Emerging from the downturn, optimism from Bakken-industry players highlights why most see the play as another opportunity waiting to happen.
The rising tide of oil prices has lifted the Bakken shale play to the lofty position of No. 1 in netback per well drilled, which has not only resulted in predictions of a new oil production record for North Dakota this summer, but also a renewed sense of optimism among industry insiders about the play’s future.
The annual Williston Basin Petroleum Conference—sponsored by the North Dakota Petroleum Council—attracted more than 2,500 people from 40 states, three countries and six Canadian provinces. Many of the event’s participants outlined their plans while explaining why they considered the Bakken one of the top plays in the U.S.
Presenting The Mood
“The conference speakers and enthusiasm by the attendees sent a valuable message that our industry has a bright future and that the Williston Basin’s oil and gas resources play a critical role in the world’s energy future,” noted Ron Ness, NDPC president.
Echoing the conference’s “Bakken now” theme, Lynn Helms, director of the North Dakota Department of Mineral Resources, said, “The Bakken is now, and we need to be thinking about what’s next because the Bakken is going to go on for decades and generations.”
Throughout the conference, speakers made comparisons between the Bakken and the nation’s hottest shale play, the Permian Basin in Texas and New Mexico. Helms said attention had become so focused on the Permian that some referred to the condition as “Permania.”
“Two or three years ago, you couldn’t get investors’ attention on the Bakken,” said Greg Hill, chief operating officer of Hess, which has a 50-year history of Williston Basin operations. “Everybody had turned to the Permian. All people wanted to talk about was, ‘When are you going to get in the Permian? What’s your position in the Permian? How come you don’t have a position in the Permian?’ We kept returning people back to the Bakken, saying the Bakken has as good or better economics as a large part of the Permian.”
According to Hill, the Permian Basin is suffering from many of the growing pains that plagued the Bakken several years ago, which include lack of infrastructure, the high cost of acreage, an insufficient workforce, bottlenecks in moving oil and gas to market and traffic congestion.
“What that means now is that the Bakken is the place to be,” he said. “If you look at netbacks alone, WTI plus about $2 is what’s going on in the Bakken. If you look at the Permian, it’s WTI minus $9 or $10 because of all those bottlenecks. We’ve got the infrastructure, we’ve got a great regulatory framework here and we’ve got higher netbacks. So, the Bakken is the place to be.”
Brad Holly, president and CEO of Whiting Petroleum, gave a talk titled “Why the Bakken?” in which he proceeded to answer his own question. Noting that the Bakken accounts for 10 percent of U.S. oil production, he cited a regulatory environment in North Dakota that provides certainty to investors. Whiting is bullish on moving oil out of the Williston Basin, Holly said, but also added that additional investment is needed to respond to the challenge of increased gas production.
“The Bakken has performed very nicely on oil differentials compared to the Permian,” Holly stressed, adding that Whiting expects differentials in the play to steadily improve.
Holly was one of three producers on a panel with Ness who discussed the next moves for the Williston Basin. Erec Isaacson, vice president of the ConocoPhillips Rockies Business Unit, said that by reducing costs and spending, improving efficiencies and focusing on its best resources, the company is moving forward from its low point two years ago. In spite of the improvement in oil prices, he noted that the industry remains in a period of volatility. “The key takeaway is that we need to maintain resilience in the face of volatility,” he emphasized.
Thomas Nusz, chairman and CEO of Oasis Petroleum, said the 15 years of experience in the Willison Basin helped the company become one of the first producers to go cash-flow positive during the downturn. As the fourth largest producer in the basin, Nusz said Oasis plans to spend $1 billion in the Bakken this year, 75 percent on upstream and 25 percent on downstream.
One of the key opportunities for the Bakken lies in enhanced oil recovery (EOR) technology. Helms revealed that there will be four EOR projects in the Williston Basin this summer testing the technology. Mark Pearson, president and CEO of Liberty Resources, discussed the company’s Stomping Horse EOR Project which is expected to begin in July north of Tioga, North Dakota. He used long straws and two two-liter bottles of “conventional” Coke and “unconventional” Diet Coke to demonstrate the process.
Pearson noted that the Bakken has greater oil reserves than Saudi Arabia. The difference is that currently, only a small portion of the Bakken’s reserves are considered economically recoverable. In the 1970s, experiments began using carbon dioxide (CO2) as a miscible fluid—a fluid that will mix with oil—to create a higher displacement of oil. Working with the University of North Dakota Energy & Environmental Research Center, Liberty will test a technique that could recover 40 percent or more oil the Bakken’s oil resources. “That is the opportunity for the Bakken,” Pearson said.
The problem with using CO2 for EOR is that it’s expensive. “It’s a big project that small companies like mine could never take on,” Pearson explained. “You’ve got to drill the wells for the resource. You’ve got to pipeline it in chrome alloy pipes because of corrosion issues. And you have to change out all your tubulars in your injection wells because of carbonic acid and corrosion that go on there,” he said.
