Quantifying The Shale Energy Industry

How should we quantify the importance of the shale energy industry to the U.S.?

If we quantify the importance of shale energy by the job count, energy produced or economic impact, then shale energy is undeniably important. If we value the industry by it’s ability to reduce the amount of foreign-based crude oil imports, then the importance of shale will truly be realized in 2037, the year when the U.S. Energy Information Administration believes U.S.-based crude production—led by shale-based production—will eliminate the need for oil imports.

Harold Hamm, CEO of Continental Resources Inc., wants us to think about shale energy, particularly horizontal drilling, in a broader context of importance. For Hamm, shale energy, and it’s greatest asset—horizontal drilling—has changed the world. He told a massive crowd of attendees just that last week in Denver. I was sitting near the front row of chairs, frantically making notes and that is the one line I had underlined multiple times. “We have changed the world,” Hamm said. By we, he meant Williston Basin operators and Continental Resources.

The change he is talking about was seen in a billboard he seemed to proudly display on his PowerPoint presentation. The billboard was simple, and contained only four lines of text, one on top of the other. The image appeared like this:

The Light Bulb

Flight

The Internet

Horizontal Drilling

Kudos to his marketing team, or whomever crafted the text. It seems to provide the best way to quantify what shale energy means to the U.S., without any amazing bar charts or 30-page whitepapers.

Live from Denver (and sort of Billings)

Part of our team is headed to Denver this week for what appears to be a great Bakken show. The other part of our team is headed to Billings, Mont., for another Bakken-related event. I’ll be covering the week’s news and important stories from the Denver event. We’ve also scheduled some really great story interviews that we will squeeze into the May issue, an issue that could offer the most stories in one issue in the history of the magazine. If you are in Billings this week and have a story pitch for me, send me a note. If you are in, or headed to Denver, I hope to see you there.

News of the week:

Private equity investors should become more active in the next 12 months to 18 months, according to a survey completed by global tax, auditing and advisory firm KPMG. “Many PE funds have large amounts of uninvested capital and are seeking attractive opportunities, especially in emerging markets and in industries that exhibit the potential for above average growth,” said Marc Moyers, KPMG national sector leader for PE.

Moyers statement made me immediately think of several Bakken-linked businesses or operators that have already shown incredible growth from 2012 to 2013 or from quarter to quarter in the past few years. The survey by KPMG also showed that more than 50 percent of the oil and gas executives believed their respective company would acquire another asset. Late last week, Worthington Industries helped to show the validity of that possibility. The steel products manufacturing giant acquired Steffes Corp.’s oil tank manufacturing division. When I asked Worthington’s director of energy sales why it chose Steffes, the answer was simple. Worthington understood the complexity of doing business in the Bakken, and the importance of a respected name, product, business and also, the culture and number of workers employed by a Bakken firm. “Human capital is critical,” Worthington believes. Look for more on the KPMG survey and the Worthington acquisition in this week’s newsletter.

Stories To Come, Stories We’re Following

I don’t feel bad divulging the content from an email I received earlier this morning from Jesse Crone, regional manager for a Dickinson, N.D.-based energy services provider. Last week I spent a morning on the phone with Crone (following an in-person meeting a month prior) to learn about his story and some recent advancements his crew has made in providing milling services following frack jobs in the Bakken—specifically a new mill design that has yielded some impressive results by drastically reducing the time required to mill out composite plugs in the well bore. Yesterday, I shot a quick note to Crone regarding a photo shoot date for his team and the mill. This morning, he replied that he’d been on a job for a few days working nearly 24-hours straight at one point during that job, and, that the photo shoot/photos would have to wait. My guess is that Crone and his team is trying to break some kind of record for milling out plugs based on the capabilities of the team’s Remi mill design we talked about for the story. If I’m right, you’ll hear about his 24-hour long job in the story on milling coming soon in the April issue of the magazine.

This week, we also lined another great story. Quantum Energy is joining the list of companies willing to design, build and operate a Bakken-crude fueled refinery. Next month we’ll be heading out the future site of the refinery to learn why locating the future refinery near a transloading facility makes sense. Next week, we’ll sit down with an operator based out of Denver to learn about it’s two-year rise and its unique acreage location that allows it to recover Bakken and Three Forks crude for roughly the same price. The geology in the area puts the two formations close to each other in depth.

