intermediate, or Texas light sweet, a grade of crude oil used as a benchmark in oil pricing] has proven to be a great benefit to us,� Morey says. Refiners and exploration and production companies benefit from the price swings, he added, each at different times. The philosophy of the management team has also meant the fund’s focus has expanded beyond just the Bakken. “We look at our approach and try to keep a diversified value chain along the entire shale energy value chain—starting from when the drill bit hits the ground.� To keep the fund in award-winning status, the team analyzes the portfolio on a daily basis, looking into companies the fund owns while seeking out new opportunities. Morey travels to Denver and
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Houston often, meeting with corporate management. But, Morey and the rest of the team frequently hit the gravel to meet up with companies working in the Bakken to better understand the changes or opportunities linked to the nearby shale play that initially generated their success.
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Jason Orr and Paul Fejtek work for Hunter Wise Financial Group LLC, a national investment banking firm, focusing their efforts on oil and gas. Although the team has interests in every energy-related development in North American, the Bakken is the most important transaction area, says Orr. The team focuses on buying and selling companies. For clients looking to purchase a Bakkenbased firm, they are looking to spend
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Top Holdings DESCRIPTION
% Net Assets
Halliburton Company . . . . . . . . . . . . . . . . . . . . . 5.34% MDU Resources Group Inc. . . . . . . . . . . . . . . . . 4.74% Fluor Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.76% Chicago Bridge & Iron . . . . . . . . . . . . . . . . . . . . 3.31% EOG Resources Inc. . . . . . . . . . . . . . . . . . . . . . 3.23% National Oilwell Varco Inc. . . . . . . . . . . . . . . . . . 3.12% Pioneer Natural Resources . . . . . . . . . . . . . . . . 2.90% U.S. Silica Holdings Inc. . . . . . . . . . . . . . . . . . . . 2.80% Cameron International Corp. . . . . . . . . . . . . . . . 2.74% Phillips 66 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.73% Exxon Mobil Corp. . . . . . . . . . . . . . . . . . . . . . . . 2.48% Oasis Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . 2.31% Quanta Services, Inc. . . . . . . . . . . . . . . . . . . . . . 2.28% Dresser-Rand Group Inc. . . . . . . . . . . . . . . . . . . 2.28% Whiting Petroleum Corp. . . . . . . . . . . . . . . . . . . 2.23% Superior Energy Services . . . . . . . . . . . . . . . . . 2.18% Williams Companies Inc. . . . . . . . . . . . . . . . . . . 2.12% Lyondellbasell Indu. Class A . . . . . . . . . . . . . . . 2.04% Kinder Morgan Inc. . . . . . . . . . . . . . . . . . . . . . . . 2.01% Enbridge Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.96% Helmerich & Payne Inc. . . . . . . . . . . . . . . . . . . . 1.96% Schlumberger Ltd. . . . . . . . . . . . . . . . . . . . . . . . 1.91% Union Pacific Corp. . . . . . . . . . . . . . . . . . . . . . . 1.79% ONEOK Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.70% Canadian Pacific Railway Ltd. . . . . . . . . . . . . . . 1.68% SOURCE: INTEGRITY FUNDS DISTRIBUTOR, LLC
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between $5 million and $50 million. “The Bakken is a very interesting place,” Orr says. “You have a culture of entrepreneurship that seems to be very different from other areas. People who have the ability to see business opportunities are acting on them.” The opportunities for Orr and Fejtek are directly linked to the entrepreneurial nature of the Bakken. “When we look at these entrepreneurs, some are looking for growth capital and others have taken their business to the limit. Some want to partner with a strategic investor, others want to sell,” he says. Orr and Fejtek believe that the Bakken has matured to a point that hundreds of these companies are ready to take the next step—for growth capital, or to sell. “It
is almost an unprecedented opportunity for companies looking to cash out on their initial investment or for those who are ready to take the next step.” After helping a Bakken client sell its business to a Calgary-based firm, the team has formed meaningful relationships in and around Williston, N.D., that have spurred on several other client requests. According to Orr, a company’s request of Hunter Wise to form a potential buyer list reveals why large-scale investment banking team offers smallto medium-sized businesses an advantage over small and local dealmakers. When a company asked for a buyer’s list from Hunter Wise, Orr and Fejtek came up with a list of more than 100 potential buyers. From that list, the team was able to
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generate signed confidentiality agreements from over 28 interested firms. “That is an almost unprecedented response rate,” Orr says, noting that a typical response rate would be considered successful if it reached 10 percent. Orr credits the size of the Hunter Wise network, combined with the team’s local relationships for its ability to find buyers for others looking to sell. The most attractive businesses for buyers are those in the oilfield services and transportation sectors, including those that work in rig moving, fly ash and frack sand. Other appealing companies are those that offer a specific technology or any equipment rental firm that has a proprietary technology, Orr says. In addition to the business offering, all buyers want a business that has been
Total Returns
ANNUALIZED YTD
1 Year
Since 3 Years 5 Years 10 Years Incept.*** 6.63%
23.35%
10.32%
9.95%
Incl. Sales Charge
0.14%
16.77%
4.82%
22.08%
9.75%
9.57%
Russell 3000 Index
1.97%
22.61%
14.61%
21.93%
7.86%
5.19%
Dow Jones U.S. Oil & Gas 0.83%
12.82%
3.85%
14.69%
11.37%
8.36%
Total Returns A Shares
5.41%
22.85%
*** (incept. 04/05/99)
Performance shown is before tax.
