the bakken magazine - april 2015

APRIL 2015

www.THEBAKKEN.comPrinted in USA

PlusService Cost

Reduction Survey Page 54

AND Production Data

By CountyPage 34

Drilling Plans, Strategies For Low Oil2, 44

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THEBAKKEN.COM 5

CONTENTS APRIL 2015 VOLUME 3 ISSUE 4

6 Editor’s NoteExpand Your Bakken KnowledgeBY LUKE GEIVER

8 ND Petroleum CouncilWhen we become Big Oil BY TESSA SANDSTROM

10 Events Calendar

12 Bakken NewsBakken News and Trends

Pg 26 INFRASTRUCTURE & CONSTRUCTION

Then And Now: Bakken Economy By The Numbers

Numbers are in for an economic study that pinpoints the massive fiscal impact of the Bakken on North Dakota. The author explains the results

and how they may evolve in the future. BY PATRICK C. MILLER

Pg 34 PRODUCTS & TECHNOLOGY

Navigating Bakken DataA team of former frack sand managers and data analysts have formed a new downhole data report capable of revealing unique, customized Bakken data sets to everyone from transload site supervisors to major energy service firms. BY LUKE GEIVER

Pg 44 EXPLORATION & PRODUCTION

Dealing With Rig DeclineFor drilling component manufacturers and drilling consultants, the current rig count presents a challenge: focus on existing drill-related offerings or pivot attention to other non-drilling service offerings. BY EMILY AASAND

ON THE COVER: Drilling rig pipe sits at a future well site. PHOTO: GAYLON WAMPLER

DEPARTMENTSIN PLAY

54 Citadel Survey: Oil, gas service firms asked to cut prices

Service providers share views on cost reduction requests, anticipated workforce reduction plans, and more in new survey. BY EMILY AASAND

The BAKKEN MAGAZINE APRIL 20156

At a time when oil price uncertainty is guiding budget plans and drilling rig activity, knowledge truly is power. The hardcore desire of energy service firms, material transporters and operators of all sizes to find efficiencies has put a premium on information capable of justifying workforce retention, increasing well productivity, extending rig contracts or, in some cases, reducing service costs. For this month’s issue, we chose several data-heavy, information-rich stories as a way to be a part of the solution for those looking to expand their respective Bakken knowledge bases on everything from downhole consumable trends to executive team sentiments on workforce retention plans. The current oil price environment has moved many in the Bakken industry past the rig-chasing, get-it-done-fast mentality. Today, as oil hovers in the $50/barrel range, the time to make informed, well-researched decisions is now because every barrel—and the fiscal reverberations that follow—counts.

Sean Morgan understands the power of data. A former frack sand supply manager for a major U.S. operation, Morgan had seen how data—or lack thereof—can impact an opera-tion. After Morgan and his team realized they were consistently reacting slowly to the evolving Bakken frack sand demand market, they turned to information to help them ship certain sand types to certain sand storage locations during the optimal time. With a compilation of down-hole data, operator specific proppant usage and several other metrics, they turned a frack sand operation plagued with demurrage charges into a more efficient business. Navport analysts provided a one-off report on our wish list of the information sectors we wanted to offer for “Navigating Bakken Data,” on page 34. It tells of Morgan and crew’s unique journey to the formation of a data-centric team and features an unprecedented look at proppant trends, pro-duction by operator and other valuable insights in the North Dakota counties of McKenzie, Dunn, Mountrail and Williams. You can find which operators are producing the most oil with the least amount of proppant, among many other conclusions.

To shed light on the current service cost-reduction trending in every major energy play in the U.S., we dissected an oil and gas survey that highlights energy service companies' views on the topic. Citadel Advisory Group, a boutique investment banking firm, told us that as crude prices fell and operators pushed for service-cost reductions, their phones rang constantly with calls from energy service firms, investors and others looking to see if, and how much, costs would or could be reduced. “Executives wanted guidance,” they told Emily Aasand for her story, “Dealing with Rig Decline, page 44, “others just wanted reassurance.”

A study recently completed by a team of North Dakota State University economists provides definitive assurance that the Bakken has, and is having, an incredible economic impact on the state. It provides data to support what the Bakken’s fiscal role has been the past five-plus years. Patrick Miller, staff writer, reviewed the study and spoke with each author of the study. His work for the story on page 54, reveals how accurate the study is, and more importantly, how it may change after it is completed two years from now. We hope you enjoy this month’s issue and add to your own Bakken knowledge at a time when rig count, well-productivity per rig, break-even costs and the other important terms of the Bakken circa 2015 are prevalent, because as we all know, knowledge is a powerful thing.

Expand Your Bakken Knowledge

Luke GeiverEditorThe Bakken [email protected]

EDITOR'S NOTE

For the Latest Industry News:www.TheBakken.comFollow us:

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THEBAKKEN.COM 7

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VOLUME 3 ISSUE 4

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 [email protected]. 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 [email protected]. 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 [email protected].

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COPYRIGHT © 2015by BBI International

EDITORIAL

Editor Luke Geiver [email protected]

Staff Writer Emily [email protected]

Staff Writer Patrick C. Miller [email protected]

Copy Editor Jan [email protected]

PUBLISHING & SALES

Chairman Mike Bryan [email protected]

CEO Joe Bryan [email protected]

President Tom Bryan [email protected]

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NORTH DAKOTA PETROLEUM COUNCIL THE MESSAGE

For many of us growing up in Small Town, North Dakota, the opportunities for staying in your hometown after high school or college were once fairly limited. For the majority of women, apart from working in retail (if your small town were lucky enough to have retail stores), you might have been able to become a teacher. Or, you could marry a farmer. For men, you could also try to find a teaching job or you could farm or work for the local construction firm. The opportunities for something more specialized like engineering, marketing, finance or public relations were slim, even in our larger cities. Today that’s not the case, and anyone who has read this column has heard me preach it time and time again.

Yet, I always find myself coming back to this point because it seems like this is something that is so often lost in the rhetoric of politics and activism that surrounds oil. Upon the release of a study outlining the contributions of oil and gas development in our state and communities, many of these thoughts and ideas resurfaced.

In case you missed it—and you may have because it wasn’t heavily covered in newspapers—researchers at North Dakota State University found that the oil and gas industry contributed $43 billion to the state’s economy in 2013. About $25.3 billion of this was in secondary impacts, or the respending of the $17.7 billion spent directly by the industry. The largest benefactor of these dollars was retail trade, or the businesses

SMALLTOWN TO OIL HUB: Watford City, North Dakota's streets are filled every summer during its annual ribfest. The event draws a large gathering of oilfield-related workers living in the area.

When we becomeBig Oil By Tessa Sandstrom

THEBAKKEN.COM 9

NORTH DAKOTA PETROLEUM COUNCIL

that sell the products and services needed by the industry and em-ployees. They pulled in a whop-ping $11.3 billion of that total. Households (or individuals), were the second largest, bringing in $9.3 billion in salaries, wages, royalties and other income. Government revenues were slightly behind the finance, insurance and real estate industry at $4.4 billion. Seven other industries also pulled in almost a billion or more each.

Most will agree that these are significant sums, but even I find myself numbed to those figures because these are sums that are just incomprehensible to me. What does this mean to me? What does it mean to you?

The short answer is “a lot.”For starters, that $9.3 billion

that went to households includes $6.3 billion paid out in salaries and wages alone. That represents 35.9 percent of all private sector salaries and wages paid in the entire state. This should come as no surprise if you consider that the 81,000 jobs supported by oil and gas in 2013 represents about 20 percent of the entire North Dakota workforce. Those salaries spent by those 81,000 people are being spent in our businesses, our restaurants and our towns, sending ripple effects through the entire state’s economy. Again, a lot of numbers, but what’s important is not necessarily the numbers, but the human factor that is behind each one of them.

“Six degrees of separation” is a theory that most of us are likely familiar with and it states that every person is only six people or steps

away by introduction to another person. In North Dakota, we’re more accustomed to about two or three degrees of separation. Chances are high that any stranger you meet knows someone you know.

I would predict the same goes for the oil industry. Even if you don’t have an immediate family member or friend employed in or by the oil industry, chances are your friend or family member does.

In my hometown, many of my friends not only work in the oil industry, but they own their own businesses and employ dozens of other individuals. For this very reason, when I hear accusations or derogatory comments lodged at Big Oil, I can’t help but be slightly offended.

For me, the oil industry doesn’t represent some face-less out-of-state corporation; it represents Devin, Loren, Jake and James—all individuals who started

their own businesses to support activities in the oilfield and created dozens of jobs at the same time. Since they are not large corpora-tions, but rather small business owners, I would guess they are not considered Big Oil. If not, at what point do they become Big Oil? Af-ter all, the companies considered Big Oil started out as small busi-nesses and it was through success and hard work that they became the larger corporations that they are today. I can only wish the small business owners in North Dakota the same success.

