How the Keystone XL Pipeline Would Impact the Bakken

November 18, 2014 Kirk Eggleston

The Senate will vote today on a bill to approve the Keystone XL Pipeline, after the House voted to approve it last Friday. The controversial pipeline would carry heavy oil sands crude from Canada and lighter Bakken crude to the Gulf Coast refining market.

In 2013, the Congressional Research Service released a report that stated 12% of the Keystone XL Pipeline's 830,000 b/d ultimate capacity has been set aside for the transport of Bakken Crude. The report further said the Keystone XL pipeline project would include a lateral pipeline, called the Bakken Marketlink, to carry oil from Baker, MT, to the hub in Cushing, OK.

Although the Keystone XL Pipeline would play a role in the Bakken, its significance in the region has diminished slightly over time. Despite a still lacking midstream infrastructure in the Bakken, several pipeline projects have advanced as the political thunderstorm has ensued surrounding the Keystone XL Pipeline.

In September of 2013, Harold Hamm, CEO of Continental Resources, the Bakken's second largest producer, said the Keystone XL pipeline was no longer critical in an interview with Amy Harder from the National Journal. For full disclosure, at the time of the interview, Hamm's Hiland Partners was pushing its Double H Pipeline, a 460-mile pipeline project from Dore, ND, to Guernsey, WY., which is slated to be online by January of 2015.

Political Sway for the Keystone XL Pipeline

Senator John Hoeven (R-ND) is the Senate bill's chief sponsor. Hoeven has pushed for the pipeline for several years, and touts its benefits (i.e. an increase in jobs, energy security and a decrease in crude by rail transport).

“The Keystone XL pipeline is about energy, jobs, helping to grow our economy and increasing national security by increasing energy security,” Hoeven said in a prepared statement.”

Keystone Pipeline Could Alleviate Rail Congestion from Bakken Crude

Currently, just under 70% of all the oil produced in North Dakota, where much of the Bakken's development is concentrated, is transported out of the state by rail, ultimately making its way for now to refining markets, primarily on the East and West Coasts. The Keystone XL Pipeline could alleviate some of the rail congestion being caused by the transport of oil, which would free up the rail service in North Dakota and across the midwest for the transport of other goods, primarily agricultural.

Drones Coming to the Bakken Oil Patch?

November 13, 2014 Kirk Eggleston

Could drones be coming to the Bakken oil patch? It's not such a far fetched idea. According to the Bismarck Tribune, the Federal Aviation Administration and six other states, including Texas, home of the Eagle Ford Shale, have recently been selected as test sites for integrating Unmanned Aircraft Systems (UAV) or drones into the general population.

Modern drone technology can trace its origins back to the U.S. military in the late 1950s, but the concept of drones has been around since the 1800s. The commercial use of drones has been met largely with resistance from the FAA, however, the agency did grant ConocoPhillips permission to use drones in Alaska’s Prudhoe Bay oilfield, and in June of this year, granted a similar permission to British Petroleum.

How Drone Technology Could Be Used in the Oil Patch

With the green light from the FAA for testing in North Dakota, which for now is limited to agricultural applications, the next step could be in the Bakken oil patch. Only time will tell however if the technology will be approved for applications in North Dakota's energy industry.

Drone technology offers many possibilities for the oil & gas industry, with a range of applications, from testing for deadly H2S gas to inspecting miles and miles of pipeline. Increased safety for personnel and cost savings to companies are just some of the positives offered by drone technology. Drones could also be used in the Bakken for inspecting roads, tank batteries, and monitoring activity at the drill-site.

As with any new technology, there are always concerns, and drones in particular have garnered their fair share of scrutiny on the issue of privacy. What issues do you believe drone technology would cause if introduced to the Bakken oil patch?

Hess Increases Bakken Production Guidance Through 2020

November 11, 2014 Kirk Eggleston

Hess Corp., one of the top five Bakken producers, appears to be undeterred by lower oil prices, announcing plans to increase its five year production forecast this week.

