Witnesses Backtrack on Bakken Crude Claims

The same day the U.S. House Subcommittee on Energy and Oversight held a joint hearing to better understand the characteristics and behavior of Bakken crude, the Subcommittee issued a press release with this title: “Witnesses Backtrack on Report’s Claim that Bakken Oil is More Flammable.”

The hearing included representatives from the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA), U.S. Department of Energy (DOE), North Dakota Petroleum Council, Turner, Mason & Co., and the Syracuse Fire Department.

During the hearing, members of the Subcommittee asked a representative of the PHMSA how the PHMSA knew Bakken crude was more volatile than other light sweet crudes. The PHMSA representative, along with another representative from the U.S. DOE on the panel, could not answer directly how PHMSA knew Bakken crude was more volatile. As the hearing continued, it was obvious the lack of information and the unacceptable answering ability of the PHMSA or DOE was causing tension and uncertainty about the PHMSA’s big Bakken claim (PHMSA released a report in July claiming Bakken crude was more volatile than other similar crudes). At least we thought the hearing was tension filled. Emily Aasand kept talking about the hearing as it played out, amazed at what was happening. We talked about the inability of those on the panel to answer a simple question, a question that for the Bakken has great importance.

It is nice to know that our thoughts and perspectives on the hearing—that claims stating Bakken crude is more volatile than other similar crudes are highly inaccurate based on testing performed and in the case of PHSMA, testing not performed—were on point.

Per the Energy Subcommittee press release, “…witnesses today including from the Department of Energy, agreed that such a claim requires further evaluation.”

From the Subcommittee’s Chairman, Rep. Cynthia Lummis, R-Wyo., “This [Bakken crude] is an important resource for the United States and it deserves due attention. The assertion that volatility necessarily correlates to increased ignitability and flammability has generated significant controversy,” adding that, “Testimony from both PHMSA and DOE witnesses clarified the context of volatility, explaining that petroleum from the Bakken region is properly classified as a “light, sweet crude oil” and not outside the norms for light crude oils. Further, the DOE witness stated that more scientific analysis is needed to better define the relationship between volatility and ignitability/flammability.”

And, also worth noting is this from Rep. Paul Broun, R-Ga. “The Department of Transportation report’s comparison of the Bakken crude, which is classified as a light sweet crude, to crude oil in general, including heavier crudes, is a bit like comparing apples to oranges because light sweet crudes as a class are generally considered to be more volatile than heavier crudes,” adding that, “America is on the road toward energy independence, with domestic crude contributing extensively, and it would be disastrous to impede on this extraordinary possibility.”

Takeaways From The Williston Economic Summit

Sometimes the best way to gather information is via text message or old school instant message. This morning my team member Emily Aasand was sitting in the crowd at the Williston Economic Development Summit taking notes, marking down important story ideas and texting and instant messaging me. I asked her to shoot me three of the most talked-about themes or takeaways from the event and it didn’t take her long to ping me back with an IM that included the following.

First, medical services in Williston are expanding. The city is adding a women’s center, rehab services and more physicians. (She even mentioned that the city will soon be able to reconstruct hands). The news of medical services expanding was a big positive during the show.

Second, the growth in the transload industry is still high and developers see it as an opportunity. We have a story planned on a transload facility developer that Aasand talked to at the event. Look for it soon.

Third, city infrastructure growth continues its rapid pace. That can be seen by the addition or plans for a new airport, fire department, more parks, stores and most importantly, housing. National rental firms and housing developers were at the show to learn and talk about that topic. Their main concern was the future of the city and its growth projections. Their questions were answered during several presentations, Aasand said, and the general consensus from the show is that growth in one of the Bakken’s hub cities is set to continue for the foreseeable future.

Look for Aasand’s story on the event here. And, for projections on Williston, check out this original piece we put together last year based on our talks with the researchers responsible for the projections.

The View From Whiting’s Parking Lot

There were roughly 70 of us sitting in the parking lot of Whiting’s Watford City, North Dakota-office last night, but it felt like the entire state was there. Many of those in attendance were there as part of a state legislative tour organized by the Watford City Chamber of Commerce. The reason for Watford City was simple: highlight the incredible activity, constraints, success and plans associated with the current and future state of Watford City.

Following a bus tour of a drilling rig and fracking site—and a long wait in traffic on U.S. Highway 23 east of the town—the tour bus arrived and dropped everyone off at Whiting’s location as the final leg of an all-day trip. We sat under a large tent, assigned to numbered round tables. Each table included industry representatives from the Bakken, the state legislators and young professionals who’ve started careers in the Bakken’s unofficial oil production capital.

