Crude by Rail Will Increase if Pipeline Remains Stalled

December 6, 2016 Elizabeth Alford

As the standoff over the Dakota Access Pipeline drags on, producers will have to use rail to get their product to market.

Last week, the U.S. Army Corps of Engineers reversed its position and denied Energy Transfer Partners the permit needed to complete the pipeline.

Oil and gas operators were counting on the pipeline's capacity to ship 570,000 barrels a day in 2017. This latest set-backs means they will be looking to alternatives and many will be forced to rely on rail to ship product.

Controversy over the safety of moving crude by rail has skyrocketed as several high-profile accidents have recently made headlines. This combined with a sharp increase in crude by rail since the start of the oil boom has many concerned.

Decreased volumes and more pipeline construction in 2016 meant there were fewer safety incidents, with only nine reported this year. But this trend may change if major pipelines cannot be completed and operators rely on rail.

In 2015, the National Transportation Safety Board (NTSB) gave the following recommendations that would require:

All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with thermal protection systems that meet or exceed the thermal performance standards
All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with appropriately sized pressure relief devices that allow the release of pressure under fire conditions and that minimizes the likelihood of energetic thermal ruptures
An aggressive, intermediate progress milestone schedule, such as a 20 percent yearly completion metric over a 5-year implementation period, for the replacement or retrofitting of legacy DOT-111 and CPC-1232 tank cars to appropriate tank car performance standards
Establishment of a publicly available reporting mechanism that reports at least annually

Construction on the pipeline was almost complete when protest erupted in October. Demonstrators are concerned about the environmental impact of the pipeline, including contamination of the Missouri River, which is the primary water source for the Standing Rock Sioux Tribe. Tribal leaders are also upset that the pipeline will disturb sacred burial grounds.

Energy Transfer Partners and Sunoco Logistics Partners own a majority stake in the Dakota Access Pipeline project. Energy Transfer Partners and Sunoco Logistics have lost ~17% and ~27% of their market value since the beginning of the protests. Energy Transfer Equity, which depends on Energy Transfer Equity and Sunoco Logistics for distribution income, fell~15%.

Whiting Petroleum Sells Bakken Assets

November 29, 2016 Elizabeth Alford

Whiting Petroleum has announced its intention to sell its Bakken midstream assets to a subsidiary of Tesoro Logistics.

The $375 million deal includes Whiting's 50% stake in the Robinson Lake natural gas–processing plant along with the associated natural gas–gathering system located in Mountrail County, North Dakota.

“We expect this sale to further strengthen our balance sheet and provide us with additional financial flexibility to invest for growth in Whiting’s top tier producing assets in the Williston and DJ Basins. This sale aligns with our ongoing strategy to divest non-core midstream assets and focus capital in the company’s highly productive upstream business.”

— James J. Volker: Chairman, President and CEO

2016 third quarter capex for Whiting was $85 million was under budget and relatively flat with the second quarter. Other quarterly highlights include:

Production totaled 11.0 million barrels of oil equivalent (MMBOE), an average of 119,890 barrels of oil equivalent per day (BOE/d)
Production was 85% crude oil/natural gas liquids (NGLs)
Lowered lease operating expenses averaged $7.98 per BOE

Helms Predicts Oil Will Stay 'Lower for Longer'

November 22, 2016 Elizabeth Alford

North Dakota's Department of Mineral Resources announced that the state's crude-oil production dropped in September to the lowest level in more than two years.

Low crude prices are still wreaking havoc on the oil and gas industry with North Dakota experiencing another drop in production, with volumes staying below the one-million-barrel-per-day mark for the second month in a row.

Crude production fell 1.1% on the month to 971,658 barrels a day in September, the lowest level since February 2014, when output was 952,055 barrels a day, and follows a 4.7% drop in August.

In a recent address to the North Dakota Association of Oil and Gas and Coal Producing Counties (NDAOGCPC), Director of Mineral Resources, Lynn Helms provided his forecast for future growth in western North Dakota. Helms estimates under that it is likely the price of West Texas Intermediate (WTI) will stay below $60 a barrel and rigs will continue to focus drilling in the four core counties of Dunn, McKenzie, Mountrail and Williams for the next ten years. Under his "lower for longer" scenario, well count reach a maximum of fifty-five thousand wells by 2050.

