Empower ND Commission Meets In Stanley And Tours Oil

Empower ND Commission Meets In Stanley And Tours Oil Patch
By Mary Kilen, Mountrail County Promoter editor
The Empower North Dakota Commission group is pictured at Nabors 148 drilling rig, an EOG well
site located in James Hill Township.
Oct. 21, 2009 - Members of the Empower North Dakota commission spent all day Monday, Oct.
19 in Stanley in the second of a series of informational gathering meetings they are holding
throughout the state this year to develop recommendations for expanding the state’s energy
industry. The meeting in Stanley was designed to talk about oil and gas exploration and
production. The other meetings will deal with other areas of the energy industry in the state.
The day began with morning tours around the Stanley area. Commission members toured an EOG
well site housing Nabors Rig 148 in James Hill Township, a Murex Exploration frac site near the
Belden church, EOG’s field crew housing site between Stanley and Palermo, and finally EOG’s
new rail yard site northeast of Stanley. The tour gave commission members a real feel for the
industry before they sat down for their afternoon meeting at EOG’s new office building in
Stanley. The meeting featured updates about the industry as well as recommendations for future
goals on how to work together for the state to prosper. Each segment is doing a Strength,
Weakness, Opportunity and Threat (SWOT) analysis so that this commission can look at policy
and ways to assist the industry.
First on the agenda was Ron Ness of the ND Petroleum Council who welcomed everyone and
thanked the hosts from EOG, Eric Dillé and John Boyd, for arranging the tours and Murex for the
tour of the frac. He outlined the plan for this meeting to get information on where the industry is
now and where it is heading. While it is early to be looking at the legislative agenda for the next
session, it is valuable to gather the information and give commission members the full picture.
The first speaker was Lynn Helms from the Department of Mineral Resources. He started with a
look at the geology of the Bakken formation. There is the upper shale, middle and lower shale
and then at the bottom is the Three Forks formation. He compared the development over the years
to a sea floor, where the sediment washes in and fills in over the years. In the Bakken, the middle
shale is where 90% of the drilling has happened to date. Helms compares that to the Oreo cookie
with the good stuff in the middle, but now the Three Forks is showing great promise.
The Bakken formation covers about 44,000 square miles and two-thirds of that is in North
Dakota. The thermally mature portion of that measures around 14,000 square miles, most of that
in western North Dakota.
Historically, a formation is named after the spot where it comes to the surface. Since the Bakken
does not do that, it was instead named after where it was first discovered north of Tioga. For the
first 35 years after its discovery drilling was limited to vertical wells, which were not practical
with the Bakken formation. Directional drilling gave the ability to steer where they drilled and for
the next 25 years that drilling could go horizontal but they were mostly looking for natural
fractures in the rock, still making
the Bakken not very economic.
Now with state of the art drilling
rigs and hydraulic fracturing, they
are now able to make progress
with the Bakken formation. Even
with that technology, Helms
estimates it will take 10,000 to
20,000 well bores to fully
develop the Bakken.
2008 recorded the second highest
number of permits in one year.
2009 is shaping up to be another
The tour stopped at this site near the Belden Church as crews good year although not quite that
from Murex prepared for a frac job. The large number of
high. It will still rank in the top
tanks at the left hold the needed heated water for the frac.
ten of all years. Rig counts and oil
prices correlate. In North Dakota, Helms refers to the bungee jump when oil hit $30 and has now
rebounded back to over $60. That has brought the rig count back to 57 as of this week.
Last year was a record year for the North Dakota Industrial commission with the number of
hearings they have held. Helms estimates that this will mean more activity in the Bakken
formation and that the state should get ready for the boom seen in 2008 all over again. He
estimates that next year there will be between 90 and 100 drilling rigs active in the state.
Technology continues to advance with a new method of drilling called pad drilling. This method
uses new rig types that can stand up and walk to the next well head up to 50 feet away. Electric
driven, the new efficiencies with this type of rig are amazing as it can move from well to well in
five to nine hours compared to the current three to five day rig move. This type of drilling uses a
system of roads and corridors of pipelines, using pads and well bores that have less surface
impact where the terrain allows. This method may or may not be practical with the Bakken
formation and the terrain of North Dakota.
Helm estimates that it will take another 15 to 20 years of development taking it to 2025 to 2030 to
run out the drilling phase, especially if the Three Forks proves to be even half as good a producer
as the middle Bakken. Right now recovery factors in the Bakken are 4 to 5 percent of the
estimated 400 billion barrels that is there. As technology improves, that could improve as well.
Next up was Ryan Rauschenberger of the state’s Tax Department. He explained to the
commission how the tax incentives and structures impact the oil industry, as well as the impact
the industry has on the state’s economy. In the first quarter of 2009, the industry provided 5500
direct employment jobs. In 2008 the industry accounted for 3.3% of all wages in the state. Oil and
gas tax collections in 2008 were $391.8 million and 2009 is at $407.3 million.