The oil industry to me also represents Garrett, Josh, Drew and Kyle who work for major opera-tors. Their job is to help ensure development is done as respon-sibly as possible and that their neighbors’ homes, farms and water resources are protected. Are they just Big Oil or are they exempt because they were born and raised in western North Dakota?

You see, with an economic

impact of $43 billion, Big Oil is made up of each and every one of the individuals who have found an opportunity to make a living or start their own businesses. It’s made up of individuals who care about their hometowns and want to do the best job possible while providing a valuable resource to our state and nation. Big Oil is not some faceless entity located else-where. No, Big Oil is you and me.

Author: Tessa SandstromCommunications Manager,North Dakota Petroleum [email protected]

OIL PLANS: Former Williston Mayor Ward Koeser had to revamp the city's mayoral duties because of oil development.


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The Bakken magazine will be distributed at the following events: Williston Basin Petroleum ConferenceApril 28-30, 2015Regina, SaskatchewanIssue: April 2015The Bakken magazine

Unconventional Resources Technology Conference (URTeC)July 20-22, 2015San Antonio, TexasIssue: July 2015The Bakken magazine

The Bakken Conference & Expo July 27-29, 2015 Grand Forks, North DakotaIssue: July 2015The Bakken magazine

2015 North Dakota Petroleum Conference Annual MeetingSeptember 21-23, 2015Fargo, North DakotaIssue: September 2015The Bakken magazine

Houston Oilfield ExpoDecember 9-10, 2015Houston, TexasIssue: December 2015The Bakken magazine

NAPE DenverDecember 9-10, 2015Denver, ColoradoIssue: December 2015The Bakken magazine

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BAKKEN NEWS BAKKEN NEWS & TRENDS

Marathon Oil Marathon Oil Corp.’s

2014 fourth quarter Bakken activity averaged 55,000 net barrels of oil per day (bopd) of production, a 38 percent increase from the year-ago average, due to increased density pad drilling and the timing of bringing wells to sale. Mar-athon researched total depth on 23 gross wells and brought 17 gross operated well stop sale, the company said in its Q4 earn-ings report, 15 of which piloted enhanced completions.

The enhanced completion designs achieved promising re-sults with 42 of 55 tests online, the company said, adding that 18 pilot completion wells averaged more than 30 percent uplifting in cumulative production over the first 60 days.

“The Bakken enhanced completion design pilot program is achieving promising early results with 42 or the 55 tests on-line at year end,” Marathon said. “The initial results based on 18 wells, are showing greater than 30 percent improvement in cumulative production after 60 days, compared to direct offset performance.”

The company also finished drilling two high-density spac-ing pilots in Bakken shale play—six wells per horizon—that are awaiting completion.

“Though we have rightly focused on prudent near-term ac-tions, Marathon Oil has laid the groundwork for the future by growing our U.S. unconventional net 2P resource by 20 percent in 2014,” said Lee Tillman, president and CEO. “Our asset teams continue to aggressively test downspacing, completion designs, co-development and new horizons which offer the potential to add further to our 3 billion barrels of oil equivalent of net 2P un-conventional resource.”

THEBAKKEN.COM 13

BAKKEN NEWS

Early 2015 Operator Update

EOG Resources Inc. Despite decreased production estimations for 2015, EOG

Resources Inc. exits 2014 on a fiscal and operational high-note. The company reported 2014 fourth-quarter net income of $445 million, and also saw an increase in overall U.S. crude oil and condensate production by nearly 28 percent.

EOG also completed a six-well pattern in the Bakken core spaced at 700 feet between wells to produce a combined initial production rate of 9,450 barrels of oil per day (bopd) in 2014. EOG plans to perform additional pilots and testing in 2015 to establish the best long-term development plan for the play.

“EOG delivered both high returns and strong growth in 2014, a unique accomplishment in the energy sector,” said Wil-liam Thomas, chairman and CEO. “Our returns-focused capital discipline has been at the core of EOG’s culture since the very beginning. We are confident we will continue to earn healthy re-turns on our capital program during this commodity down cycle and, more importantly, emerge stronger and poised for signifi-cant long-term growth.”

For Feb. 1 through June 30, EOG has crude financial price swap contracts in place for 47,000 bopd at a weighted average price of $91.22 per barrel and for July 1 through Dec. 31, EOG has crude financial price swap contracts in place for 10,000 bopd at a weighted average price of $89.98 per barrel, the company said.

Industry’s outlook on the oil price environment

The current oil price market has most exploration and production companies looking at ways to position

themselves to continue success in the Bakken—whether that be reducing drilling rig numbers or finding ways to

decrease well head costs. It has companies cutting 2015 budget projections and has companies tightening or

eliminating well completion testing strategies. Due to low oil prices, EOG Resources Inc.

said the number of wells drilled and completed this year by the company will decrease. EOG said its

primary goal for 2015 is to position the company to resume long-term growth once crude oil prices

recover and emphasized that it’s not interested in accelerating crude oil production in a low-price

environment. Triangle Petroleum Corp, has delayed all operated well completions until

May or longer, “subject to commodity prices and gaps in the RockPile third-party comple-tion schedule.” Although delayed, Triangle

plans to have up to 24 wells awaiting comple-tion as of May 2015.

WPX Energy hedged roughly three-fourths of its anticipated 2015 natural gas production

and roughly two-thirds of expected oil production this year at an average price of $94.88 per barrel,

while Oasis Petroleum said it plans to reduce drill-ing rigs along with fewer completed wells and that

wells brought onto production in 2015 will keep the company’s 2015 growth profile relatively flat.

One company not planning to adjust its business model to accommodate the oil price commodity is Whit-

ing Petroleum Corp. During Whiting’s fourth quarter and 2015 guidance investor’s call, James Volker, president and

CEO reiterated to analysts that Whiting is not postpon-ing completions or relying on the oil price curve to make its operations economical. “We are relying on ourselves to make money in the current oil price environment,” he said. “We are set to prosper at current oil prices.” Volker believes Whiting’s efficient operations and leadership in implementing new completion technologies will help overcome the impact of lower crude prices.


BAKKEN NEWS

SOURCES: NATIONAL AUTHORITIES; AND IMF STAFF CALCULATIONS

Triangle Petroleum Corp. Triangle Petroleum Corp. unveiled its capi-

tal budget outlook and guidance for its explora-tion and production division, RockPile Energy Services, as well as an update on Caliber Mid-stream for fiscal year 2016 (2015).

Triangle’s 2016 capital expenditure budget totals between $165 million and $195 million—a 71 percent year-over-year reduction. Triangle plans to spend up to $165 million on exploration and production operated drilling programs, up to $10 million on exploration and production in non-operated drilling programs, and up to $20 million on its RockPile segment.

The 2016 budget “allows Triangle to re-spond quickly to any improvement in commod-ity pricing and to return daily production num-bers to at or above Dec. 31, exit rate numbers.”

With a near $165 million 2016 fiscal year budget, Triangle anticipates a fiscal year total between 11,000 barrels of oil equivalent per day (boepd) and 13,000 boepd.

Whiting Petroleum Corp. Whiting Petroleum Corp. is currently running 16 drilling rigs in the

Williston Basin and by mid-year, it expects to run 13. For 2015, Whiting intends to spend roughly $2 billion, 67 percent of which will be spent on its northern Rockies and central Rockies property areas that include the Williston Basin and the Niobrara.

In 2014, the company experienced production gains of more than 30 percent for its 30-, 60- and 90-day initial production rates. The combina-tion of its IP rates increases and decreases well costs that have declined from $8.5 million to less than $7 million, have the Whiting team confident 2015 will be another year of growth.

Mark Williams, senior vice president of exploration and production, said that although slickwater fracks may not be the appropriate approach for every portion of the Williston Basin, many of Whiting’s core acreage blocks meet the requirements for Whiting to deploy slickwater methodologies. “If you look at what has been happening with completion technology over the last three years,” Williams said, “we have been in a period of rapid change.”

Whiting’s commitment to learning more about the Williston Basin is one of the main reasons James Volker, president and CEO of the Denver-based exploration and production company, believes his North Dakota team can reduce well costs. According to Volker, there have been roughly 300 core samples taken across the Williston Basin and Whiting’s geoscience team has examined and described 234 of those. “We have here at Whiting what we think is the database necessary to customize the completions that we are doing in each one of our key project areas,” Volker said. “I can’t overemphasize that because that is what we can use to drive down our costs in each area.”

By the end of 2016, Volker expects that roughly 50 percent of Whiting’s expected production will be hedged with three-way collars offering a low price of $55 per barrel and a ceiling price in the $60 to $70 range.