Whiting’s facility sits at the top of a ridge, overlooking a large swath of the town. It was hard to tell where the limits of the city ended and the open fields of wheat and oil pads began from that vantage point, a fact that many in attendance understood as a major reason for the gathering’s location. The view was picture worthy, the air was calm and cool as if fall was moving in. A photographer would have been jealous of the sunset behind our tent. Darick Franzen, the president of the chamber, joked with everyone there that he was responsible for the weather. In reality, the organizers of the event had hoped for worse. They had hoped that those in attendance would see some of the less desirable conditions often present there involving dust, wind and mud. But, after someone made that point, many responded that after waiting in a traffic jam outside of Watford City on their way to Whiting, “they had seen enough.”

The event lasted more than an hour and was highlighted from developers, city leaders and county officials explaining their plan to keep the city growing. I can’t describe everything that happened there in this short blog update. Not because I don’t want too, but because I’m not sure this website will allow me to post a 10,000 word blog. The story from that gathering is long. And, in this case, long equals important. What happens following that gathering will impact the ability of that city’s growth, and the industry’s that depend on the city, for years to come. My goal is to include the story on the gathering in our October issue, but I can’t honestly say I’ll have truly conquered and condensed everything from that night into a print piece by then.

An Interesting Week of Bakken Calls

This week was a reminder that the Bakken is a nationally recognized business opportunity. To explain what I mean, I will share some of the calls and emails I received, along with conversations I held during this past week to highlight the fact that the Bakken draws attention from all parts of the country.

Mineral Owner/Small-Time Investor:

Following SM Energy’s acquisition of 61,000 net acres in Divide County, North Dakota, we posted a story on the details of the transaction. A few days later, I spoke with a mineral rights owner and small-time Bakken investor from Iowa looking for insight into the transaction.

Drilling Software:

Included in a bullet point list of what this company’s software can provide for directional drilling applications, I received a very succinct and detailed note from an Oklahoma City-based drilling software provider. We have yet to catch up via phone, but based on the email, I believe the conversation will entail information on the drilling software’s potential use in the Bakken.

Potential Water Supplier:

An Alabama man reached out to me via phone regarding a potential water source that may be available to the Bakken. I’m not going to say much more than that out of respect to the caller, but, he was already working with folks in Montana to find a way to utilize a water source that is going unused. And, it should be noted, I’m trying to connect him with a few different water players.

NORM Handling:

On my to-do list today is a call-back to an Arkansas proppant supplier that left a message for me last night. The call will entail information on proppants I’m guessing, but, it will also include information about NORM. The person who left the message was calling in regards to one of our recent stories on NORM handling and disposal and their ideas on the process.

Insight Gleaned From an Analyst, Midstream Gas Gatherer Conversation on Flaring

Those informal lunch meetings many of us partake in with acquaintances or industry participants may not always yield valuable insight or make chasing a lunch special worth the effort, but as Patrick Miller’s in-depth piece on flaring from our August issue shows, sometimes an informal conversation over lunch can yield worthwhile results that we can take with us back to the office. David Scobel, chief operating officer of Caliber Midstream, told Miller that it was at a lunch with a financial analyst that helped Scobel see one of the major problems with flaring in the Bakken.

Miller writes about that conversation to open his piece, “Executing the Gas Capture Plan.” I won’t spoil the point of the piece or dissuade you from reading the full thing. I will, however, say that he did a wonderful job at using that conversation as a vehicle to deliver for all of us a message about the current state of flaring. After reading the opening lines of the piece, you may not know what Scobel was eating that day, where he was at, or even why he was there. But, you will leave those first few paragraphs with a pretty good understanding of some of the main challenges midstream gas gathering companies have to deal with in regards to flare gas capture within the Bakken.

And, because I’m on the topic of explaining some of our August print stories, it is worth pointing to the exclusive monthly column that the North Dakota Petroleum Council has penned for us.

Have you ever seen a television commercial about the former mayor of Williston, a couple that opened a Bakken restaurant in Watford City or an engineer who was able to move back to Bismarck because of the Bakken? Those commercials were created by the NDPC team. Tessa Sandstrom, communications manager, explained how the commercials came about and why they are relevant to anyone affiliated with the Bakken in our August issue.

Operator Updates: What We’ve Learned in Q2 2014

Our team has been busy covering second quarter earnings calls and production updates from several Bakken operators over the past two weeks. We have a spreadsheet to track which exploration and production firms we’ve covered and which companies we haven’t. For nearly every story we have posted in combination with those we still have in the works, the one glaring theme is that Bakken operators are having incredibly successful second quarters.