One of the stories we continue to follow is the debate on exporting U.S.-based crude oil. Harold Hamm, chairman of Continental Resources, has already testified before the U.S. Senate, and this week he provided testimony to a U.S. House committee. Without over simplifying the debate in a negative way that misrepresents the debate, so far the arguments are this. One side believes allowing the export of U.S. crude will be a net positive by: allowing U.S. producers to reach new markets, the U.S. to be impacted less by foreign-based crude prices and to increase the amount of crude available to the global refining capacity markets. The other side, including U.S.-based refiners, says the price of crude in the U.S. will rise if we allow crude oil exports, adding that job loss and U.S. refinery stability will occur.

Although the debate seems to be gaining additional attention, there is no sign that any immediate action will be taken to begin allowing the export of U.S.-based crude.

The Harsh-Weather Reality of the Bakken

The 2013-2014 winter season in the Bakken has been memorable. Oil production numbers from November to January for North Dakota indicate that memories from the 2013-2014 winter do not classify as good. In November, oil production reached a record high for North Dakota at 973,045 barrels of oil per day. The 1 million bopd milestone was in sight. Neset Consulting was even planning a 1 million barrel celebration in April, the same month production numbers for February would be revealed. In December, production dropped to 923,227 barrels per day, due to several major snow, wind and extreme low-temperature events. Although production rebounded in January, reaching 933,128 bopd, winter weather was still a major production hindrance, according to the North Dakota Department of Mineral Resources. Heavy wind limited the ability of completion teams and workover rigs to service well sites.

More cold temperatures and difficult operating conditions will keep February numbers below the 1 million bopd mark, and, with the spring thaw starting now, road restrictions already in place will mean March is also another month in the high 900,000 bopd levels.

In addition to cold temperatures and high winds, the transition from winter to spring in the region has impacted production. Flooding near the confluence of the Yellowstone and Missouri rivers has caused several well sites to perform shut-in services. Some operators, however, didn’t perform any shut-ins or take the appropriate actions to prepare for the flood waters, and according to the DMR, could be fined for the inaction.

Hess Corp continues the commissioning process of its Tioga gas plant, and operators with wells in the area shut-in roughly 100 wells to reduce the amount of flaring in the region, representing another production hindrance. The wells are being connected to a gathering system linked into the gas plant and should be back online this spring.

Several operators have underperformed in fourth quarter predictions, or, at least noted the difficulties experienced during the winter months to achieve pre-established production and operations goals.

Given the production number ebbs and flows for this past winter, the operator recognition of the weather, the flooded wells near the confluence and the current road restriction/production restriction in place, it’s easy to see that the 2013-2014 winter was memorable and that weather truly is a major factor in the Williston Basin.

For all of us in North Dakota, or those that have been following the story of the Bakken, the weather’s impact is not a new story. And although this past winter was particularly difficult, I think Neset Consulting’s date change—the consulting giant has moved its planned 1 million barrel celebration from April 2014 into June 2014—is an accurate assessment of the Williston Basin’s production potential. It will reach 1 million bopd very soon, weather permitting.

Don’t Let The Keystone XL Overshadow Continued Bakken Infrastructure Investments

In the past week BNSF announced its plans to invest a record amount into its North Dakota rail infrastructure. During that same period, Energy Transfer Partners issued an open season call to gain crude shipper commitments for a pipeline proposed to move Bakken crude to Illinois and then to Gulf Coast refineries.

Both news items help to solidify a sentiment many linked to Bakken crude believe: the amount of infrastructure planned, proposed, under development or already in place in the Bakken can and will provide adequate capacity to move crude out of the region to available refineries. Because of that, the proposed Keystone XL pipeline may not be as vital to the long-term health of the play as many once thought.

The BNSF and ETP stories also show that infrastructure development in the Bakken is going to continue for the foreseeable future, regardless of the Keystone XL pipeline.

On the pipeline front, the ETP open season call is just another reminder of the incredible interest and want by pipeline operators to enter the Bakken market, regardless of whether other similar firms have pulled out, failed, or stalled in their attempts.