After a successful Bakken downspacing pilot program in 2014, Hess told investors it would increase its net peak production guidance in the play to ~175,000 boe/d by 2020. The increase means the company would add an additional 1,000 well locations to a total of more than 4,000.

“Even at current prices, or below, there’s still many areas for attractive investment in the Bakken,” said CEO John Hess the company’s annual investor day on Monday.”

Hess told investors that he believes prices will rebound, and also pointed to drilling efficiency gains made in the Bakken that reduce the cost of drilling a Bakken well.

Hess' Tioga Gas Plant Expansion Project Paying Off

At the beginning of the year, poor weather conditions delayed work on Hess' Tioga gas plant expansion project, negatively impacting Bakken production in the first-quarter. By the second-quarter, production returned to expected levels, and at the end of the third-quarter production from the Bakken increased 21% year-over-year to 86,000 boe/d, due in part to the completion of the expansion project.

Hess' Q3 Bakken Operations

Hess brought 59 gross operated wells on production in the third-quarter, bringing the year-to-date total to 142 wells. Drilling and completion costs per operated well averaged $7.2 million in the third-quarter of 2014, a reduction of 8% from the third-quarter of 2013.

Emerald Oil May Scale Back Bakken Drilling Program in Q1 2015

November 6, 2014 Kirk Eggleston

Emerald Oil, Inc. could cut its Bakken drilling program the first quarter of next year if the price of oil continues to drop. Emerald's CEO McAndrew Rudisill announced the company's plans in a conference call for investors this week.

With WTI now below $80, we could see the first shoes begin to drop among some Bakken producers. According to the consultancy Wood Mackenzie, breakeven oil prices range from $60 to $80 per barrel in North Dakota's Bakken.

Emerald's current three-rig drilling program is slated to continue in the Bakken through the end of the year, but the contract for one of its rigs expires in the first quarter of next year (March 15, 2015), and the company may not renew it.

“According to Rudisill, the company’s decision will be determined largely by what is happening with WTI crude oil price.”We have to respond to large changes in the price of crude oil, said Rudisill. We will make a decision in the middle of March 2015 on whether or not to lay down the third rig.”

During the third-quarter of 2014, Emerald increased its production 3% quarter-on-quarter to 3,855 boe/d, and during the fourth-quarter, the company expects to produce 4,300 boe/d. The company missed its production guidance for the third quarter by 8%, citing mandated North Dakota road shutdowns due to poor weather conditions. Guidance was also reduced 6.5% for the fourth-quarter because of down-time expected from artificial lift installations, which were originally scheduled for the third quarter.

Emerald's capital budget for 2015 is $210 - $240-million.

Magnum Hunter Sells Bakken Acreage - $84.7-Million

November 4, 2014 Kirk Eggleston

Magnum Hunter Resources' Bakken Acreage Map

Houston, TX-based Magnum Hunter Resources has sold a large chunk of its Bakken acreage for $84.7-million to an undisclosed buyer.

The deal, which closed in mid October of this year, included non-operated working interests in ~105,661 gross (12,500 net) leasehold acres in Divide County, ND. The divested properties currently account for net average production of ~720 boe/d.

“In a prepared statement, CEO Gary Evans described the sold Bakken assets as non-core. “Our remaining portfolio of assets located in North Dakota consists of 151 gross producing wells covering approximately 159,916 gross (73,690 net) acres, said Evans. Total net production to the Company from these remaining assets is currently approximately 2,577 boe/d at present with another ~800 boe/d anticipated to be put on production prior to year-end from this region.”

According to company officials, total divestitures, including this one, have amounted to $210-million across Magnum Hunter's portfolio so far in 2014. In the second quarter of 2013, the company sold 19,000 net acres in the Eagle Ford to Penn Virginia for approximately $400-million. The deal was for the majority of the company’s Eagle Ford holdings.

Magnum Hunter's divestment strategy is designed to shift the company's focus to growth in the Marcellus Shale and Utica Shale in West Virginia and Ohio.