With the reduced rig count by midyear in the Williston Basin, Volker expects 2015 Bakken and Three Forks production to remain relatively flat compared to 2014. The goal for 2016 is similar to that of 2015, he added. “I really believe we could have a lower budget and still see more growth in 2016. That is our goal,” he said, and the company can do that by concentrating on its highest rate of return areas while it continues to drive down costs.

Early 2015 Operator Update continued

THEBAKKEN.COM 15

BAKKEN NEWS

WPX EnergyWPX Energy announced a 2015 capital in-

vestment plan of $725 million, roughly half the amount of its capital plan last year, with up to $225 million planned for the company’s Willis-ton Basin activity.

“Our capital plan is prudent, disciplined and consistent with our long-term focus,” said Rick Muncrief, WPX president and CEO. “At the same time, we have financial and operational flexibility because of how well we executed over the past year, completing asset sales, increas-ing oil volumes and heavily hedging our 2015 production at very favorable prices.”

WPX started 2015 with five rigs in the Wil-liston Basin and plans to scale back to one rig by late spring for the remainder of the year.

“Headwinds bring challenges and opportu-nities,” said Muncrief. “We’re ready for both. It’s why we have a long-term plan to reshape WPX and grow our margins and cash flow. Margin ex-pansion comes from diversifying our production and right sizing our cost structure.”

Oasis Petroleum In 2013, Oasis Petroleum produced an average of

33,904 barrels of oil equivalent per day (boepd), but by the end of 2014, the exploration and production firm increased its average daily oil production to 45,656 boepd—a 35 percent increase. In the fourth quarter of 2014, Oasis exceeded its production guidance range, reaching an average of 50,143 boepd. But, according to the company, a drilling rig reduction plan along with fewer completed wells and wells brought onto production in 2015 will keep the country’s 2015 growth profile relatively flat.

In 2014, Oasis completed and placed on production 195 gross wells, including 48 in the fourth quarter. As of December 31, 2014, the company has 72 wells awaiting completion. The West Williston project area accounted for 32,416 boepd of the company’s Q4 production total of 50,143 boepd.

After downspacing tests, subsurface modeling, project evaluations and adjustments made after 2014 well completions, Oasis has changed its drilling inventory assumptions. In its Montana acreage blocks, the company believes it will drill seven wells per drilling spacing unit (DSU) in its 216 DSUs. For the Indian Hills and South Cottonwood areas found in North Dakota—areas that account for 72 DSUs—Oasis expects to drill 15 wells per DSU. Of its 405 total operated DSUs, the company believes it has a remaining inventory of 3,046 gross operated drilling locations.

The budget plans for 2015 include a total of $705 million, with the majority of the budget slated for drilling and completions.

“We also see the opportunity to further improve returns through enhanced completions, which we ex-pect to represent approximately 60 percent of our program in 2015,” said Thomas Nusz, chairman and CEO.

Oasis intends to complete the majority of its wells by its in-house completion team, Oasis Well Services. OWS has two frack spreads with a combined 40,000 horsepower. Through the use of OWS, the company was able to save roughly $380,000 per well in 2014. On its slickwater fracks, OWS provided average well savings of $650,000.

Although the company will continue to rely on its fracking service, Oasis is considering a sale of its midstream business that includes saltwater disposal wells and pipelines.


BAKKEN NEWS

The U.S. Geological Survey has issued an updated map show-ing the assessed continuous oil resources in the U.S. The updated map reconfirms that the Williston Basin, including the Bakken and Three Forks pool, is the larg-est continuous oil resource ever assessed by the USGS. At 7.38 bil-lion barrels of oil, 6.7 trillion cubic feet of associated natural gas and 527 million barrels of natural gas liquids, the shale resource ranks as the largest in the U.S. followed by the Eagle Ford formation in Texas at 1.73 bbo.

Although the updated map is new, the USGS assessment of the Williston Basin is not, despite differing numbers from industry.

Although the USGS did reassess and update its estimates of the Williston Basin in 2013, there has been little change since.

In 2013, the USGS reissued its assessment of the Williston Ba-sin, increasing its estimate to 7.38 billion barrels of oil. The estimate was reached using new well data and additional information on the Three Forks formations. The numeric value for the resource was determined using a high and low estimate. For the USGS, the amount of oil in place for the Williston Basin could range from 3 bbo to 11 bbo.

Before the USGS provided its 2013 reassessment of the Wil-liston Basin, the majority of the

oil industry believed the play held much more oil. And, even after the 2013 estimate update, industry still felt the numbers were too low. The North Dakota Department of Mineral Resources believes the Williston Basin holds roughly 11

bbo to 17 bbo. Others, like the North Dakota-based research in-stitution Energy & Environmental Research Center, believe the play could hold more than 50 bbo.

New USGS resource assessmentmap, same Williston Basin disparity

BAKKEN NEWS

Tim Perry, head of the oil and gas division at the global financial services firm Credit Suisse, should be popular among the broad energy industry. During a presentation to the oil and gas industry in February, Perry said it is his belief that the worst of the low oil prices will be over sooner than most believe. In fact, he said, the price trend trough will trans-form back towards much higher prices in 2015.

Geoff Davis, managing director at Morgan Stanley, be-lieves that oil prices are not about financial issues faced by the U.S.—as they were in 2008—and are instead, about the simple truths of supply and demand. And, any

global economic stagnation that some have predicted may impact prices will not affect oil prices in 2015. Oil prices could create a high-level of merger and acquisi-tion activity in the North Ameri-can shale energy industry.

According to Davis, compa-nies within the industry fall into three categories: large cap invest-ment grade (healthy, screening potential opportunities); middle range with modest leverage (work-ing, hunkering down and focused on survival); and distressed (worst assets among peer groups, high debt).

Dan Pratt, director of valu-ation at HIS Inc., believes that activity levels for mergers and

acquisitions could ramp up during the second half of 2015. “There is a lot of motivation for large com-panies to come out of this stron-ger,” he said. Companies looking to add assets will be better off using stock options as opposed to paying cash, Pratt believes.

For the firms looking to survive the low crude price environment, Perry said many will retreat to their best acreage blocks. Many of those areas could, or should, have multiple productive geographic benches. The move to the multizone acreage means many operators will be harvesting some of their best available acre-age today rather than saving it for future work.

Analysts: price trough, M&A activity, survival tactics

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BAKKEN NEWS

Oil and gas production companies accustomed to the fast-paced, high-demand business culture of chasing rigs, scrambling to permit wells or source water and other materials for the past five years are now working to shift their company-wide perception of the industry. Low oil prices have changed the activity levels for nearly every energy-related firm working in the major U.S. shale plays. Company strate-gies have also changed.

Ken Mariani, president of exploration and produc-tion firm Enervest Ltd., believes employees previ-ously engaged and focused solely on drilling-related work can now pursue new skills and educate themselves

for other positions. “This is an opportunity for flexible employees,” Mariani said earlier this year at the North American Prospect Expo in Houston.

Managers, supervisors and human resource person-nel are also in the midst of a unique situation not seen the past five years: talent abun-dance. Gary Evans, chair-man and CEO of Magnum Hunter Resources Corp., a natural gas-focused indepen-dent production company, believes that as certain firms allow employee contracts to expire, others can acquire previously unattainable tal-ent.

Some firms have cre-ated internal protocol and programs to maintain talent

Low prices spur innovation,executives share strategies

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BAKKEN NEWS

NEW TRADE TOOLS: For some firms, downtime finally allows for research into new tooling options for drilling, completions and other oilfield-related work. PHOTO: ANADARKO PETROLEUM CORP.

during times of reduced activity, however. Anadarko Petroleum Corp., an Eagle Ford operator that also works offshore, has a well-established employee men-toring program that Kurt McCaslin, vice president of project management for the company’s onshore assets, said is valuable during down times. The program pairs experienced employees with newer team members to help explain the cyclical nature of the industry all in an effort to retain younger workers.

In addition to employee acquisition or retention efforts, most energy-related firms will research pos-sible equipment changes or process efficiency tweaks.

Evans’ team will consider purchasing more equip-ment to limit the company’s exposure to rental markets, and Mariani said other firms will explore research into basin-wide studies. “Low oil prices will drive innova-tion,” Mariani said.

Effective strategies de-ployed in the current low oil price environment will pay off, according to McCaslin. “If we can prove that we can get the costs down and make money at this price point for oil the money [investment] will be there when oil prices recover,” he said.

BAKKEN NEWS

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The Vantage pipeline and the proposed Keystone XL pipeline do, or would, cross the U.S./Cana-dian border into the North Dakota portion of the Bakken shale play.That is the only similarity between the progress and usefulness of each.