On the rail front, BNSF’s investment is a reminder that the rail industry, and its ability to move Bakken crude, is in a unique spot. Railroads in the U.S. are privately owned. And, as Ed Hamberger, president of the Association of American Railroads told me last week in a very candid conversation on the AAR’s take on the Bakken, the privately-owned nature of the rail industry is a huge boon to the Bakken. Investments like BNSF’s, or other planned projects ranging from transloading facilities to railcar retrofit locations would face a much more difficult challenge in becoming realized if there was more to adding track than just finding the money to do so.

Report reveals ND oil industry’s frack water consumption

Some industry voices believe the real story of the shale energy renaissance is not being told. To many, the story is about hydraulic fracturing, to many more it is about job creation, and to some the actual story is all about our recent ability to drill sideways through directional drilling. After reviewing the facts about water consumption as a whole by North Dakota in a report issued this month by the N.D. Water Commission, I’m fairly certain we can add another story to that list.

For all of the rhetoric and information we continually hear or read about on the topic of frack water or the oil and gas industry’s need for water, I’m not sure the entire story is ever really told or the entire context of the topic explained.

In North Dakota, circa 2012, the oil industry consumed 12,629 acre feet of surface or ground water for fracking purposes. That number accounted for 4 percent of all water consumed in 2012. Irrigation topped the list at 56 percent. According to the report, “One day of the average daily flow of the Missouri River at Bismarck (45,480 acre-feet) is enough water to frack 6,497 wells, or 87 percent of all the wells that have been fracked in North Dakota.”

The oil industry depends on water. Some operators who are tweaking frack designs to incorporate slickwater, a process requiring up to four times more water per frack, will need even more water in the future. When that happens, it will be nice to remember the full context of the story on water, fracking and North Dakota thanks to the Water Commission’s report.

Three Men and a Crane

On the eastern outskirts of Minot, N.D., almost directly underneath a tall blue Minot-labeled water tower, sits an unused crane capable of moving oil and gas related equipment. The crane is only there because it will soon be sent back for a larger version. The other cranes in the fleet are out in the field somewhere, most likely moving a drilling rig, a spool of coiled tubing or something else that is massive and potentially oil-related. Although the story of the three men and a crane didn’t start on the outskirts of Minot, that is where the three men (and now many more) and the crane (also now many more) has evolved.

This week I had the opportunity to tour the Rossco Crane and Rigging crane facility in Minot, and spend a morning with the founder of the company. We spoke about the evolution of the company due to the Bakken, and how it is approaching a constantly changing oil field. The talk revealed how one particular service and equipment provider views the Bakken both now and into the future, and, what operators are working towards in regards to developing their leases. Just to be totally honest, we also talked a little bit about Ross Kovach’s-the founder-time and lessons learned in Wyoming, strategies to grow a Bakken-infused business and mule deer hunts. Rick Long, general manager of the company, also provided some incredible insight into his world of reaching out to decision makers who might be in need of a drilling rig move or coiled tubing spool move.

The story about Rossco Crane would have appeared in the upcoming issue of the magazine, but sometimes it’s best to write a piece without a word or page count limitation predetermined, something I had mistakenly done before spending a morning with Kovach and crew. The three men and a crane reference was coined by Long, in an effort to explain the history of the company to new hires.

After I left the Rossco facility, I joined a few hundred other people at the Minot Area Development Corp’s annual meeting. Blu Hulsey, vice president of government and regulatory affairs for Continental Resources, gave an update on the company’s current and future aspirations, including the work Hulsey is doing in Washington regarding crude oil exports, taxes and more. The room was packed. It was clear to see everyone wants to know what the operators responsible for retrieving oil from the Bakken or Three Forks are doing now and planning for. Because of that, I’m thankful I spent the morning with a industry-related company that has to plan its own schedule, literally, on where the industry is going.

3 Questions for the Bakken Industry

This week our team wrapped up the February issue. The magazine includes stories on the impact of high-density drilling on investors, new advancements in proppant creation technology, drilling fluid manufacturers, a Bakken legend, the potential for unmanned aerial vehicles in the Bakken oil play and as you’ll see when the issue comes out, much more. A pallet of boxes containing the issue will be delivered to the Alerus Center in Grand Forks, N.D., on Friday Feb. 7, so that every attendee of a Bakken-related event our magazine has organized in collaboration with the University of North Dakota’s College of Engineering & Mines, will be able to page through the issue while at the three-day event. Our team has written about our efforts to create an event that mimics the quality, scope and type of content that our magazine delivers each month in numerous articles and you’ve probably read about it directly from me a few times.

