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Vol. 19, No. 22 Week of June 01, 2014
Providing coverage of Bakken oil and gas

Three CEOs talk Bakken

Continental’s Hamm, Whiting’s Volker and Oasis Petroleum’s Nusz share their views on the present and future of the industry in the Williston Basin

Mike Ellerd

Petroleum News Bakken

Three of the Williston Basin’s largest oil producers shared their views on a variety of issues facing operators in the basin during a panel forum that closed out the 2014 Williston Basin Petroleum Conference on May 22.

On the panel were CEO Harold Hamm of Continental Resources, CEO James Volker of Whiting Oil and Gas and CEO Thomas Nusz of Oasis Petroleum. All three companies operate in both North Dakota and Montana and all three are among the top 10 oil producers in North Dakota and among the top five in Montana. The 22nd annual conference was held in Bismarck, North Dakota, May 20 through 22, and set a record attendance with some 4,500 registrations.

The panel discussion was moderated by North Dakota Petroleum Council President Ron Ness. After presentations by each of the three CEOs was a question and answer session with Ness followed by a press conference. Among the issues the three CEOs discussed during the Q&A session and the press conference were natural gas and flaring, Bakken crude characteristics and crude-by-rail, and the relationship between agriculture and the oil industry. Other issues were also addressed such as opening U.S. crude oil exports, enhanced oil recovery, Keystone XL, and future crude oil pricing.

Natural gas and flaring

Flaring of natural gas remains a focal issue with industry and government in the basin. All three CEO’s companies are capturing 90 percent or more of the associated natural gas they produce from their Bakken system wells. Nusz said Oasis has 97 percent of its wells connected to gas gathering infrastructure, and on a volume basis the company is capturing about 90 percent of its produced gas. For Oasis, Nusz said, it’s “just good business management in making sure we have the infrastructure in place to handle all of the fluids.” Regarding the new requirement taking effect in North Dakota on June 1 where permit applications must include an acceptable gas capture plan, Nusz views that as “just prudent,” and commended the council’s flaring task force and the North Dakota Industrial Commission in developing a flaring target.

Nusz also addressed the production logistics of simultaneously bringing multiple wells on production. In bringing on up to 15 and possibly more wells on a drill block effectively at one time, Nusz said it’s critically important for an operator to have good business partners. Considering not only the gas, but also the oil and water as well as fresh water distribution systems, he said. “I think you have to find the right partners to align yourself with, and if you can’t - just like these guys (Continental and Whiting) have done in the past, you have to look at doing it yourself so that you can manage business risk.” Nusz said more of what he calls “community planning” is necessary “to make sure that as we execute on these drill blocks that we can handle all the products, not just gas.”

Volker said that Whiting operates most of the acreage in the Sanish and Pronghorn fields in Mountrail and McKenzie counties where the company along with a partner has invested approximately $560 million in gas infrastructure, including two gas plants, and as a result, he said, Whiting captures approximately 95 percent of the gas produced in those two fields. Volker said one of those gas plants is “one of the most profitable natural gas plants I’ve ever been associated with.” He also referenced the Petroleum Council’s flaring task force which he said is very active in meeting, and perhaps exceeding, the date at which gas capture across the state reaches 85 percent or greater.

Continental is also capturing 90 percent of the gas it is producing according to Hamm. He said there have been some big projects that have helped his company as well as others with gas capture, such as the expansion of Hess Corp.’s Tioga gas plant and noted there are more plants in the works. However, Hamm also noted that building gathering infrastructure is sometimes hampered by right-of-way issues.

Asked about possible production curtailments that could result from the gas capture plans that do not meet Industrial Commission goals, Nusz said such curtailments are going to be difficult to predict. He echoed Hamm’s comment about the infrastructure being built, but also pointed to Continental and Whiting as good examples of business management in that they, along with Oasis, ensure they have the infrastructure in place so they are not at risk of having to shut wells in because the gathering infrastructure is not in place. Nusz said Oasis has to control its own “destiny” because “you don’t want to go out there and spend $150 million on a drill block and then sit there for 18 months waiting for somebody to come and get your gas.”

Crude-by-rail

All three CEOs responded to a question about shipping Bakken crude via rail in light of the recent controversy over safety.

Results of a study commissioned by the Petroleum Council to evaluate characteristics of Bakken crude released earlier in the conference indicated that Bakken crude is generally consistent throughout the Williston Basin and has characteristics comparable to other light, sweet crude oils (see May 25 edition of Petroleum News Bakken). In reference to that study, Hamm said the results confirmed what industry had known all along about Bakken crude.

“First of all, we had to clear the air and do this study,” Hamm said in response to a question about shipping Bakken crude oil on rail cars. “This idea that it was more flammable than other API oil … we knew better but we had to go through all the exercise and do it. So that was the first step, and that’s been done, and that ought to allay everybody’s fears,” he continued. “Will oil burn? Absolutely. It’s been transported (for) 160 years. Can it be done safely? Absolutely.”

Hamm said the carriers Continental has worked with have done a good job. “Can they do better? Probably so. And they certainly have moved in that direction to make sure that every movement is safe. And I’m one in the camp that … we can’t have any more issues on this subject, it’s got to be done in an absolute safe manner,” Hamm said.