In the 2009 legislative
session, a number of bills
changed the taxes and
incentives for the oil and gas
production industry. Those
changes
implemented
triggers for incentives and
breaks that can be very
confusing
for
anyone
looking at the way they
The field crew housing facility also located between Stanley and
work. It also makes it a Palermo has helped to alleviate some of the housing crunch felt as
challenge for both industry part of the Bakken play. Currently 140 people live in this site.
and the state to figure
revenues
and
budgets.
Rauschenberger expressed it might be good for the commission to look at the taxation issues and
keep that under consideration as they go forward. In many cases, a flatter tax structure rather than
triggers and formulas may be a better way to accurately forecast revenues and expenditures for
both industry and the state.
Eric Dillé spoke next representing the ND Petroleum Council. Dillé is Manager of Government
Relations for EOG Resources but for the purposes of this meeting was speaking representing the
council. He serves on the ND Petroleum Council Executive Committee. He presented the SWOT
for the oil and gas industry identifying the industries strengths and weaknesses, as well as the
opportunities and threats that could affect the industry.
Oil and gas has the potential for long term revenue for the state and counties, providing
challenging and high paying jobs while providing significant economic benefit to rural
communities and mineral owners. The industry has significant growth opportunities and helps to
support the national domestic energy supply and energy security.
Weaknesses include a tax environment that is much higher than competing states and a tax rate
higher than competing energy industries. There are also the potential impacts to infrastructure in
rural community and the processes to develop can be slow and bureaucratic. They face an aging
workforce as well.
Opportunities include the potential for growth, making significant revenue for state and counties,
as well as developing skilled professionals and labor forces in the state. However, threats can
include laws and regulations that restrict or slow exploration, and limited or restricted surface
access to mineral resources. They also face a lack of employees and fluctuations in prices can
also impact the industry.
Goal identified by the SWOT include maintaining a business environment that supports and
encourages the industry; providing a regulatory environment that promotes oil and gas activity;
and maintaining the ability to access the resource. Each of these goals was accompanied by policy
suggestions and action steps to take as they look to address the goals.
As the commission looked at the last item, they began
discussing the impact the increased activity has on the
infrastructure. The potential lifespan of the industry means
that the state needs to take a serious look at those impacts.
One member described it as we need to "look through the
windshield, not the rearview mirror", meaning they need to
build to withstand the industry and speak with a collective
voice to get the message heard. They discussed inviting the
DOT to have a representative at their meetings to talk with
them about the needs to stay on top of the infrastructure.
Miles of pipe is pulled up into the
air as part of the drilling process at
Nabors 148 rig.
Up next was the pipeline or midstream side of the industry.
Speakers included Justin Kringstad of the ND Pipeline
Authority. The authority works as an intermediary between
industry, the state and more to facilitate the needs for
transportation options. Kringstad talked about the existing
pipeline options and the new projects that are underway,
like Enbridge’s intention to expand their capabilities and
EOG’s move for a new rail facility. These are just some of
the options that are being considered or acted upon.
However, the goal is to make sure that the long-term needs
for transmission can be met. These projects take time to develop but there are projects underway
and under consideration that will help to meet those goals. Stanley is quickly becoming one of the
biggest hubs in North Dakota for getting the crude oil out to the system. These projects will also
help to get some of the traffic off the roads.
Kringstad also discussed the natural gas pipelines and projects that are also in place, underway or
under consideration. These projects will help move the natural gas and more that is also part of
the industry.
Next Eric Dillé spoke on behalf of the Petroleum Council again, this time addressing the SWOT
on the pipeline concerns. Strengths here include existing excess takeaway on major natural gas
pipelines, ND gas has high natural gas liquids content which adds value, expansions and new
plants can be permitted relatively easily and pipelines prevent flaring and reduce road traffic.
Weaknesses include the increased truck traffic with insufficient pipeline capacity, too much gas
flaring due to distance to wells, economics or plant capacity, the high well decline rates making a
challenge to "right-size" gathering facilities, and the face that Bakken wells are farther east than
existing gas infrastructure.
Opportunities are there for
substantial growth in oil and gas
providing opportunities for
expanding that infrastructure,
recovery and sales of ethane are
possible, and pipelines will
eliminate flaring.
Threats include large gas plays
that results in oversupply and
depressed prices, rail car/truck
limitations for liquids and more
government regulation.
Goals identified here include
expanding the oil and gas Commission members also toured EOG's new rail facility just
northeast of Stanley. The facility will allow EOG to transport
gathering, processing and export crude using railcars instead of trucks. The train will come
capacity
infrastructure,
and through this building to be loaded.
minimizing the flaring of natural
gas while ensuring the industry
has adequate time to evaluate and plan infrastructure needs.
The Empower North Dakota commission has been encouraged by Governor John Hoeven to
develop policy recommendations that will expand the state’s energy industry throughout the
twenty-first century and help North Dakota realize the full potential of our diverse energy
resources. The commission has additional meetings scheduled in November in Beulah, as well as
Minot in January, Jamestown in March and Grand Forks in May.
Mary Kilen, Editor
Mountrail County Promoter
PO Box 99 Stanley, ND
(701) 628-2333
Fax: 701-628-2694