*Effective November 10, 2008, the Fund changed its name from the Integrity Small Cap Growth Fund to the Williston Basin/Mid-North America Stock Fund. The Fund’s principal investment strategies were also changed significantly. The performance figures included reflect the performance of the Fund prior to the name change and the change of the investment strategies. Returns are for the period ended March 31, 2014 and reflect the Fund's maximum sales charge of 5.00%. The performance data quoted represents past performance. Past performance does not guarantee future results. The Fund’s principal value, share price, yields, rates and total returns will vary due to changing market conditions, so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, an investor may call toll free 800-276-1262. SOURCE: INTEGRITY FUNDS DISTRIBUTOR, LLC
built for long-term sustainability, a company trait that can be linked to the happiness and well-being of the company’s workforce. For Orr and Fejtek, the workforce element of any company is key to investing,
he says, particularly for those looking to enter the Bakken through acquisition or startup. “Any company with a lot of capital could get into the Bakken. The problem is that they would have an incredibly
difficult time finding qualified employees,” Orr says. “The best way to get into the Bakken is by acquiring a local business.” The Hunter Wise team is currently making a push to help clients buy their way
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into the Bakken. The pitch to investors is that a company can be built through capital, time and tremendous effort to find employees, but that time, money and effort won’t be guaranteed. “If you can acquire a business, your chances are much greater given the local dynamics there.”
Forward-Looking Statements The U.S. and Canada represent the main regions for Bakken-interested investors, Orr says. If a company can offer an EBITDA (earnings before interest, taxes, depreciation and amortization) value over $100 million, international investors will certainly look. Calgary’s financial community is extremely active in the Bakken. Orr has opened a Hunter Wise branch there to help build the energy team’s portfolio of Bakken
clients. “We are enlarging our footprint,” he says. Morey and the team from Minot are also looking to expand the number and type of company they include in the Williston Basin Fund. The team looks to the Eagle Ford, Permian, Marcellus and Wattenberg shale formations. “They all have a unique upside,” Morey says. The operators with the best acreage are the main focus for Morey’s team, along with the those that can withstand a major oil price decline. “A valuation isn’t going to save a company. Being the low-cost producer will,” Morey says. Much like Orr, Morey values the ability of any company to sustain and grow. Valuations that look good on paper don’t necessarily indicate that a company is growing or has room to grow, Morey says. “We talk to the
local companies a lot to see what is really going on.” The future for Orr and Fejtek appears strong because of the Bakken. The team’s local connections have brought on more work than the team had initially expected when it began focusing on the Bakken. The Minot team continues to draw the attention of financial advisors who are looking at the Williston Basin Fund with more conviction, Morey says. Although the success of the Hunter Wise and the Integrity Viking teams is clear, and the trends each is following has proven to be financially lucrative, Morey and Orr both share a forward-looking statement that keeps them focused. “We are thrilled with the execution over the past several years, but one thing is clear: It doesn’t matter what you did in the past,” Morey
says.