“Each year I look forward to providing this outlook to county leaders. Now that lower oil prices have held on for an extended period of time, I’ve included a “lower for longer” and a “price shock” forecast to give leaders an idea of how to plan for growth under suppressed drilling conditions as well as rapidly increased drilling activity.” ”

— Lynn Helms, Director of DMR

Continental Resources Raises Expectations for remainder of 2016

November 16, 2016 Elizabeth Alford

Bakken Shale powerhouse, Continental Resources, is counting on continued momentum as it raises its expectations for North Dakota activity and production for the rest of the year.

Oklahoma-based Continental announced third quarter results, saying it is betting on recovery from enhanced work at the Bakken shale oil reserve basin in North Dakota, and the SCOOP and STACK reservoirs in Oklahoma.

The company expects to end the year with production volumes that are about 5 percent more than it estimated in August.

“We brought on several excellent producers in the Bakken using enhanced completion designs, including two wells that generated CLR-record 30-day initial rates for the Bakken. This is an encouraging start as the Company begins working down its large backlog of Bakken uncompleted wells and capturing their value.”

— Harold Hamm, Chairman and Chief Executive Officer

Third quarter highlights:

First STACK Density Test Flows at Combined Initial Peak Rate of 21,354 Boe per Day (70% oil) from Eight Meramec Wells; Seven New Wells Flow at Average Well IP of 2,653 Boe per Day
Company Initiates Development in STACK Over-Pressured Oil Window
Bakken Enhanced Completions Yield Company Record Initial 30-Day Production Rates
Company Begins Working Down Uncompleted Bakken Wells
Annual Production Guidance Raised and Production Expense Guidance Lowered; Capital Expenditure Guidance Raised on Increased Well Completions

Looking forward to the remainder of 2016, the Company plans to increase the total number of gross operated well completions by 32. They also expect to complete 119 gross operated wells with first production for the year, including 29 gross operated wells in the Bakken.

“The Company plans to increase from two to four stimulation crews in North Dakota by year-end 2016. The Company now expects to end 2016 with approximately 175 gross operated uncompleted wells in the Bakken and approximately 45 gross operated uncompleted wells in Oklahoma. The projected year-end Bakken uncompleted well count of 175 excludes approximately 15 wells that will have been stimulated by year-end 2016, but not produced with first sales until 2017.”

— Continental Press Release

Hess Corp Adds Bakken Rigs

November 7, 2016 Elizabeth Alford

The Hess Corporation announced its 2016 third quarter results, which included a drop in Bakken production.

Related: Hess in the Bakken

CEO John Hess told investors last week that the company remains optimistic despite a net loss of $339 million and falling production. Bakken production fell to 107,000 barrels of oil equivalent per day (boepd), down from 113,000 boepd over 2015. Hess attributes the decline to reduced drilling program due to the low oil-price environment.

“Our Bakken team continues to offer excellent operating results and returns in the core of the play that are competitive with the Permian and Eagle Ford,” he said. “Our high-quality Bakken acreage, industry-leading drilling and completion costs, and advantaged infrastructure position our Bakken assets to be a major contributor to the company’s future production and cash flow growth.”

— John Hess, CEO

During the quarter, the company operated an average of three rigs in the Bakken and brought 22 gross operated wells on production. The company’s total production for the quarter was 314,000 boepd. Other highlights include:

Drilling and completion costs in the Bakken averaged $4.7 million per operated well—down 11%
Increased standard well design to a 50-stage completion from the previous 35-stage completion design
Net midstream income was $13 million in Q3 2016 compared to $16 million last year
Midstream capital expenditures were $88 million for the quarter—the same as Q3 2015
Reduced exploration and production capital and exploratory expenditures by 49% to $435 million, down from $849 million during the same period last year

Hess projects that E&P capital and exploratory expenditures for the full 2016 will be approximately $2 billion, down $100 million from our previous forecast and more than 50% below 2015.