Natural gas liquids lead wayVantage Pipeline is a 430-mile

long, high-vapor pressure line built to transfer natural gas liquids from Tioga, North Dakota, through Saskatchewan before terminating in Empress, Alberta. Pembina Pipe-line Corp., the Calgary-based mid-stream firm that recently purchased the asset, has announced plans to expand the pipeline’s capacity from 40,000 barrels per day to roughly 70,000 bpd. The expansion plans include the addition of new

pump stations along with a 50-mile stretch of 8-inch gathering line.

Pembina believes the pipeline and expansions at the Saskatch-ewan Ethane Extraction Plant will create EBIDTA earnings—earn-ings before interest, taxes, depre-ciation and amoritization—of $75 million to $110 million. The company is also looking at other ways to seize the natural gas liquids feedstock availability in the Wil-

liston Basin, including another Vantage expansion to bring more ethane to the SEED facility. For methane, Pembina sees the construction of more processing infrastructure as an opportunity. For propane and butane, it believes both could be used to support its proposed propane export terminal in Portland. And, the remaining gas stream condensates could be used as supply for Pembina’s

Canadian Diluent Hub. “Recent flaring regulations are going to kick off opportunities for processing,” Stu Taylor, senior vice president of gas for Pembina said in regards to the Vantage Pipeline acquisition and the company’s exposure to the Bakken. “We are excited about the Bakken opportunity from an NGL perspective.”

Keystone XL, Vantage pipeline: What’s next?

Bakken NGL egress & opportunity

Methane

Ethane

Propane

Butane

Condensates

Current Egress Alternatives

Transported on Third Party pipelines

Vantage Pipeline

Transported on Third Party pipelines

Local Market Sales

Pipeline/Rail Exports

Local Market Sales



Potential Opportunities

Construction of straddle plant infrastructure

Further expansion of the Vantage Pipeline

Source of supply for porential propane export terminal

Source of supply for Pembina’s Canadian Diluent Hub

IMAGE: PEMBINA PIPELINE CORP.

BAKKEN NEWS

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State Department, future bills offer hope

The U.S. Senate’s oppor-tunity to pass a stand-alone bill approving the Keystone XL pipeline from Canada to Cushing, Oklahoma, may have passed, but TransCanada and other Keystone backers believe other opportuni-ties exist. Sen. John Hoeven, R-N.D., said that he would continue to push the passing of a Keystone bill after the senate fell five votes short of the super majority needed to override a presiden-tial veto of a Keystone bill that had previously passed through Congress. “At this point, we will continue to press for approval of the Keystone XL pipeline by attaching a similar measure to another must-pass bill, perhaps an energy, transportation or appro-priations bill,” he said. Sen. Heidi Heitkamp, D-N.D., had previ-

ously recruited 10 Democrats to vote in favor of the Keystone bill. Heitkamp said she would work to do the same on future bills. Rep. Kevin Cramer, R-N.D., who sponsored a bill on the pipeline, also said he would continue to help a Keystone approval package get signed.

TransCanada, the company hoping to construct and operate the 1,179-mile, 36-inch diameter pipeline that could transport 830,000 barrels of oil per day to the Gulf Coast, is looking to the U.S. State Department.

“This is definitely a project that’s in the interest of the United States. We’re very hopeful that the president and the administration will see it that way,” Mark Cooper, spokesperson for TransCanada, said. “Whatever results we get, we’re going to keep our options open for our next step. That

could very well be continuing on and moving forward,” he said, “but until we actually see that decision from the State Depart-ment, I’m not going to speculate on what our next steps will be.”

According to Cooper, Trans-Canada has tried to stay away from the political process as much as possible in its attempts to get the project approved. The project has often drawn both praise and criticism of its job creation ability.

Cooper said the company has no qualms about the topic of jobs. “We make no apologies for the fact that we provide construction jobs for American men and wom-en. The people who have these jobs string them together to make a career. Without temporary jobs, we wouldn’t have the Empire State Building, the Golden Gate Bridge or the Hoover Dam.”

Opportunities for growth: North Dakota Bakken/Williston BasinNGL Production Forecast

800

700

600

500

400

300

200

100

02013 2014 2015 2016 2017 2018 2019 2020

Low Mid HighIMAGE: PEMBINA PIPELINE CORP.

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Associated gas produced during oil retrieval can be flared, captured, compressed and now thanks to a researcher from of the University of Montana, injected back downhole to enhance oil recovery. Todd Hoffman, assistant professor, is currently working to prove and perfect a process to

capture, pressurize and inject asso-ciated gas from the Williston Basin back into the Bakken or Three Forks formations to increase well productivity and drastically reduce flared gas. Once injected at proper pressure, the gas acts similar to CO2 used for EOR. Because the gas is pressurized to the same level as the

oil, it mixes into the oil and causes it to swell. Once swollen, the oil is forced to break from the rock and into a fractured pathway leading to the wellbore.

To make the injection process happen, a natural gas compressor has to be present on the well site, along with gathering and injec-

tion lines. Hoffman said that the process can be economically viable at a wide range of oil prices. In one base scenario, a $16 million investment into a multiwell pad could be paid back in 5.8 years for a rate of return on investment of 22 percent.

Hoffman and his team of researchers expect more results by late summer. The team has already modeled how the system would work on a multi-well pad with four wells producing gas to be injected into one well. With core samples from North Dakota, the team is also modeling what a gas flood injection would look like in the rock. “The idea is that operators get more well productivity, they prevent flaring and they can sell that injected gas at a later date,” Hoffman said.

Flared gas injected to increase Bakken production

Oil P

rodu

ctio

n Ra

te (S

TB/D

ay)

500450400350300250200150100

500

Time (Year)

0 5 10 15 20 25 30

Oil Production without Gas Injection (compositional model)Oil Production with Separator Gas Injection (compositional model)

BAKKEN NEWS

Come spring, regions most in need of infra-structure updates in western North Dakota will have state funding available. Through the passage of SB 2103—a bill providing one-time surge funding from North Dakota to counties, cities and townships—roughly $298 million will be spent on road construc-tion, water projects and others. The funding was sped through the legislature and then again by Kelley Schmidt, state treasurer. “The extraordinary efforts of my staff and our political subdivisions allowed us to complete the certification process in just a few days,” she said. “This enables us to get those dollars where they are needed in record time.”

Nearly every county in the state received funding from SB 2103, and, hub cities Williston, Dickinson, Minot and Watford City received $172 million. In to-tal, 90 North Dakota cities received funding. Funding for the bill came from the state’s Strategic Improve-ment Fund, a fund made up entirely of cash. An Upper Great Plains Transportation Institute study was used to determine which areas of the state were in greatest need.

Surge funding sends $1.1 billion to oil counties, state, DOT

ROADWORK: The Upper Great Plains Transportation Institute created the study, Assessment of County and Local Roads, to determine where funding dollars linked to infrastructure upgrades were needed most. PHOTO: UPPER GREAT PLAINS TRANSPORTATION INSTITUTE

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THEBAKKEN.COM 27


Results of an economic study show where the oil and gas industry has been, but knowing where it’s going is the challenge. By Patrick C. Miller

Bakken Economy By The Numbers

THEN AND NOW:

SUDDEN IMPACT: North Dakota State University research scientist Dean Bangsund presents the results of a study detailing the Bakken's economic impact during Energy Day at the State Capitol Building in Bismarck. PHOTO: THE BAKKEN MAGAZINE

Announcing that North Dakota’s oil and gas industry had a tremendous impact on the state’s economy in 2013 might seem like the setup for a well-known car insurance company’s “Everybody knows that” TV commercial.

Well, did you know that with a total economic impact of $43 bil-lion in 2013—in just eight years—the industry’s contribution to North Dakota economy has grown nearly eight times beyond the level it was at before the Bakken oil boom began?

While this might not be as entertaining as knowing that Old Mc-Donald couldn’t spell a word without including E-I-E-I-O as that pop-ular insurance commercial reminded us, well-researched data is what transforms a widely held assumption into a verifiable fact.

Since 2005, the North Dakota Petroleum Council has commis-sioned a biennial study conducted by the North Dakota State University Department of Agribusiness and Applied Economics to measure the impact of the oil and gas industry on the state’s economy. NDSU re-search scientist Dean Bangsund presented study results last month dur-ing Energy Day at the State Capitol Building in Bismarck.

“The numbers that we pulled together from 2013 are tremendously large, more so than what we’ve found with any study we’ve done to this point,” Bangsund noted during his talk.

For example, the $43 billion economic impact of the oil and gas in-dustry is a 750 percent increase in the industry’s size since 2005, the first year the study was conducted. This represents a 303 percent increase in total jobs supported by the industry and a 991 percent increase in direct jobs.