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IN PLAY
FULL VIEW: Redline Communications can install video surveillance of well sites, gas compression sites and any other oilfield sensitive facility. PHOTO: REDLINE COMMUNICATIONS
Hess Goes Digital Hess Corp’s Tioga, N.D., natural gas processing facility should no longer receive all of the attention. The Bakken operations giant has announced plans to build the Williston Basin into a digital oilfield. Redline
76
Communications,
By The Bakken Magazine Staff
a Canada-based remote wireless network provider, has been signed by Hess to help connect every worker, contractor or piece of equipment owner or affiliated with Hess. “Hess is seriously committed to the safety of the worker and its contractors,” says Louis Lambert, director of strategic accounts for Redline. “It
The BAKKEN MAGAZINE MAY 2014
is very hard to be committed to safety if you aren’t connected.” Through the contract, Redline will build a network it has been working with Hess on for more than a year, according to Lambert. Redline has worked with military, oil super majors and government agencies in need of remote and robust wireless con-
nections. When a war theatre offers no connectivy, Redline is hired to design and build towers and connections. “Our particular expertise is to provide wireless networks that operate day in and day out, seven days a week all year long,” says Lynda Partner, chief communications officer for Redline. “The
IN PLAY
POPULAR OFFERING: Drilling rigs and workover rigs will be connected to the network to help Hess monitor the performance, speed and efficiency related to the machine itself and the crew. Connectivity will also provide a greater level of safety to the operations.
needs of the oil and gas industry are unique.” For the Bakken, those needs include a system that can withstand extreme low temperatures and sustained high winds. Hess will use Redline to connect all of its operations in the Williston Basin, from drilling rigs to oil pumps to contractor computers. “We will provide them with a series of networks at their properties,” Partner says.
To do that, Redline has located several locations where towers will be erected. Those towers will then be used to provide hotspot and wireline access for those given access to the Hess network. The system will be developed over the next three years. Lambert, who worked extensively with Hess on the project’s creation, says Hess also wants to own an asset instead of
renting the equipment and the access to wireless for the next 30 years. The connectivity provided by Redline will be placed anywhere a worker goes or a machine exists, Lambert said. “They will be a fraction of a second from communicating with someone as opposed to a four-hour drive through the Badlands.” The technology offered by Redline is superior to others in the industry, according to Lam-
bert. The network will utilize what Redline calls Virtual Fiber, a system that acts like a fiber optic network without the cost. The system provides the longest range, fastest speeds and lowest latency of any wireless network available for the oil and gas industry. To build and operate the system, Redline will utilize a local labor force of contractors and technicians, an approach Lambert says is similar to the oil and gas industry. “Just like a company that uses local truckers or local construction workers, we do the same to set up our networks,” he says. The network will be built in five focus areas in 2014. By 2015, another five focus areas spread throughout Hess’ Bakken acreage will be developed by Redline. “Their commitment to digitizing the oilfield is very strong. I use the expression that they are carpeting the oilfield,” Lambert said.
THEBAKKEN.COM
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CRUDE CHARACTERISTICS: CONTRIBUTION By Scott Blakely and Kesavalu Bagawandoss
Classification of Crude Oil Transported by Rail from Shale Plays These are the headlines: “Crude-by-Rail has been termed as Dangerous to Communities.” “City Council votes to oppose rail transport of crude oil.” “Oil in train explosion… (was) mislabeled.” “Oil profits before safety!” These are some of the recent news headlines that have emerged around the crude oil industry. While there have been train derailments and subsequent deaths, including the disaster that occurred in Lac-Megantic, Quebec, that killed 47 people, these were misfortunate incidents caused by mechanical, procedural, or environmental factors on a container carrying a flammable liquid. The media has sensationalized claims that the mislabeling of crude oil has created a dangerous situation. In fact, Transport Canada has termed Crude Oil as a dangerous substance. The news media proclaimed that the crude oil railcar derailment, responsible for deaths, was misclassified with a safer packing group (PG) III designation rather than its proper and more dangerous PG II designation on the paperwork. Although this is true, what they failed to mention was that this crude oil was transported in dangerous goods DOT-111 tank cars, 78
which are acceptable for even PG I material, which is considered the highest danger. While the paperwork was wrong, the railcar selection was proper. It should have had no effect on emergency response as the emergency guide references crude oil only as UN 1267 and not by any packing group designation.