Whiting Petroleum Corp.’s Bakken production is 33 percent higher than it was at the same time period last year. Marathon Oil’s second quarter production totals in the Bakken are 16 percent greater than the previous quarter. ConocoPhillips is producing 19 percent more crude than the previous quarter. And, Emerald Oil had its strongest second quarter in company history, beating its production guidance by roughly 8 percent.

The reason for success is more complex than the simple assertion that more wells in the ground than ever before should correlate to more oil produced than ever before. Many of the earnings calls for the second quarter revealed another trend among Bakken operators: good well density plans and completion methodologies used previously are being tweaked for better production totals.

Every one of the aforementioned operators specifically pointed to successful tweaks to completion designs or well density spacing as major reasons for improved production numbers from the previous quarters.

Whiting is high on coiled-tubing and slickwater. Marathon Oil, which reported it had experimented with different completion designs in roughly 50 percent of all of it’s Bakken wells in the second quarter, is big on slickwater, increased stages, cemented liners and more proppant per well.

WPX Energy could offer the best example of the trend that shows Bakken operators getting better at what they do. The exploration and production company announced that it will now use roughly 6 million pounds of proppant per well in the Williston Basin after significant production increases in the wells that used more proppant. The previous norm for WPX Energy’s proppant volume was roughly half of the new volume the company will deploy. On top of its production increases linked to proppant volume, WPX Energy also announced it had added and astounding 200 new drilling locations to its current Williston Basin acreage due to its own testing and analysis of well density. Although it will continue to develop 7-well pads, WPX Energy has shown it can also develop 11-well pads without impacting production.

Why We Cover Completion Details

SM Energy Co. is a prime example of why our team continually tries to include completion technique details into stories regarding exploration and production companies when possible. SM Energy announced this week that it had purchased $330 million worth of acreage in Divide County, N.D., from Baytex Energy Corp. The purchase was the largest monetary transaction for SM Energy in company history. But, the acreage in that portion of the Williston Basin has been known to produce high water cuts, and in the case of some operators, poor well production results. Although SM Energy has already proven it can be successful in the area through its own well production results for its current acreage in Divide County, there has been some perspective in the industry that the area may not be as desirable as other areas in the Williston Basin.

Tony Best, CEO, said he was excited for the purchase and the possibilities that lie ahead for the new acreage. The rest of the executive team mimicked his sentiments. So, given the background of the region that SM Energy will now develop, why is the operator so excited about acreage that it hasn’t been able to verify using its own methods of derisking? Among many reasons that I’m sure we all don’t know about, one glaring reason has to be the success encountered with new fracking designs deployed by SM Energy in its adjacent Divide County acreage that virtually surrounds the purchased acreage.

During the announcement of the sale, SM Energy pointed to the use of increased sand loads as a main cause of better production, and higher rate of return per well in the Divide County wells for which it deployed the greater sand volumes. The new method will be used on the newly acquired acreage, and, the new completion method helps to explain why SM Energy is—and probably rightfully so—excited about the purchase.

Because of the better well results, the company even made the comment that it might need to rethink its downspacing efforts in the area due to the better production. It is possible, the company alluded, that it might need to space its wells closer together to potentially put more in. That is important, and it is why we include information on well completion styles and the production results that follow. In many cases, tweaks to well completion designs can impact the entire service chain linked to production that starts on the well pad.

What Slickwater Means To the Bakken

There have been several Bakken buzzwords thus far in 2014, including: flaring, exports and rail. Thanks to undeniable individual well production increases (when compared to other wells using alternative completion designs), we can add the term slickwater to those that have characterized the Bakken this year.

To reveal why slickwater fracks have been championed by so many operators in the Bakken, we spoke with an operator, an energy services provider and a water-based engineering and infrastructure firm. Their collective understanding and dealings with slickwater frack designs can be summed up this way:

-Slickwater fracks can create a more complex fracture network

-Deploying a slickwater frack requires extra attention to water handling and logistics

-When performed correctly in the appropriate geologic setting, the production increases from slickwater fracks are undeniable, just look at production numbers from Whiting Petroleum, Oasis Petroleum, Triangle Petroleum, Liberty Resources and several other Bakken operators. (Lynn Helms has even reported an increase in water usage at the well for fracturing purposes).