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The total number of direct jobs in the industry has expanded from 5,051 in 2005 to nearly 41,000 in 2011 and to 55,137 in 2013. In 2013, secondary employment add-ed another 26,403 jobs for a total of 81,540, a 37 percent increase over 2011.

Nancy Hodur, an NDSU research as-sistant professor who co-authored the study, says that the results are accurate because they’re based on data supplied by the indus-try.

“We go directly to the industry, we ask them what their expenditures are and they tell us,” she explains. “It’s challenging to col-lect the data, but it also makes a very valid and defensible statement.”

Hodur says providing accurate data for the study is in the best interest of the in-dustry.

“There’s not a magic pot of data that you can just go claim,” Hodur notes. “They’re actually sharing with us confiden-tial information about what they’re spending.

We aggregate it and then are able to draw a picture and a description of the effect of the industry on the overall economy.”

According to the NDSU study, there were 2,183 wells completed in 2013 with an average monthly rig count of 185, which Bangsund says grew from a $1.4 billion impact in 2005 to a $20.4 billion impact in 2013.

The study shows that in 2013, there was an average impact of $860,000 per well of in-state expenditures, creating $1.7 mil-lion of direct and secondary expenditures and 2.4 direct and secondary jobs. Each well generated an average of $324,000 in sever-ance tax and $23,500 in other taxes, such as sales, personal income, corporate and prop-erty.

Each drilling rig generated an aver-age of $40 million of in-state expenditures and $105 million in direct and secondary impacts, creating 177 direct and secondary jobs, as well as $1.4 million in tax revenue.

Bangsund says that North Dakotans have an intense interest in royalty rates, an-other area covered in the study.

“What does this mean for the people who own the minerals?” he asks. “The sur-vey data we got this time around was very consistent with the survey data we got in 2011. The royalty rate (for oil) is about 17.5 percent across all wells across the state. The royalty rate for gas is slightly lower (17.43 percent).”

The industry paid $5 billion in to-tal mineral royalties with $4 billion of this amount going to private mineral ownership royalties. Bangsund says oil operators were asked what portion of that amount came back to the state.

“As long as it came back to North Da-kota, that’s what we were interested in,” he says. “About 40 percent of that $4 billion comes back to North Dakota.”

The study also demonstrates how other sectors of North Dakota’s economy benefit

THEBAKKEN.COM 29


from oil and gas industry activity. For exam-ple, it created $11.3 billion in retail trade rev-enue and $9.3 billion for households, which includes royalties, lease bonuses, salaries, wages and other income.

“This is a complex industry,” Bangsund says. “I’ve been working with the industry for six separate studies, and every time we do this, I learn something new. We break the in-dustry into segments that are consistent with what we think industry does.”

The segments and their economic im-pacts are:

• Exploration and development includes drilling and well completions, which gener-ates $7.6 billion in direct impacts and $12.8 billion in secondary impacts.

• Production and extraction includes well management and oil and gas extraction and production, which generates $7.7 billion direct impacts and $7.6 billion in secondary impacts.

• Transportation and processing in-cludes transporting oil and gas out of state and in-state processing and transportation, which generates $957 million in direct im-pacts and $1.9 billion in secondary impacts.

• Infrastructure spending covers what the industry is spending to add infrastruc-ture in the state, which generates $1.5 billion direct impacts and $3 billion in secondary impacts.

The gross business volume of North Dakota’s oil and gas industry is perhaps the best indicator of its explosive economic growth. The $15.3 billion total in 2013 represents a 72 percent increase over 2011 ($8.9 billion) and a 474 percent increase over 2005 ($2.7 billion).

“What portion of that $15 billion do we get in North Dakota?” Bangsund asks. “In other words, not everything that the in-dustry needs to produce a well comes from somebody in the state that can provide those goods and services. We estimated that about $7.3 billion of that $15 billion gets circulated through our economy. “

Every dollar spent by the industry re-sults in $1.48 in economic activity. Gov-ernment received $4.4 billion from taxes, royalties, leases; licenses, permits, fees and donations—money used to fund schools,

Change In Industry Spending,North Dakota, 2005-2013

Dire

ct Im

pact

s (b

illio

ns 2

013

$)

0

5

10

15

20

2005

$1.7 billion

2007

$3.4 billion

2009

$5.1 billion

2011

$10.9 billion

2013

$16.2 billion Exploration2005 $500 million2013 $7.6 billion

Production2005 $1 billion2013 $7.7 billion

Proc/Trans2005 $153 million2013 $957 million897% increase

SOURCE: NORTH DAKOTA STATE UNIVERSITY DEPARTMENT OF AGRIBUSINESS AND APPLIED ECONOMICS



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roads and infrastructure, law enforcement, parks and recreation.

Finance, insurance and real estate ac-count for another $4.5 billion in economic activity. Other sectors including business and personal services; communications and public utilities; professional and social ser-vices; construction; manufacturing, trans-portation and others contributed $12.7 bil-lion to the economy.

What everybody also knows about the oil and gas industry is that because of falling

oil prices, the booming statistics reflected in the 2013 study are likely to be reduced when NDSU looks at data two years from now. The question is: how much?

Future Study Results “If oil prices remain in the current

range, we’re going to see a pretty substantial pullback in the drilling activity,” Bangsund says. “We’ve already observed a fair reduc-tion in the number of rigs. A lot of the com-panies have come forward with their inves-

tor declarations. Their capital expenditures budgets are rolled back considerably from what they have been previous years. They’re simply stating up front that they’re not going to be spending the money that they have in the past.”

North Dakota’s legislators are already taking this into account in their budget plan-ning for the next biennium. The revised oil tax revenue forecast issued by the North Dakota Office of Management and Budget in mid-March estimates that the state’s total oil tax revenue during the 2015-‛17 bienni-um will be roughly $3.4 billion, down from the $4.2 billion forecast at the start of the year.

This is based on the assumption that North Dakota’s production will average 1.1 million barrels of oil per day throughout the 2015-‛17 biennium. Pam Sharp, OMB direc-tor, expects North Dakota oil prices—al-ways discounted 15 percent from West Tex-as Intermediate by the OMB—will range between $42/b and $52/b, a number more conservative than the legislature assumed in its January revenue forecast.

While noting that the unforeseen drop in oil prices is a reminder that forecasting future economic trends is difficult at best, Bangsund believes that in 2015 and 2016, North Dakota’s oil and gas industry will see mixed economic impacts, mostly in the in-dustry segments of production, processing and transportation.

“The substantial drop in price is going to have an immediate effect on severance tax collections,” he says. “It’ll affect the roy-alties and other revenue streams that come from those wells. Those wells will still need to be maintained. They’ll still need to have employment associated with them. We’re still going to be adding wells. We’re not com-pletely abandoning the drilling activities.”

Both oil production tax triggers—the small and large trigger—will impact parts of the current and upcoming biennium. For the past five months of the 2013-‛2015 biennium, the small tax trigger will be in effect. The small trigger provides a reduc-tion to producers in the extraction tax for new horizontal wells drilled in the month

THEBAKKEN.COM 31


after the previous month averaged less than $57.50 per barrel for West Texas Intermedi-ate.

“There have been so many things going on with the price of oil lately and no one can say where it is going to lead. Earlier, we didn’t know if the large trigger was going to be in place, but now it looks like it is defi-nitely going to happen,” Sharp says.

The large trigger—a tax reduction ap-plied to all wells for the first 24 months of all wells in production—will be in effect for the first 11 months of the 2015-‛2017 biennium, the OMB predicts. The large trigger is only turned off when WTI trades above $55.09 per barrel for five consecutive months. The large tax trigger could be in place from May 2015 until April 2016, ac-cording to the OMB. The January revenue revision only slated the large tax trigger to be in place for 10 months.

While the presence of the large tax trigger impacts several budget allocations, it greatly impacts the resources trust fund. “That is funded by just the extraction tax,” Sharp says. “Once the big trigger is kicked on we don’t have any extraction tax for 11 months. It funds all of the statewide water projects. That is clearly something that is problematic when they were counting on a lot more money.”

Despite low commodity prices and a reduction in the revenue generated from oil and gas, North Dakota should see an in-crease in sales and use tax, according to the OMB’s budget. In the upcoming biennium, sales and use tax revenues will total $2.87 billion. The 2013-‛2015 biennium revenue from sales and use tax will total $2.5 billion.

Bangsund believes that while nobody can accurately predict the long-term over-all impact of low oil prices, the near-term consequences will be more evident further into 2015.

2015 Outlook“The companies are focusing on the

most productive regions of the Bakken; probably the average productivity per well is going to go up. It won’t be a one-for-one drop in production,” he says. “We’re just not going to be drilling as many wells. The in-

dustry is going to be focusing even harder now on efficiencies and cost reductions than they were after the leases were secured.”