Why Is Crude Oil Transport An Issue Now? Shale oil and gas exploration has revolutionized the energy outlook for the United States as well as the global market. Today, the United States is self-sufficient in natural gas and is approaching the same for crude oil production. This is due to hydraulic fracturing utilizing the horizontal drilling technology.
The BAKKEN MAGAZINE MAY 2014
This technology has transformed the global energy Initiatives. This has led to the change in the crude oil landscape and the challenges associated in transport, quantity, quality and safety aspects. Transportation of crude oil has become a challenge. Existing pipeline capacity is far below what is necessary. Pipeline construction takes significantly more planning, approval, and time as demonstrated by the still unapproved Keystone Pipeline. Rail transportation allows some flexibility of movement and allows market factors such as quality and price to select destinations rather than pipeline routes. Information about hydraulic fracturing is popular as the public’s request for details of this fast
growing energy sector continues to increase. As the story goes, it is great for the economy and takes a toll on the environment. People are being pushed to take sides. Anti-fracking campaigns have been waged. Pipelines go unapproved. Now, crude oil transportation by rail has gained attention among the media with increased inquiries from the public.
US DOT Emergency Order The U.S. Department of Transportation had to address these growing concerns. It issued an Emergency Order requiring stricter standards for transporting crude oil by railcar as part of its Operation Classification. Those offering crude oil for transporta-
CRUDE CHARACTERISTICS
tion by rail must ensure that the product is tested and properly classified in accordance with 49CFR parts 172 and 173. Failing to comply is subject to civil penalties up to $175,000 for each violation or each day they are found in violation. Proper classification helps to ensure that the material is properly packaged and that risks are accurately communicated to emergency responders. Crude oil is defined as a naturally occurring, unrefined petroleum product composed of hydrocarbon molecules and is described as Petroleum Crude Oil, UN1267, Class 3, PG I, II, or III in the U.S. Hazardous Materials Regulations. It is usually a flammable liquid just like gasoline, which is not surprising as gasoline is often a compositional fraction of crude oil. Even “green products” such as ethanol are flammable liquids and would have wreaked havoc in a derailment incidence.
Testing Crude Oil The U.S. DOT Emergency Order states that testing must be conducted within the reasonable, recent past to determine the flash point and boiling point in order to assign proper packing group. The first step of this process is to perform a distillation test to determine the initial boiling point (IBP). If the IBP is less than 95 degrees Fahrenheit, the material should be classified as PG I. If IBP is determined to be greater than 95 F, then the flash point test should be performed to determine whether material should be classified as PG II or PG III. Flash points determined to be less than 74 F with IBP greater than 95 F are classified as PG II. Flash points determined greater than 73 F with IBP greater than 95 F are classified as PG III. Except that the Emergency Order mandates
that crude oil which is PG III material must be transported according to requirements of PG I or PG II Crude Oil. Why is flash point required? U.S. DOT states that crude oil might be described as PG III for the purpose of hazardous communication, although packing group information is not part of the Emergency Response Guide. Since crude oil transportation by rail must comply with requirements of PG I or II, distillation should have been sufficient to define packing group, except for the fact that the Emergency Order states the flash point test as required. In addition to these mandatory tests, shippers are required to perform additional tests frequently enough to ensure proper classification using the nine UN hazard classes in 49CFR parts 171 to 180 as a guide to properly classify their hazardous materials. The DOT Emergency Order requires at a minimum, the testing of vapor pressure, percentage of flammable gases, hydrogen sulfide, sulfur, and corrosivity to steel and aluminum. Crude oil taken straight from a well is called live crude oil and will likely contain some percentage of light-ends, which are defined as the carbon chain C1 to C5 components including: methane (C1), ethane (C2), propane (C3), butane (C4), and pentane (C5) hydrocarbons. For safe transport, the C1 to C3 components should be removed in a process called stabilization. This weathered or stabilized material is then called “dead” crude oil which will not actively boil at ambient temperatures. Aside from the boiling point and flash point tests, the vapor pressure performed by test methods ASTM D6377 or ASTM D323 can identify the presence of high light-end concentrations. There are
TESTING: Intertek's team performs corrosion tests on Bakken crude as a third-party tester. PHOTO: INTERTEK