To learn what Halcon Resources thinks about slickwater fracks, or, what AE2S Water Solutions believes needs to be done to handle the additional water, check out “The Slickwater Story

To understand how slickwater fracks work, the theory behind the method and how Sanjel Corp. has successfully used the method in the Williston Basin, read “The Secrets of Slickwater.

In addition to those two pieces on slickwater, we also covered the way water is used as a whole in North Dakota. Ever wonder how much water is available in the state, or, how much water is used per year on hydraulic fracturing efforts? Emily Aasand’s piece, “The State of Water,” has those answers and more.

Stories About Proving People Wrong

If there were a theme to this week’s newsletter, it would be about the continued ability of the Bakken to prove people wrong. NCS Energy Services reported that the Canadian-based company had recorded a 93-stage well in the Bakken using its amazing multistage frack sleeves, coiled-tubing and a unique bottom hole tool system. We covered thr news this week, along with a previous NCS Bakken record the company reported last year. A typical Bakken well will be completed with 25-35 fracture stages. Although many other energy service providers will surpass that mark, there has at times been a general consensus that a well completed in the 30-stage range is the best approach. The record by NCS is a clear example that constant innovation and record breaking is an everyday theme of the Bakken, and that what we believe to be true in the Bakken is always changing.

We’ll provide an in-depth look into the NCS record in a future print issue. A member of the team had already reached out to our team prior to this announcement regarding some significant achievements the company had reached in the Bakken. They weren’t lying apparently.

Although the story on a South Dakota Frack sand operation is far from complete, we also included a piece in this week’s newsletter on a company that is bucking the notion—based on a state report that said S.D. sand was not suitable as frack sand—that the Bakken can’t utilize frack sand from South Dakota. We talked to the company who has proposed the frack sand operation and the state geologist who spearheaded the sand report. You be the judge on how the story will end.

For all of the attention placed on Bakken oil production—more than 90 percent of new wells drilled in North Dakota are in the Bakken and Three Forks formations—Legacy Oil and Gas reminds us that the idea that the Bakken is the only play worth pursuing is wrong. The Calgary-based company has purchased an exploration and production company that had been operating in Bottineau County, N.D., targeting the Spearfish formation. Legacy purchased the assets of the company, in large part, to add to its own existing acreage in the Spearfish formation.

Next week we’ll discuss the stories in the July print issue, many of which were focused on the monthly theme of water. The stories include a look at North Dakota’s water supply, and, a term that will become a common term to anyone familiar with the Bakken: slickwater.

Bakken Stories To Know For The Fourth

Anyone reading this knows that tuning out the current happenings in the Bakken (or for me, even the word Bakken) is nearly impossible. Heading to the fourth of July holiday for those of us in the states, we’ll certainly try. But, when family members or others we encounter ask us about our jobs and the Bakken and we have no choice but to respond, these are the stories I believe we should all know and offer. Each story occurred within the past seven days.

Story 1: North Dakota, thanks to the Bakken, officially produces more than 1 million barrels of oil per day. To use a line I’ve heard Ron Ness, president of the North Dakota Petroleum Council, say to describe the state’s impressive production, “North Dakota produces more oil before the sun comes up than most countries in the world do.” The 1 million barrel per day mark is not something the state has let pass lightly. Last week at the 1 million barrel celebration in Tioga, N.D., the biggest names in the industry were there. The event included amazing food shipped from Louisiana, massive equipment pieces on display, aerial tours, bus tours and an airshow that almost made sick just watching. The acrobatic planes on display were as far from an amateur show as possible.

Story 2: Major exploration and production companies continue to invest in the future of the Bakken oil play. Following in the actions of Continental Resources a few years ago, Hess Corp. donated a significant amount of money to the University of North Dakota. The $5 million fund will be used to support the school’s College of Engineering & Mines’ Collaborative Energy Complex. The day after listening to Gov. Jack Dalrymple speak at the Tioga celebration, Emily Aasand and I were sitting behind him before he spoke at the UND-Hess press conference announcing the donation.

Story 3: Come October 1, the way North Dakota regulates flaring will drastically change. In a rare occurrence, the N.D. Department of Mineral Resources held a press conference this week to announce the changes. No matter what anyone believes to be the reason why the regulations have been put in place, the state will have the ability to inflict production curtailments on wells that do not capture roughly 76 percent of the flared gas produced along with oil. The magic number to achieve is basically 60 percent. If an operator is capturing less than 60 percent of the gas, the well will only be allowed to produce 200 barrels of oil per day. In May, Gov. Dalrymple said the state was getting serious about flaring. When you are talking with family or friends over the U.S. holiday break, you can tell them all that Dalrymple wasn’t kidding.