Tioga Pipeline Gets Regulatory Approval - 2013 In-Service

Tioga Pipeline Map

The Tioga Pipeline received regulatory approval on October 1st. Alliance Pipeline has proposed the 12-inch, 79.3 mile lateral from Tioga, ND, to an intersection with the Alliance mainline near Sherwood, ND. From Sherwood, natural gas will be delivered to the Chicago market.

The pipeline has the potential to be expanded, but has been initially approved to transport a little more than 106 mmcfd. The pipeline is supported by a ten-year, 61.5 mmcfd agreement with Hess.

The new lateral will run through Williams, Mountrail, Burke, and Renville counties.

This is a good step toward marketing Bakken Shale gas production. Much of the gas produced to date has been flared due to limited pipeline capacity in the region.

Construction is expected to start immediately with the pipeline being completed in February of 2013. Additional facilities required before the pipeline is placed in service have a target completion of May 2013

Tioga Pipeline Construction Timeline

Bakken Opportunities Abound - Sioux Falls Seminar

Williston ND to Sioux Falls SD map

Bakken Shale opportunities are plentiful. That was the theme of a seminar held in Sioux Falls earlier in the week. South Dakota businesses are looking to capitalize on the opportunity in the oilfield in ND. To date, most oilfield services are fulfilled by companies from oil producing states on the coasts.

Highlights from the meeting include

• Bakken Shale development makes a $20 billion impact on the ND economy, alone
• The ND gross state product was $38 and the SD gross state product was $40 billion
• Over 9,600 mining workers live in Williams County, ND - The population was only 19,761 in 2000
• Housing developers are attempting to judge if there will be a resell market in five years - They've been asking that question for about five years.....
• Drilling times are 30% of what they once were and have fallen from 90 days to less than 30 days

Denbury - Exxon Deal Includes Bakken Acreage, CO2, Tertiary Flood Fields, Cash

Denbury Bakken Acreage Map

Denbury and Exxon have announced a deal that includes almost 200,000 acres in the Bakken trading hands. Exxon is paying and trading $1.6 billion dollars in cash, operating interests in the Webster Field in Texas, and interests in the Hartzog Draw Field in Wyoming for 196,000 acres in the North Dakota Bakken play.

Denbury is trading its Bakken assets that were largely acquired through the acquisition of Encore for cash and fields with CO2 tertiary flood potential. CO2 floods are the company's focus and a deal for the Bakken assets has been expected for some time. XTO Energy, an Exxon subsidiary, will operate the Bakken assets.

Denbury Acquiring CO2 from XOM

In a separate agreement, Denbury will either purchase CO2 from the LaBarge Field from XOM or will purchase an interest in reserves in the field. The $1.6 billion in cash from Exxon will be reduced by the amount of the CO2 agreement.

Tertiary Flood Opportunity Expands in WY & TX

The Hartzog Draw Field (370 mmbbls OOIP) is located near the Greencore Pipeline that runs from Conoco's Lost Cabin plant to the Bell Creek Field in Southern Montana. The company estimates the field has ultimate potential net recovery of 20-30 million barrels.

The Webster Field (550 mmbbls OOIP) is located just 8-miles from the company's Green Pipeline that delivers CO2 to the Hasting Field south of Houston. DNR estimates the Webster field has ultimate potential net recovery of 60-75 million barrels.

Bakken Oil Production Accounts for More Than 10% of U.S. Supply

ND Bakken Production 2011-072012

Bakken oil production from North Dakota surpassed 600,000 b/d in July of 2012. That's more than the country's number three oil producing state, California, and more than 10% of U.S. supply when you add Montana volumes.

The Montana and North Dakota Bakken surpassed 600,000 b/d sometime in the March-April timeframe and ND has continued to march on to new heights in July and August. The entire play is likely approaching three-quarters of a million barrels of oil per day. New rail facilities are allowing operators to bypass lower prices in Cushing, OK, for the better Gulf Coast market.

Over 2,200 wells have been brought online since the beginning of 2011 and more are expected as more than 200 rigs continue working the region. As discussed in a recent article, North Dakota Oil Production Could Jump to 2 Million Barrels Per Day Bakken production is expected to continue climbing at current oil price expectations.

Bakken Shale Waterfloods Better Understood in Early 2013 - EOG

EOG Resources Bakken Shale Map

Bakken Shale waterfloods could be proven (or not) by late 2012 and you can expect to hear more from EOG in early 2013. EOG Resources' CEO has been open about additional recoveries being a major growth driver for the company going forward. The company highlights three areas when discussing horizontal oil production growth. The first bullet is where the company expects the most.

1. Improving recovery factors - More dense well spacing and secondary recovery
2. Explore for new horizontal liquids prospects in North America
3. Indentify international horizontal oil opportunities with limited capital exposure

Bakken Secondary Recovery

EOG commenced secondary recovery pilots in mid-April of 2012 and expects to have a good understanding of the reservoirs response to water at year-end. Mr. Papa commented:

"We should have enough results to reach a conclusion. We should see or not see waterflood response by year-end 2012 or 2013......From the results of lab testing on cores, we feel pretty good at least from a labratory perspective. 2013 will be when we have an answer."

The company does not think water injection will be most effective in the Eagle Ford Shale. Expect to see dry gas injection tested for secondary recovery in the Eagle Ford in late 2013.