EPA tank emission limits and contractual specification that define allowed vapor pressure limits. Light-ends compositional analysis of stabilized, dead crude oil can be determined by ASTM D7900 or D6730 modified in accordance with ASTM D7169 X1. This gives the breakdown of all C1 to C10 hydrocarbons and is useful for modeling. There are no transportation specifications. This detailed hydrocarbon analysis is also useful for merging data with the high-temperature simulated distillation data from ASTM D7169 to give refiners a theoretical rapid yield of the material. Crude oil may contain hydrogen sulfide, which in high concentrations is a poisonous gas. It can be determined in the vapor phase by modification of test method ASTM D5705. Sulfur content, while required by the Emergency Order, poses no immediate hazard and is a characteristic required by the EPA as a combustion property. The DOT Emergency Order mandates that the crude oil be tested for corrosivity to steel and
aluminum in accordance with UN Section 37. This is to determine whether the material is a Class 8 Corrosive material. This test takes seven days. The Order states no mandatory frequency for this test method. Another test that might be considered in addition to the DOT UN requirement might be the NACE TM0172 test method, which is an industry pipeline standard for corrosivity to steel. It takes just four hours and has the added real-world benefit of rapid mixing with water for its qualification rating protocol. Crude oil is an expensive commodity that should have quality testing to assure its value. There are contractual specifications. Now, due to safety concerns, there are transportation requirements. Authors: Scott Blakely, Laboratory Services Manager Kesavalu Bagawandoss, Corporate Technical Director The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of The Bakken magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).
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BUSINESS PERSPECTIVE: CONTRIBUTION By Rob Lindberg
Why Back The Bakken? The Bakken has clearly transformed North Dakota. Across the state, housing demand is strong, schools are full, and businesses are thriving. After fighting outmigration (remember that term?) and a graying population for years, North Dakota has become the most youthful state in the nation and a place to start a career in any field and at any level. In fact, average income in our state has risen from 39th in the nation to second in little more than a decade. No city has captured the impact better than Grand Forks. Leaders there have identified 110 companies generating more than $300 million annually from the Bakken’s energy industry. These are construction, manufacturing, engineering and other businesses that work in the Bakken or provide products and services to it. And while the Bakken is only a part of their overall business, the impact of Bakken-related business activity is comparable to the total budget of the Uni-
80
$300
MILLION
GRAND FORKS
$480
MILLION UND BUDGET
Bakken-driven business activity in Grand Forks
UND Expenditures versity of North Dakota. While Grand Forks is unique in recognizing and pursuing the boom, the Bakken has impacted all of our cities. With an annual economic impact of $30 billion dollars to the North Dakota economy, we can all name a
The BAKKEN MAGAZINE MAY 2014
friend or relative who benefits directly from the Bakken. Certainly, we can see the growth the Bakken has on our hometowns. The wide impact of the energy industry prompted the formation of a group to express the importance of the
Bakken to everyday businesses and people. Bakken Backers are entrepreneurs, business and government leaders, energy workers, and everyday people in Eastern and Western North Dakota who support what the Bakken means for North Dakota's economy
BUSINESS PERSPECTIVE
and American energy security. Members are located in every corner of the state, span all age groups, and range from energy professionals to local small-businesses owners and retirees. They are concerned about keeping North Dakota’s economy successful. And they should be. Our economy has become the brightest in the nation and a model for how to let the economy drive prosperity and job creation. Often, the state’s success is attributed to the lucky development of hydrocarbon formations millions of years ago, but the Roman philosopher Senaca had a different perspective on luck, stating “Luck is the meeting of opportunity and preparation.” For decades prior, North Dakota hungered for economic progress and prepared for economic opportunity by putting in place reasonable policies for the economy to succeed. Before oil, we advanced our value-added agricultural, manufacturing, and technology industries and experienced better than modest income growth. We muted and slight-
With an annual economic impact of $30 billion dollars to the North Dakota economy, we can all name a friend or a relative who benefits directly from the Bakken. ly reversed out-migration, and we did this by trusting economic growth to entrepreneurial leaders. North Dakota’s recent success in the oil and gas sector is little different. While the opportunity for a strong energy industry in North Dakota has been known since the 1950s, preparation by the industry, in terms of technology, was not yet ready to meet the opportunity of the Bakken. It would take decades of technology investment, trial and error, and a few lost fortunes before the pioneers of the oil and gas industry would advance their ability to economically harvest hydrocarbons trapped within the shale formations. Today, it seems unbelievable to think these processes became economically feasible for application