Because production will continue at a high rate, Bangsund says economic activity in transportation and processing might ex-ceed 2013’s numbers.

“The refining activity and the gas pro-cessing activity is going to continue even if the price of the input—primarily gas and crude oil—goes down,” he explains.

While some see low oil prices as a nega-

tive, Bangsund says there is a potential up-side if prices eventually increase.

“Some of these current economic con-ditions might result in efficiencies that the industry develops more quickly than they would have normally,” he notes. “In the long run, if oil prices rebound and we’ve devel-oped new and better ways to get oil produc-tion out of the shale, that could be positive because it might allow these marginal areas to become producing areas if the economics were favorable.”



The long-term prospect is still very positive for a considerable amount of oil-field development in western North Dakota, according to Bangsund.

“We’re seeing a pullback now because of the low prices, but I haven’t heard any-

one suggest that we’re going to maintain the current economic climate over the next 20 years,” he says. “Everybody seems to think that prices will return and increase back to closer approaching what we had in 2014. If that’s the case, industry could put more rigs

back into that region. They could be drill-ing wells in areas that are not just the most profitable now.”

Bangsund says the reason oil compa-nies continue to invest billions of dollars into the Bakken for infrastructure projects is because experience has taught them that it’s a tremendous resource.

“The resource is there and we know that it’s extensive; it covers a large geograph-ic footprint,” he notes. “We also know that there are billions of barrels of oils left to be extracted. If we can get caught up with the growth that’s occurred to this point, the state would be in much better position to handle the ongoing development of this oilfield, which is likely to go on for many years.”

And that’s a fact, not a punch line.

Author: Patrick C. MillerStaff Writer, The Bakken [email protected]

Dollar In-Flows To NDNorth Dakota, Export Base, 1990-2013

Mill

ion

Cons

tant

201

3 Do

llars Federal Payments

Exported Services

Tourism

Oil/N. Gas Exp., Ext. & Refining

Coal Mining & Conversion

Manufacturing

Agriculture

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1990 2000 2010 2011 2012 2013SOURCE: NORTH DAKOTA STATE UNIVERSITY DEPARTMENT OF AGRIBUSINESS AND APPLIED ECONOMICS

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Navigating Bakken Data

PRODUCTS & TECHNOLOGY

Born of the frack sand business, Navport’s new downhole information service ushers in a new way to track Williston Basin activity By Luke Geiver

Sean Morgan wants to provide accurate, nonskewed down-hole oil and gas data—“data that sings”––to every business entity linked to hydrocarbon production.

Since early 2014, Morgan and a small team of data analysts and industry veterans have been working to break into the lucrative unconventional oil and gas data sector by utilizing personal experience gained from time spent in the frack sand supply and distribution world. The team, led by Morgan, vice presi-dent of sales and operations, and Eric Foster, president, has developed a data subscription service that provides downhole well data to clients through mul-tiple platforms with varying degrees of in-house analyst interaction. One par-ticular group of clients—investors and analysts—receive simple data sheets showing individually selected exploration and production company informa-tion across the entire U.S.; some subscribers desire access to an online dash-board equipped with an activity meter for each individual U.S. unconventional play; certain customers work with data analysts to create customized reports (just as The Bakken magazine did for supplemental information for this story).

Although the company name Navport may not yet be commonplace in boardrooms, field operations or analyst calls, the team believes its flexible approach to data analysis and experience selling and moving frack sand will change that.

THEBAKKEN.COM 35


Dunn CountyOperator

Well Completed

Average BOE/Well

Average BOE/Proppant ST

Halcon Resources 11 132,683 55WPX Energy 26 101,700 64Continental Resources Inc. 27 80,736 59Hess Corporation 15 75,341 85ConocoPhillips Co. 13 72,425 38Kodiak Oil and Gas Corp. 16 72,124 37QEP Energy Co. 43 71,604 48XTO Energy/ExxonMobil 18 61,481 23Marathon Oil 50 58,731 49Occidental Oil and Gas 38 45,655 52

KOG2%

MRO23%

OXY14%

COP13%

XOM13%

HK10%

WPX8%

CLR5%

HES5%

QEP3%

Completion Market ShareTop 10 Operators

by Completion Count

MRO18%

OXY10%

COP16%

XOM13%

HK11%

WPX8%

CLR9%

HES3%

KOG4%QEP

3%

Proppant Mass Market Share

Top 10 Operators by Proppant Mass

(short tons)

Average BOE/Well

132,683

Average BOE/Proppant85



OperatorWell

CompletedAverage BOE/Well


EOG Resources Inc. 48 182,318 30Marathon Oil 27 98,361 73WPX Energy 32 88,419 52Hess Corporation 59 69,627 66Whiting Petroleum Corp. 55 67,495 63Slawson Exploration Co. 14 66,782 29Oasis Petroleum 41 52,151 46Fidelity Exploration 26 48,443 46Statoil 23 46,628 25

HES20%

EOG17%

Slawson13%

WLL13%

OAS10%

CLR7%

MRO7%

STO6%

Fidelity3%

WPX3%


by Completion Count

HES12%

EOG37%

Slawson12%

WLL8%

OAS7%

CLR9%

MRO4% STO

5%

Fidelity2%

WPX3%



(short tons)

Mountrail County

Average BOE/Well

182,318


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Early Days Of DataBefore working on software

and online data dashboards, Mor-gan worked for Preferred Sands, a major frack sand supplier, prominent in several U.S. uncon-ventional resource plays. During Morgan’s early days, demand for sand was large and energy service providers required sand quanti-ties, in some cases, only two to three weeks after signing a sup-ply contract. “Unless you had product forward positioned into the basin, you couldn’t meet de-mands,” Morgan says.

Because management didn’t want to turn down sand orders, several sand transloading site set-ups were arranged, many in the Bakken shale play. In the Bakken, as the locations of well activ-ity evolved, and the amount of sand needed at them, it created

difficulties for Morgan and the team assigned to allocate sand volumes. “How do you know if you want to be in Berthold or Minot?” he says. On top of that, he says, “we needed to be within 100 miles of the client’s ending location because the sand drivers wanted to get three turns of sand delivery in during a single shift.”

The only way to truly gauge production activity was to meet with sales associates designated to each unconventional shale region. Eventually, between 30 and 40 transload facilities were opened across the U.S., Morgan says, because the industry was evolving so quickly and there was no way to accurately predict the best sand unloading sites while producers were constantly changing plans and techniques.

With the transload facili-

ties, the team quickly learned that backend costs—demurrage fees for rail cars filled with sand or on-site sand storage—were washing out perceived profits generated from supply contracts. After learning of the impact of backend costs, the team realized it could no longer commit sand volumes to transload facilities. “We needed a tool that could help us determine the best place for our sand,” Morgan says.

The tool was data. And, it wasn’t outside data provided from other firms. After review-ing industry offerings, Morgan spurned the chance to pay for information and instead worked with an internal team to collect, analyze and ultimately utilize downhole data, producer plans and fracking trends to deter-mine where frack sand was truly

meant to be. Shortly after, he was moved from the supply team and was tasked with helping the sand sales division understand and uti-lize data. “It all made us smarter about the marketplace,” he says.

Starting A Stand-Alone Service

Soon after the in-house sand data collection and downhole in-formation effort started, Morgan and his team had earned the re-spect of Preferred Sands man-agement and broke off into a separate company. Today, rough-ly one year after official launch, Navport is still a small team.

The company believes its data is crucial to the industry be-cause all the data—from pounds of proppant per lateral, to aver-age barrel of oil produced per short ton of proppant—is spot

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OperatorWell



Hess Corp. 20 84,220 78Kodiak Oil and Gas Corp. 65 80,131 35Halcon Resources Corp. 6 78,155 33XTO Energy/ExxonMobil 17 65,324 46Statoil 36 61,765 34Continental Resources Inc. 100 59,561 28Whiting Petroleum Corp. 6 58,092 38Oasis Petroleum 36 47,576 34

Williams County

on. “The biggest challenge with data isn’t getting it,” Morgan says. “It is making the data make sense, making it sing.”

Bringing numerical spread-sheets into harmony requires Navport’s analysts to sift through

vast amounts of data in search of outlying numbers that don’t make sense. In some instances, the team will find a well that shows an amount of proppant used that is physically impossible. Analysts will flag the particular

data set and remove it from the main data set. “We are constantly running quality control.”

The data control efforts aren’t just for frack sand mining firms, suppliers or logistics firms. According to Morgan, financial

analysts, bankers, politicians, en-ergy service providers and nearly all other possible entities impact-ed by oil and gas production are using or are interested in Nav-port’s offerings.