The event is fast-approaching, and has created a great-deal of excitement amongst our team and the sources and clients we talk with about it. I’m actually preparing for one of the main attractions of the show this week. We have put together a panel of industry experts, and by experts I mean company officials who work for large Bakken-based firms, that will talk about what they are seeing, what they have learned, what they are watching for in 2014. For the panel, I’m sitting down for an hour on the main stage with the presenters, and I’ll ask them several questions. Here are three of the questions I’ll start with:

How has the Bakken changed from 2006 to 2014?

What topics or stories related to the Bakken do you feel have gone under the radar?

What will 2014 in the Bakken bring for your company, and most importantly, why?

For more on the event, visit our agenda here, or, give me a call. I’ll do my best to point you to a specific topic of interest, there are many. And, if you have an idea for a question to ask the industry, let me know soon.

Why It All Starts With The Rock

Bakken operators are well-deserving of the attention they receive from service providers, investors and media. If one wants to learn about the current state of the play, the best place to start is by focusing on the current efforts of the play’s operators. But, after a handful of visits, phone calls and sit-downs I’ve recently held with a particular type of professional, it’s clear to me that if one wants to get a glimpse into the future of the Williston Basin, geologists are the go-to source.

Two weeks ago I spent the morning with Julie LeFever, the geologist considered to be one of a handful of individuals responsible for discovering and asserting the Bakken’s potential. Her history has been told before, but I wasn’t there just to learn about her amazing past. Through the course of a few hours, I toured the Wilson M. Laird Core and Sample Library, a facility responsible for housing core samples from every well drilled in North Dakota. I certainly asked LeFever about her past, about the moments she remembers best as the Bakken went from a possibility to an oil-producing mecca. I also asked about her new areas of interest, the work that excites her now and where the future of oil production in North Dakota is headed. She spoke about all of it as we walked through the massive core library collection, looking at core boxes from several decades ago. Before I left, I chatted with some geologists in-town from Denver. Look for the story of LeFever and what she believes will happen in the future in the magazine’s upcoming issue.

Along with my encounter with LeFever, I have to admit that reading through Stephan Nordeng’s report on research he is currently undertaking to better understand the kinetics, temperatures and pressures related to petroleum production in the Williston Basin left me thinking his work was, for lack of a more specific description, cool.

His work could help other geologist find other formations in the Williston Basin that have adequate oil presence. Check out the story in this week’s newsletter to learn more. The piece links to his full report.

The Golden Age of the Bakken?

There are many common Bakken themes that I’ve heard about when talking to industry, and the constant presence of change in the Williston Basin is one of the most common. This week Tervita Corp. officially announced the opening of an oilfield waste landfill in McKenzie County. In September, we published a story documenting the first-ever oilfield waste landfill site to open in the Bakken. Based on the positive reaction that the landfill’s owner received from interested parties, along with interest in the story and the landfill, it was clear then that the landfill was a big deal. But, since then the Bakken has changed. More landfill operations have opened, including the Tervita facility along with a Nuverra Environmental Solutions facility, and although Tervita’s announcement is great for the industry, it also highlights how much and how fast the Bakken actually does change.

Our February issue is not themed with the topic of change, but from the stories on self-suspending proppants, investment strategies and even the story behind the making of the ultimate Bakken core library, it is clear that change will continue. I point that out as a reminder that although we may think the industry is incredibly efficient at drilling, completing wells and retrieving oil (look at the consecutive number of months in which N.D. has set oil production records), the industry will keep changing and the way it operated two years ago will be vastly different two years from now. That might be stating the obvious, but it does create an interesting question. To use the term most widely linked to eras and a period of time regarded as the best possible time or era, when will the golden age of the Bakken happen? From my perspective based on new research efforts and new findings in retrieval techniques, all combined with policy changes and new regulations set to happen, things may be good now but the golden era hasn’t even started. Beg to differ? Let me know.