in North Dakota only seven years ago. Fortunately, when technological preparation met the opportunity, North Dakota had already put in place good regulatory preparation (though our rules have been adjusted since). North Dakota had, and largely still has, a pragmatic approach to energy development. It, by and large, applies the same long-term, results-based regulatory approach to the energy industry that it successfully applies to all industries. It requires the oil and gas industry to reclaim lands once production ceases. Our pragmatic approach protects the outdoors and water sources with stringent environmental rules, regulations, and fines that focus on outcomes and it lets leading experts determine the
best methods to achieve outcomes, which over time, allows flexibility and innovation and results in better methods to protect the environment. The opposite regulatory attitude very much exists, much to the detriment of the economy and wages, in other states. Importantly, the attitude of regulators extends from industry-specific bodies to almost every agency such as worker compensation, public utility, and taxing agencies and policies. For instance, the early exploration of the Bakken began in Montana with few in the industry expecting North Dakota to become a viable play. While challenging geology has slowed exploration, Montana has further crimped its ability to take advantage of the Bakken in non-production businesses with difficult regulatory requirements and worker compensation costs among the highest in the nation. With surging power consumption on both sides of the North Dakota-Montana border, utility providers have often found it easier to work within North Dakota than in-
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BUSINESS PERSPECTIVE
CROSBY
POWERS LAKE
TIOGA
WILLISTON
MINOT
GRAFTON GRAND FORKS
WATFORD CITY NEW TOWN PARSHALL
DICKINSON
RICHARDTON
BISMARCK
JAMESTOWN
FARGO
akken Backers Members
Rob Lindberg
side Montana’s borders. High tax rates and heavy regulation on pipelines have limited pipeline expansion in the state, a function that provides high numbers of construc-
82
tion, maintenance, and engineering jobs in North Dakota. Other states place much greater regulatory restrictions on the energy industry to the detriment of their business communities and working population. States like Colorado and especially California, as well as communities within them, have taken steps that block any development, responsible or not, within their borders. In Colorado, setback restrictions cost millions of dollars in lost opportunity for the state, industry and local businesses, while some local
The BAKKEN MAGAZINE MAY 2014
governments have outright banned industry practices such as hydraulic fracturing, despite any credible evidence anywhere that suggests the practice has produced a harmful outcome. Meanwhile, in California, which holds the Monterey formation containing twice the estimated reserves of the Bakken, the county planning commission for Santa Barbara County denied a proposal by Santa Maria Energy LLC to drill 136 wells, despite a staff recommendation to approve the project. The story is consider-
ably better for North Dakota, where support for energy development in the state remains extremely strong, consistently polling above 80 percent. Here people recognize the need for industry in providing opportunity for job creation and business expansion. They recognize reasonable regulation protects our state’s outdoors and water sources while giving far greater benefits to our workers and entrepreneurs. Bakken Backers was created to help promote this message. We must acknowl-
BUSINESS PERSPECTIVE
edge the good works the industry does in reclamation, for the outdoors and charitable organizations. We too can endanger our state’s energy industry with over-regulation in small measure and in certain ways, we are on just that track. We have attempted to give voice to out-of-state environmental activists. Too often, these groups scream and shout while the rest of us go about our jobs and daily lives, never standing up to their attempts to stop an industry that benefits us all to varying degrees. But we must stand up. We must tell the story of how we benefit in small and great ways from what’s happening right here in North Dakota. We must remember the decades we only dreamed of a nation-leading economy and we must work to keep it so. Bakken Backers is here to give voice to North Dakota’s hardworking majority. The group promotes what the Bakken means for North Dakota’s entire economy, promotes the development of western communities and fights to keep the industry strong, and I hope you will help us tell the story of why the Bakken is important to you. Together, we’ll keep North Dakota a friendly place for every business. ON THE WEB
Join Bakken Backers at BacktheBakken.org or find us at Facebook.com/BakkenBackers
Author: Rob Lindberg Director, Bakken Backers 701-989-5432 rl@backthebakken.org The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of The Bakken magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).
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