For The Bakken magazine,

THEBAKKEN.COM 39



by Completion Count

CLR12%

KOG11%

HES10%

OAS9%

STO9%

XOM8%

Zavanna7%

WLL5%

Slawson4%

HK3%



(short tons)

Slawson4%

HK4%

CLR13%

KOG12%

HES6%

OAS7%

STO12%

XOM10%

Zavanna4%

WLL6%

Average BOE/Well

84,220Average BOE/Proppant78



PERATIONS AE2

S

OperatorWell



QEP Energy Co. 54 107,206 63Hess Corp. 48 94,059 122ConocoPhillips Co. 43 91,943 48Continental Resources Inc. 35 87,374 49XTO Energy/ExxonMobil 47 83,491 34Newfield Exploration 60 75,654 47Triagnle USA Petroleum 31 70,546 47Whiting Petroleum Corp. 44 66,153 44Emerald Oil Inc. 15 64,699 27Oasis Petroleum 38 60,810 36

McKenzie County

Average BOE/Well

107,206


Amie Parenti, market data analyst created a unique, one-off Bak-ken report guided by our team’s input. The exercise was meant to showcase the data offerings and analyst interaction process. For the report, we focused on four North Dakota counties: Dunn, McKenzie, Mountrail and Wil-liams. Within the counties, we fo-cused on overall proppant market

share by county, well comple-tions and proppant pumped; proppant intensity tracking by county; proppant ratio tracking by county; operator market share per county; and, production re-sults by operator per county.

The resulting custom re-port revealed several informa-tive takeaways about production variances between counties and

which operators are getting the most production from the least amount of proppant. For each county, Parenti provided infor-mation from the top 10 produc-ing companies and compared each to each. During Parenti’s interpretative analysis of the data report, it was clear that although she and Morgan were not actu-ally singing over the phone on

our conference call, there was an unspoken harmony between the data and the reality of the Bak-ken.

Author: Luke GeiverEditor, The Bakken [email protected]

THEBAKKEN.COM 41


COP12%

HES11%

XOM10%

QEP9%

CLR9%

WLL8%

NFX7%

TPLM5%

OAS4%

EOX3%


by Completion Count

COP12%

HES6%

XOM10%

QEP13%

CLR12%

WLL7%

NFX6%

TPLM4%

STO4%

EOX4%



(short tons)

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THEBAKKEN.COM 45


Drilling product providers and consultants share insight on rig activity slowdownBy Emily Aasand

RIG DECLINEDealing With

DIPPED WITH A MANTRA: Summit Casing believes its commitment to face-to-face service and all-hour access—the Summit Standard— will help it grow and maintain its place in the oil and gas drilling business, despite the decline in rig activity. PHOTO: SUMMIT CASING

To see the impact of low oil prices on the Bakken shale, look no further than North Dakota’s drilling rig count. Since January, the rig count has been steadily dropping, according to the Department of Mineral Resources. January’s count was down 21 rigs from the previ-ous month, February was down 27 and by mid-March, the state’s total rig count equaled 111—the lowest since April 2010. At press time, the rig count had fallen below 100.

The Bakken isn’t the only major U.S. unconventional resource play incurring a declining rig count, or a slowdown in monthly oil and gas production. The U.S. Energy Information Administration’s recent Drill-ing Productivity Report also indicates a slowdown in oil production growth patterns in the Eagle Ford and Niobrara.

The combined three plays are down roughly 24,023 barrels of oil per day (bopd). The estimates cover the months of March and April, and include the first projected declines in crude production in these regions since the first issue of DPR appeared in October 2013.

The DPR shows sharp decreases in rig counts in all regions start-ing in January and February of this year. In the current oil price market, producers have begun to lay down rigs, idling the older, least-efficient ones first, leaving monthly production output dependent on the remain-ing rigs.

Production may not depend entirely on the overall rig count, ac-cording to the EIA. Amidst lower oil prices, the 2008-‛09 recessions led to decreases in rig counts, but no decrease in production. At that time, lower rig counts were more than offset by increases in the productivity of remaining rigs, as more productive rigs required fewer days to drill and complete a well, recorded higher initial production rates, and were



WELL-PLACED SERVICE: During the activity slowdown, DTC Energy Group Inc. is working to match its experienced oil and gas consultants with clients, based on the experience level and desire of the individual client. PHOTO: DTC ENERGY GROUP INC.

more than able to drill multiple horizon-tal wells from a single pad. “Because the base level of rig performance is so much higher now than several years ago, it is not clear that the productivity gains will offset rig count declines to the same de-gree as in 2008-‛09.”

Overall, U.S. crude production numbers might remain at current levels for the short-term. Drilling rig numbers are down, however, and companies di-rectly leveraged by rig count and well completions are incurring a variety of requests and changes to their respective businesses. Although the rig decline may appear to be negative, some firms are finding ways to benefit from an activity level slowdown.

Decreased Activity Requires Increased Focus

Summit Casing Equipment, a U.S.-based drilling component manufacturer,

is dealing with the effects of declining rig counts. The decline for drilling prod-ucts, including centralizers, a hinged collar placed on the outside of drill string casing that helps to keep the cas-ing string in the center of the wellbore, has made Summit intensify its internal focus.

“Our product is used during the drilling process, so if the drilling rig count goes down, that affects us because that’s less rigs we can sell our products to,” says Andrew Eldridge, CFO of Summit Casing. “Through these tough times, we’re really focusing on the qual-ity of our product, and the service that we provide.”

Summit Casing got its start in the industry 10 years ago in Elk City, Okla-homa, and has since grown to 10 loca-tions throughout the U.S. Summit began manufacturing solid body centralizers five years ago and since then, has begun

THEBAKKEN.COM 47

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CASING MADE IN AMERCIA: Summit Casing manufacturers its products in the U.S., which allows it to speed up the order and delivery process for many of its customers. PHOTO: SUMMIT CASING

manufacturing bow spring centralizers, composite central-izers and float equipment.

“We have to be spot on and deliver on who we are if we want to come out of this thing better positioned than we were before,” Eldridge says. To do that, the company is continuing to push its service offerings that come with the drilling components. Summit equips regional field sales representatives with iPads, technologically advanced equip-ment and transportation allowing each manager to visit or service drilling rig locations throughout each region. At a time when cost cutting measures are happening at every level of the oil and gas sector, Summit believes it needs to refrain from cutting costs by cutting its face-to-face time in the plays it serves.

“If we stick to who we are, we will be very well-po-sitioned to take a larger share of the market and service more operators than we do today because we have had the opportunity to interface with them on the rig site and tell them our story,” according to Jeff Reynolds, vice president of sales for the company.

The slowdown in activity has forced many businesses to increase internal focus and pinpoint the true value of their service offerings or products. While Summit believes



QUALITY RETENTION: Summit Casing’s team says its products are neither the least nor the most expensive, but believes sacrificing quality in the name of cost-cutting will only hinder its long-term place in the industry. PHOTO: SUMMIT CASING

it has a value proposition linked to the quality of its components and its commitment to service (even if it means answering a phone call at 4 a.m. from a drill-ing rig site), others are pursuing the same focus through differ-ent means.

Centek Group, a global provider of onshore and off-shore drilling components, be-lieves the current crude market provides great opportunity to get in front of customers to show how important Centek’s

centralizers are in cutting well costs by decreasing overall drill-ing days and the time it takes to reach total depth. In the current market, the team is working to highlight its product functions, many of which help to decrease total drilling days and in devel-oping engineered solutions that support API best practices for cementing, reducing risk and rig time as well as enhancing the in-tegrity of the well construction phase.

The company has spent

and continues to spend time on research and development before introducing its products, including centralizers, into the field. The aim for its centralizer R&D was to provide a hybrid product that had all the benefits of a rigid centralizer and a bow spring centralizer without any of the detriments.

“The field is a very differ-ent field right now,” says John Costine, North American sales manager at Centek. From the operator standpoint, we see a lot of people buying on upfront costs alone and subsequently dealing with a lot of remedial issues and overall higher well costs. Our product allows them to get to bottom more efficiently saving them costs related to rig time, crews and overall well con-struction time. Typically, we’ll save them several hours run-ning in hole. Running in hole at gauge allows us to maximize standoff. We have a long history of cement bond logs showing that we have improved wellbore integrity. This provides piece of mind from an environmental standpoint and eliminates costly remedial work before going into the production phase. It is very important to communicate the total well cost, versus just the upfront product cost.”

In many cases, the cur-rent oil price environment has pushed procurement managers and equipment buy-side deci-sion makers to purchase product based on initial price, instead of overall value and service offer-ings included with the product.

“Our product allows them to get to the bottom faster and to be more efficient with their rig time. Typically, we’ll save them several hours running in

hole. Our job right now is very important to show them the big picture of overall well costs versus just paying for a product upfront.”

