How Bakken Crude Wellhead Valuation Influences Transport

June 11, 2014 Kirk Eggleston

Since 2012, Bakken crude transport by rail has grown significantly - today nearly 70% of all crude produced is transported to the consumer by rail.

Although pipeline transport is still critical in the Bakken, much of the movement has shifted to rail due to its overall cost effectiveness, and experts anticipate this growth to continue.

In response to this increase in rail transport, Platts, an energy news and price publisher, began offering its subscribers an assessment of value nearest the Bakken crude wellhead in late April of 2014. Platts Editorial Director Sharmilpar Kaur said in a written statement that crude transport by rail has influenced industry demand for crude value assessments closer to the wellhead.

“Given the rapid growth in the transportation of crude oil by rail, the industry was in need of Bakken Shale oil value at North Dakota terminals with the operational capacity to move crude by rail or by rail/pipeline, said Kaur.”

The service captures the value of Bakken crude at the point where there is transportation flexibility either by rail, or rail/pipeline. This assessment ultimately provides industry with greater intelligence before the decision is made on using truck, rail and/or pipeline to deliver the crude to customers.

“Founder of BakkenShale.com and industry veteran Kenny DuBose, commented, “It is important to attempt to establish pricing points as close to the wellhead as possible, in order to separate and distinguish between the commodity value and any transportation expenses.”

According to Platts, in 2016, more pipelines are expected to come online in the Bakken, which should ultimately offer industry more transportation flexibility in the region. The first Platts' Bakken price assessment was 91.93 per barrel on April 23, 2014.

NDIC Implements New Bakken Flaring Rule - June 1, 2014

June 6, 2014 Kirk Eggleston

Beginning on June 1st, the North Dakota Industrial Commission (NDIC) began implementing its first in a series of policy changes aimed at reducing flaring in the Bakken.

The NDIC's new "gas capture plan" (GCP) rule will require E&P companies to submit a document with their application for a permit to the commission specifying how they plan to capture gas produced from their drilling operations.

In May of 2014, the North Dakota Pipeline Authority (NDPA) released production data for March of 2014, indicating 33 % of natural gas was flared in the state. With the new policies implemented, the NDIC hopes to capture 85% of natural gas produced in the state in the next two years, and at least 90% by 2020.

Since the boom began, flaring has conceivably prevented the state from collecting untold amounts of money in revenue from production. North Dakotan mineral owners, whom have also felt slighted, began filing class action lawsuits against oil companies in late 2013 for royalty payments lost due to flaring. Recently, in May of 2014, a federal judge dismissed 13 of 14 lawsuits filed against oil and gas operators. These among other reasons have been the impetus for NDIC's policy changes relative to flaring.

Under the GCP, flaring is limited to one year after first production from the well. After that time frame elapses, the well must be connected to a gas gathering line or capped. The well can also be equipped with an electrical generator, or compression or liquefaction system that consumes at least 75% of the gas.

The new regulations are based on recommendations from the North Dakota Petroleum Council (NDPC). The NDPC is a trade association that represents more than 500 companies involved in all aspects of the oil and gas industry including oil and gas production, refining, pipeline, transportation, mineral leasing, consulting, legal work, and oilfield service activities in ND, SD and the Rocky Mountain Region.

Bakken Crude Pushed to West Coast Refining Markets

June 4, 2014 Kirk Eggleston

Bakken Crude could be pushed out of the Gulf Coast refining market as soon as this year or early next year. That prediction was revealed by Bentek Energy Sr. Analyst Erika Coombs at the annual Benposium Conference in early June of 2014.

Production growth in the Eagle Ford Shale and Permian Basin, and nearly completed pipeline and infrastructure projects for the Permian, will make Bakken crude transport to the Gulf Coast uncompetitive according to Coombs. As a result, oil production from the Bakken is expected to primarily target the West Coast refining markets in Washington and California.

Although the destination for some Bakken crude volumes may be changing, how it will get there is not. Analysts at the conference said rail will remain the major source of transport for Bakken crude. Approximately 70% of Bakken crude arrives to market by rail.

Currently, pipeline infrastructure in the Bakken is slim, but two new major oil pipelines have been proposed to serve the Williston, including the Double H Pipeline and the Sandpiper Pipeline. At the end of 2013, Enbridge Partners, the company that proposed the Sandpiper Pipeline, announced it reached an agreement with Marathon Petroleum to become an anchor shipper.

Highlights from Benposium 2014

Rail will remain the primary source of transportation in the Williston Basin
Bakken crude oil transport will shift from Gulf Coast refining market to West Coast
Bentek predicts the price of crude oil will dip to $82 by 2019
Bakken average drilling days down from 30 - 19 from 2011 - 13

Is the Bakken America's Last Oil Boom?

May 30, 2014 Kirk Eggleston

At the Thirtieth Annual Sanford C. Bernstein Conference on May 29, 2014, EOG Resources CEO Bill Thomas indicated the company doesn't see another shale play of the same magnitude as the Bakken or Eagle Ford on the horizon.

According to Thomas, the Bakken and the Eagle Ford currently produce 75% of all horizontal oil production in the U.S., but he notes the two plays are beginning to mature, and their growth rates are beginning to slow.

“Thomas said, “we don’t see another play out there that’s like an Eagle Ford or Bakken that will maintain this tremendous growth that we have had going forward. So production we believe is beginning to slow. In 2012, [production] was about 1-million b/d per year and then last year was a little over 800,000 b/d per year. We are looking at maybe this year 750, maybe in 2016 650,000 b/d per year and really over a fairly short period of time we really believe that the U.S. will be in kind of a very low growth mode. So oil is not going to just go on forever because there is not really another Eagle Ford or Bakken out there.”

Thomas' postulation about the Bakken and Eagle Ford, which is likely an accurate depiction, doesn't diminish the impact these plays have already had, or will continue to have on the oil and gas industry, and the U.S. economy. According to the EIA, production in the Bakken Shale has now exceeded the 1-million b/d mark. Recently, Continental Resources, the Bakken Shale's largest producer, released data showing the Bakken field of North Dakota and Montana reached the milestone of 1-billion bbls of cumulative light, sweet crude oil produced during first quarter of 2014.

Bakken Tornado Injures Nine in Watford City, ND - Video

May 28, 2014 Kirk Eggleston

An EF-2 tornado destroyed 15 recreational vehicles at Raley RV Park, an oilfield camp south of Watford City, ND, on Monday, May 26th, 2014, according to officials. Nobody was killed; however, a 15-year old girl was transported to Trinity Hospital in Minot, ND, from injuries sustained during the storm. Eight other victims were treated and released according to the McKenzie County Sherrif's Department.

The CBS news video below includes an eyewitness account of man who lived in Raley RV Park:

Due to the Bakken oil boom, many oilfield workers are utilizing recreational vehicles as temporary housing. Tornadoes, which are notorious for laying waste to mobile home and RV parks, usually strike without warning; however, it's still important for residents of temporary camps to have a plan. Storm shelters offer the best chance for survival during a tornado; however, that option isn't feasible for most folks in the Bakken oil patch. The next best thing to do is scout out a permanent structure within a reasonable distance from your camp. Generally, anything with a concrete foundation is safer than a recreational vehicle during a tornado.