North Dakota Faces $2 Billion Loss of Revenue

January 10, 2017 Elizabeth Alford

North Dakota lawmakers face a massive loss in revenue as they settle into week two of the 2017 legislative session.

The North Dakota House and Senate appropriations committees heard proposals last week for the coming two-year budget cycle. Details include:

$146 million less in sales and use tax revenue that was included in former Gov. Dalrymple's executive budget from December
Almost $3.7 billion in general fund revenues for the 2017-19 biennium (down 34 percent from the more than $5.5 billion projected for the current biennium)
$1.1 billion less in general fund revenues than former Gov. Dalrymple's proposal
A $67 million reduction in sales and use tax revenues from the December executive forecast
Doesn't include a $200 million transfer from the Bank of North Dakota that was included in Dalrymple's budget.

“Sales tax is the one that hurts us. The biggest thing we need to take care of in this legislative session, from my standpoint, is making sure that the revenue that we expect we actually get.”

— Rep. Jeff Delzer, Chairman of the House Appropriations Committee

The forecast assumes an average oil price of $48 per barrel, a more conservative figure than Dalrymple's $52-53.

For the first quarter of 2016, the North Dakota's Tax Commissioner announced a 33 percent drop in taxable sales. Taxable sales and purchases are a key indicator of the economic activity in the North Dakota. This data has followed the pattern of decline that parallels the drop in low crude prices over the last 18 months.

Bakken Operators Reducing DUCs

December 28, 2016 Elizabeth Alford

Bakken Shale E&P companies are moving forward with DUC reduction programs, according to the North Dakota Industrial Commission.

The North Dakota Industrial Commission issued its latest activity report that predicts operators will increase the minimum number of rigs throughout 2017 as long as oil prices remain between $50/barrel and $60/barrel. Highlights of the report include:

73 well completions for September
45 well completions for October
860 wells still waiting on completion
Estimated inactive well count is 1,503, down nine from the end of September to the end of October.
There was one significant precipitation event, eight days with wind speeds in excess of 35 mph (too high for completion work), and no days with temperatures below -10F.

“Half of the investment has been made, and these wells are likely to be completed when the economics are right.”

— Ron Ness, President: ND Petroleum Council

It appears that E&P companies are committing to higher 2017 capital spending. In June, Continental Resources founder and CEO Harold Hamm told Bloomberg that new drilling in the Bakken won't take place until crude prices pass the $60 before mark. But encouraged by the recent increases, the company is now moving forward to complete their backlog of wells that still need to be fracked.

The Bakken-Three Forks rig count fell by one this week with Baker Hughes reporting 32 rigs running across our coverage area by midday Friday.

Bakken Operators Look Optimistically to 2017

December 20, 2016 Elizabeth Alford

The Bakken rig count remains stalled, but some major operators in the Bakken Shale Play plan to increase activity in 2017.

As the year comes to a close, major Bakken operators are reporting their plans for 2017, with some announcing they will increase spending and drilling activity.

Continental Resources plans to work down its inventory of 29 drilled but uncompleted Bakken wells in 2017. The company expects continued low operating costs in the new year with an estimated budget of $1.1 billion. The company has a new completion design that has resulted in a record 30-day initial rates for Continental-operated Bakken wells in 2016.
EOG Resources is increasing its crude oil organic production growth outlook through 2020, which includes growth in the Bakken. In addition to the growth illustrated in the outlook, the company continues to evaluate high-quality emerging plays through its ongoing exploration efforts.
Enerplus Corp. will increase its North Dakota oil production by 25% in 2017. 70% of the company's $400 million budget will be spent in North Dakota.
ConocoPhillips has seen unexpected production increases and recovery rates from its Bakken operations, which caused the company to speed up their timeline of adding three rigs to the Bakken. The improved characteristics of its Bakken operations pushed the team to secure drilling rigs and pressure pumping crews earlier than its originally scheduled plans for 2017.
John Hess, CEO of Hess Corp. spoke optimistically about the Bakken in the company's third quarter earnings call and indicated they plan more rigs for the Bakken are in the 2017

“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. Our high-quality Bakken acreage, industry-leading drilling and completion costs, and advantaged infrastructure position set up our Bakken assets to be a major contributor to the company’s future production and cash flow growth. ”

— John Hess, CEO of Hess Corp.

The Bakken-Three Forks rig count fell by one this week with Baker Hughes reporting 31 rigs running across our coverage area by midday Friday.

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