Centek’s ability to thrive during the slowdown is connect-ed to its research and develop-ment efforts put towards a com-mon industry equipment item.

Centek’s centralizers were the first 100 percent heat-treated,single-piece, nonweld product in the industry, accord-ing to Costine. The U.K. and Oklahoma City-based company produces a centralizer that is de-signed to run in hole at gauge, with no starting or running forc-es providing the highest amount of standoff, he added.

“Our patents on our unique construction, metallurgy and heat treat process are what sets Centek apart,” says Costine.

The Centek S2 centralizer is manufactured from a flat plate, is rolled then formed and then bulged into its shape, according to Cliff Berry, global sales and marketing manager for Centek. It is a single-piece unit, has no moving parts, and is rapidly be-coming an industry leader for both liners and standard casing sizes, he added.

The S2 is applicable for all applications—vertical and hori-zontal wells and can withstand high temperatures. It is manu-factured to gauge and provides maximum standoff, eliminat-ing cement channeling. Its bow spring design was created to allow for flexibility when en-countering tight spots, yet, due to its single piece construction, it does not compromise on per-formance integrity, according to the company.

Summit relies on the U.S.

THEBAKKEN.COM 49

THE CENTEK ADVANTAGE: Through expansive research and development efforts, Centek has created a suite of centralizers that it verifies can reduce drilling days and a rig’s ability to reach total depth in a well bore. PHOTO: CENTEK GROUP INC.


onshore market for revenue. The company manufacturers several U.S.-made products, a facet of the company that can help expedite the order and delivery process. “We manu-facture it, we sell it. A huge dif-ferentiator for us is that all our centralizers and float equip-ment are manufactured in the U.S., which is quite rare.” In many cases, if a drilling rig en-gineer is in need of a speciality product, Summit can minimize downtime through its network of field sales representatives well-versed in product location.

“We’re a small company and we compete against some of the largest in the world,” says Eldridge. “Our focus on our one product offering

model is really what sets us apart. It’s the quality of the product and the service that we provide that’s really of our legacy. Around here, we call it the Summit standard—going the extra mile, making the extra trip that needs to be taken.”

Like many companies, Reynolds says it is working to cut costs wherever possible, but cutting its service and the crucial materials used to fab-ricate its drilling components will not happen. Although our profit margin will be adjusted in a depressed market, we are still going to provide that type of service because we think that it is a strategic point of dif-ference,” Reynolds says.

Consulting PerspectiveDrilling activity-related

companies aren’t the only oil and gas firms impacted by a declining rig count. DTC En-ergy Group Inc., a Colorado-based oil and gas drilling and completion consultancy, has experienced decreased requests for service in its drilling super-vision segment due to the cur-rent oil market.

DTC Energy started as a an idea in mid-2010, when Robert Sylar and Luke Clausen began discussing a larger oil-field consulting firm that could expand into a broader area of the country. The Denver-based firm officially began doing business in 2011.

As a consulting firm, DTC



STANDING FOR GROWTH: Summit Casing currently relies on the U.S. market, operating as a small business relative to other larger, global players such as Centek. But, because it offers a wide array of products, it believes weathering the rig decline is more than possible. PHOTO: SUMMIT CASING

Energy’s drilling supervision has been impacted due to the sub-stantial drop in drilling activity.

“The market conditions have had an impact on some of our service lines,” says Clausen, co-owner and chief operating officer of DTC. “There are cur-rently about 700 fewer drilling rigs operating in the U.S. than there were in the fall of 2014, so growth in that area has been a challenge. We have adapted to the current market by push-ing harder on our other service lines to make up for the lack of demand for drilling supervi-sion. We have also been working diligently with our customers to get costs in line with their new budgets.”

Along with drilling supervi-sion, DTC also provides profes-


sional, on-site supervisors for completion, stimulation, work-over, production, site prepara-tion, construction, remediation and safety to oil companies. The supervisors work on location, overseeing oil and gas opera-tions, and ensure the operator’s plans are being followed.

“Our supervisors are in-strumental in reducing time and costs for our clients while main-taining safe operations,” says Clausen.

DTC Energy also provides on-site frack engineers who help minimize screen-outs and re-duce overall completion costs. The engineers specialize in on-site hydraulic fracture treatment analysis and design while focus-ing on optimizing overall com-pletion economics. Clausen says

his team is capable of providing real-time treatment adjustments to ensure that completion objec-tives are achieved.

The company also provides project and operations manage-ment to oil and gas operators, offering services such as prepa-ration and permitting along with the procurement of equipment and supplies.

“One of the main factors that sets us apart from our com-petition is our ability and strong dedication to work closely with our customers to provide the right person for each job,” says Clausen. “We ensure we under-stand exactly what our custom-ers are looking for in terms of experience, skill level and personality. Our diversification across the country allows us to

move people from region to re-gion since we are not centric to basin or area.”

DTC Energy is one of only a few companies in the oilfield consulting market that’s employ-ee driven, which Clausen says is another differentiator for the company, and a reason it is able to withstand the current activity slowdown.

“It’s important for us to operate as an employee-based company so that our supervi-sors can be provided for in their daily lives. This model has been proven beneficial as a recruiting tool as well.”

Like most companies, DTC Energy has taken steps to posi-tion themselves to remain suc-cessful in the current oil price environment.

“As with any downturn, there is concern. However, we think DTC is positioned very well to ride out an uncertain market,” says Clausen. “We ex-pect, as with every slowdown in our sector, that smaller compa-nies will not be able to survive and that there will be opportu-nities as oil prices recover. We believe there will be potential to grow or add service lines when we come out of the downturn. Overall, we see the downturn as an opportunity and are excited about the future at DTC En-ergy.”

Author: Emily AasandStaff Writer, The Bakken [email protected]

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Citadel Advisory Group, a boutique investment banking firm serving oil and gas related industries, recently surveyed oil and gas service companies to under-stand where clients stand financially in the current oil price environment.

The survey, which was open Feb. 4-16. and surveyed owners and C-level executives of more than 500 privately held U.S. and Canadian companies, came to flourish as Citadel began re-ceiving questions, guidance and reassur-ance about the current oil price market.

“As oil prices declined, we were flooded with calls from our network of service companies, as well as investors, wanting insight from their peer group,” said Chris Frevert, managing director of Citadel. “Executives wanted guid-ance; some just sought reassurance.”

Citadel found that 92 percent of respondents indicated their top cus-tomer has recently requested price re-ductions in an effort to counter falling oil prices. Of those, roughly 12 percent

Citadel Survey: Oil, gas service firms asked to cut pricesBy Emily Aasand

IN PLAY

THEBAKKEN.COM 55

shared that rate reductions topping 25 percent were requested from their top three customers. The data showed the negotiated re-ductions were more favor-able to the service provid-er, Citadel said.

“Over the last couple of years, majors have been getting very good at push-ing down requirements and work that was once their responsibility on support service compa-nies without compensation. Unrealistic concessions are being requested despite relatively low margins,” said one survey respondent.

The survey also found that more than 26 percent of service providers ex-pected work volume to decrease by more than 25 percent, and nearly 30 percent said its customers have not provided guidance on work volume.

One question asked was “Aside from headcount: Which of the following are you considering in an effort to reduce

costs?” Citadel found that more than 32 percent were considering reducing workface pay, while 25 per-cent were not considering any other reductions. Oth-er reductions companies are considering include: Changes to benefit pro-grams (7.1 percent), reduc-tion in number or size of locations (7.1 percent), sale of assets (8.9 percent), re-

duction or change in service line (7.1 per-cent) and other reductions (12.5 percent).

Another question asked was “In your opinion, where do you anticipate the price of WTI to be on June 30, 2015?” Citadel reported that more than 50 per-cent of respondents believe the price will be between $56 and $65 per barrel, and nearly 30 percent believe the price will range between $46 and $55 per barrel.

Of those surveyed, 14.6 percent said the Bakken was responsible for the largest percentage of its revenue, which comes in third only to the Niobrara and Powder

River Basin (31.7 percent) and the Eagle Ford shale play (17.1 percent). And of the segment of the oil and gas stream that represents the largest percentage of business, 19.5 percent responded with drilling, 39 percent said completions, 29.3 percent said production, 7.3 percent responded with midstream (pipeline) and 4.9 percent said other.

Frevert said that comments by re-spondents provided insight into how the industry feels about declining oil prices. Comments ranged from equipment man-agers saying, “If drilling activity does not pick up soon then it will be a very rough Q2 and could be a devastating second half of 2015 for manufacturing compa-nies in the oil and gas sector,” to techni-cal service providers saying, “We’ve had our second best month ever in January and February will be good as well. We are concerned we won’t have the equipment to handle the work load or the personnel for field installs.”

Frevert

IN PLAY

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