Whiting is among the operators who prefer pipelines over rail according to Volker, who said Whiting “has always been a big believer in pipelining, and we’ve always been a big believer in the Midwest market for crude oil.” He commended Enbridge for its efforts to expand export capacity on its main line from Stanley, but he said even more capacity on that pipeline is needed. “And yet I’m after them (Enbridge) to expand that line, which they’re doing, into more Midwestern markets - that’s the logical driving market - and to take our crude into the Philadelphia refining complex and to replace the Brent crude that used to come over on the ocean, and essentially serve the entire metroplex from Philadelphia all the way up to Boston,” Volker said. “That’s the best market for Bakken crude in my opinion, and that market is going to be a solid market for us for 50 years. And all we have to do, really, is come in the backdoor of the refinery rather than the front door off the water. So those plans are under way and I think shortly we’ll see, if not just Enbridge, but other very entrepreneurial companies go in and tap that market and, as a consequence, move a lot more Bakken crude.”

Takeaway capacity could become even more important as the estimates of how much of the oil in place in the Bakken can ultimately be recovered. Volker said the thought used to be that 10 percent was the maximum recovery, but now he said that number is up to 20 percent or higher, and he believes that in 10 years recoveries as high as 40 percent could be realistic.

Nusz said he believes rail will always be part of the transportation complement out of the basin, but he also believes that more pipelines are necessary to manage the export balance. When asked about the idea of possibly pre-treating or degassing Bakken crude before shipping by rail, Nusz referred to the results of the council’s Bakken crude study and said it is a matter of “getting it out there that it’s not any different than what gets produced in a number of other places in the United States.” However, Nusz believes there will be more testing of the crude oil in the future to make sure its characteristics are well understood and that there is a better understanding across the entire transport chain of exactly what is being moved.

In response to the pre-treating question, Hamm said many people don’t understand the processes that occur in the field when oil is first extracted. In the field, he said, gas is first separated from the oil and the oil is then run through a heater-treater that heats the oil to a certain level which drives off even more gas. Those are the natural practices that all operators go through with crude oil production and he does not see any need for further pre-treatment prior to shipping.

Ag and Energy

When asked about the relationship between agriculture and energy in North Dakota, Hamm said those are the two premier industries in North Dakota and are very important to the state and that the oil industry recognizes that. He said oil companies work with landowners and noted that the advent of multi-well pad drilling of horizontal wells has worked very well to minimize surface usage.

Volker said the relationship between agriculture and energy goes back to the very founding of the oil industry, and said the industry honors the relationships with surface owners “because without them we don’t have a place to drill.” In addition, Volker said it is very important for the oil industry to be good stewards of the “land, air and water as well as the oil and gas resources,” adding that industry continues to make progress in that direction with such advances as pad drilling and the buildup of natural gas pipelines and processing plants.

On the competition between agriculture and the oil industry for transportation resources such as rail and truck, as a pipeline advocate Volker believes that pipelines are the ultimate solution. In the history of the oil industry, he said, pipelines have been the most economic and environmentally sensitive way to move oil from the field to the refinery and then through the distribution system. Volker said he is pleased to see the number of midstream and interstate pipeline companies making major investments in the state to solve the takeaway capacity issue.

US crude oil exports

“We do need to be able to export this light type oil,” Hamm said in response to a question on lifting the ban on U.S. crude oil exports. He said there are offshore refineries that are equipped to handle Bakken-type light crude, and he predicts the next session of Congress will begin movement on lifting the ban. “It’ll probably happen a bite at a time, an application at a time, but we see some movement in that process right now with the administration,” he said, adding that the administration has done some things that weren’t very good, such as the delay on the Keystone XL pipeline, but he added that the administration should be given time “to do the right thing here.”

Enhance oil recovery

Whiting is looking into enhanced oil recovery, EOR, for its Williston Basin operations, and Volker said Whiting has already conducted several pilot projects to test various secondary and even tertiary EOR methods. He said that historically he believed a 10 percent recovery factor was an industry norm, but with the technology that currently exists and is being applied, he believes recovery factors of 20 percent or even higher are realistic. Looking to the future, Volker said Whiting will be looking to see if traditional EOR methods such as carbon dioxide injection are necessary or if enhanced recovery can be accomplished by other methods such as water flooding and similar techniques “that drive that recovery factor even higher.”

Keystone XL

Hamm said Continental was one of the first proponents of the Keystone XL which would have the capacity to move some 350,000 barrels per day of Bakken crude out of the Williston Basin. “That would have helped had it been permitted,” Hamm said, adding that he believes the delay is one of the reasons rail exports have increased to the extent they have. He said the delay in XL has delayed a number of other viable pipeline projects that would now be transporting oil to the XL.

Crude oil prices

When asked about the future of crude oil prices, Hamm said the global demand for crude oil continues to increase, not so much in the U.S. because of efforts to reduce oil consumption, but throughout the rest of the world consumption is on the rise. He said many people have concerns about the price of oil, but he feels confident that the price of oil will remain in the range it currently is. Volker agreed saying there is a huge pent-up demand for crude oil in developing countries.



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