What the Bakken offers is gas with high levels of natural gas liquids (NGL) that can be used as a miscible liquid instead of CO2. Pearson said Liberty’s gas is typically 80 percent methane, 20 percent ethane and 10 percent propane.
“It’s those components of ethane and propane that excite us about the potential for enhanced oil recovery in the Bakken,” he said. “We have the potential to take the produced gas—with the NGLs in it—and reinject it back into the ground to increase the oil production coming out.
“I don’t know what the results are going to be, but it definitely has the potential of being a gamechanger in terms of our total recovery,” Pearson continued. “I think the future is bright for the Bakken, but I think it’s time for what I would call some EBOR—enhanced Bakken oil recovery.”
Exporting From North Dakota
According to Brady Cook, Koch Industries Inc. senior vice president for oil and trading, the Bakken is ripe to benefit from export opportunities. While U.S. shale oil production is surging, refinery capacity in the U.S. is growing slowly. In contrast, Asian refining capacity for sweet, light crude is rapidly expanding. U.S. refiners will continue to import quantities of medium and heavy crude to meet their needs.
“Lighter crude will grow in value versus heavier grades,” Cook predicted. “Bakken oil is well-positioned for this compared to common water-borne crudes for refiners in Europe and Asia. The market is recognizing the scale of the refining problem coming its way. The value for Bakken goes up compared to refiners’ other crude alternatives.”
Both Hill and Helms emphasized that beginning with the oil price downturn, investment in the oil and gas industry has lagged far behind where it should be to keep pace with demand. To catch up, an annual investment of $540 billion is needed through 2040, according to Hill.
Helms labeled the $1 trillion underinvestment in the oil and gas industry that’s occurred since the downturn began in 2015 a huge concern. “What that means is that sometime not too long after 2020, prices have to make a correction to bring that investment back and bring that production back,” he noted. “But in 2021 when we see that price correction, we see rigs coming back really, really intensely.”
Another Bakken Rush Looming
Helms expects North Dakota to set a new production record this summer, eclipsing the previous record of nearly 1.23 million barrels per day set in December 2014. With that comes record levels of gas production as well.
In North Dakota, Helms said lack of infrastructure to capture and process gas will likely be a problem this year when state regulations raise the level of gas capture required from 85 percent to 88 percent. Although the oil and gas industry has invested $127 billion in the state, he estimates that another $350 billion of investments will be needed over the next 20 years.
While the state now has excess railroad and pipeline capacity to ship the crude it produces, Helms expects that situation to change by 2020 when even an expanded Dakota Access Pipeline will reach full capacity. That means either increased crude by rail or planning for another oil pipeline.
“My message to you—you’re mainly upstream and midstream folks—is when somebody comes to you with a proposal for an export pipeline, commit barrels. Get the pipeline built because there is no time to get that project started and permitted,” Helms stressed.
In addition, he emphasized the need to build more gas gathering pipelines and gas processing plants to deal with an increasing gas-to-oil ratio. Since 2016, the industry has laid between 700 and 900 miles of new gas pipeline annually, a trend Helms said must be reversed. ”If we go back to the number of completions that we anticipate, then we need to be building 2,000 miles of pipeline every single year from now to 2025,” Helms stated. “There is no time like the present to get your right-of-ways.”
In addition, even though five new gas processing plants representing a $3 billion investment should come online in late 2018 and 2019, Helms said they’re expected to meet industry’s needs only through 2020 or 2021. Another $6 billion of investments in gas processing plants will soon be needed to handle increasing production, he said. More infrastructure to transport NGL will also be needed in the next three years, Helms noted.
Expanded oil and gas production, combined with the need for more infrastructure, means that the workforce will also need to expand. Helms estimates that the 56,000-people employed by the industry at its peak in 2014 will need to grow from the current 36,000 jobs to 63,000 by 2020.
“We need to be talking to our western communities about how they’re planning for these people to come back because they’re all coming back—plus another 7,000,” Helms said. “These people are young and they’re diverse. We used to be a state that was No.1 in retired people—growing older and a shrinking population. We are now No. 1 in millennials.”
The good news Helms brought to the conference was that increasing oil prices have enabled Bakken producers to once again begin operating outside the play’s core areas.
“At today’s oil prices, the economics reach way beyond the core and all the way to the Canadian border,” he said. “The entire Bakken is at play again. Sixty-five rigs are drilling today. In less than a week, we’ve added five rigs in the state of North Dakota. That’s great news for the royalty owners, for the working-interest owners and to the operators out in those parts of the world.”
Hill said that despite predictions of electric cars reducing the demand for oil, the demand for petrochemicals and the need for long-haul fuels for trucks, ships, trains and aircraft ensures that oil and other fossil fuels will continue to meet 75 percent of the world’s energy needs through 2040.
“Not only is the Bakken helping the state of North Dakota, it’s helping the United States of America,” Hill said. “And more importantly, it’s helping to change the lives of millions of people around the world as they come into prosperity—prosperity that so many of us have enjoyed.”