July 2015 - The Bakken Magazine

JULY 2015

www.THEBAKKEN.comPrinted in USA

PlusEXCLUSIVE:

Hess Explains Bakken Efforts

Page 56

AND Non-Ops, Investors

Find Bakken Success In

Different Ways Page 28, 48

Why Gary Gould, Continental Resources SVP Of Operations Has Joined The U.S. Crude Export DebatePage 38

Standing

ChangeFor

The BAKKEN MAGAZINE JULY 20154

CONTENTS JULY 2015 VOLUME 3 ISSUE 7

Pg 28 EXPLORATION & PRODUCTION

The Non-Op VarietyOil price fluctuations, drilling plans and new completion designs challenge nonoperators in the Williston Basin. These non-ops are

finding ways to succeed. BY EMILY AASAND


Focused On The BanGary Gould, senior vice president of operations for prolific Bakken producer Continental Resources shares insight and the inspiration behind his recent efforts to lift the U.S. crude oil export ban. BY LUKE GEIVER


Split Rock’s Guide To Bakken Investing

This Minnesota investment and money management firm built a successful Bakken account on its conservative philosophy, in-depth research and small-town approach.BY LUKE GEIVER

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CONTENTS JULY 2015 VOLUME 3 ISSUE 7

Pg 34 INFOGRAPHIC

The Independent PathLow oil prices didn't have the impact on E & P spending that they have

in 2015, information from an Ernst & Young report shows. BY THE BAKKEN MAGAZINE STAFF

60%

50%

40%

30%

20%

US OIL AND GAS PRODUCTION: OIL WEIGHTING

Oil production as a % of total production

Integrateds

Large independents

Independents

2010 2011 2012 2013 2014

Integrateds Large independents Independents

CAPITAL EXPENDITURES

Billi

ons

2010 2011 2012 2013 2014$0

$50

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CAPITAL EXPENDITURES AND NOMINAL CASH FLOWS

Billi

ons

$225

$200

$175

$150

$125

$100

$75

$50

$25

$0

Total capital expenditures Nominal cash flows

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

UPSTREAM COSTS (THREE-YEAR AVERAGES)

Billi

on b

arre

ls

$30

$25

$20

$15

$10

$5

$02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PRAC FDC Prodcution costs

OIL PRODUCTION

Billi

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arre

ls

Integrateds Largeindependents

Independents

2.5

2.0

1.5

1.0

0.5

0

2010 2014

Allcompanies

US OIL AND GAS PRODUCTION: OIL WEIGHTING

Oil p

rodu

ctio

n as

a %

of to

tal p

rodu

ctio

n

Integrateds Large independents Independents

60%

50%

40%

30%

20%

2010 2011 2012 2013 2014

2014 COMMODITIES PRICES AND REVENUES Low oil prices in December had little impact on 2014 reporting of U.S. oil and gas industry spending, reserves and revenues, according to Ernst & Young Global Ltd’s eighth annual U.S. oil and gas reserves study.

“Total capital expenditures for study companies have more than tripled from 2005 to 2014—even with a big cutback in spending during the 2009 financial crisis,” said Herb Listen, Assurance Oil & Gas co-leader for Ernst &

Young in the U.S. “However, due to volatile oil prices in the first quarter of 2015, we have seen U.S. producers significantly reduce capital expenditures at an average of 20 to 25 percent in recent months.”

The report also found overall, in 2014, oil reserves studied grew 8 percent to 27.2 billion barrels and overall oil production jumped to 18 percent to 2.1 billion barrels in 2014.

SOURCE: ERNST & YOUNG LTD

ON THE COVER: Gary Gould, senior vice president of operations for Continental Resources Inc. at his Oklahoma City office. PHOTO: CARY ANN PHOTOGRAPHY

8 Editor’s NoteExecuting On ThemeBY LUKE GEIVER

10 ND Petroleum CouncilMoving Beyond The Bust Mentality BY TESSA SANDSTROM

12 Events Calendar

14 Bakken NewsBakken News and Trends


Leaning In The Right DirectionIts unique approach to all Bakken activity has kept Hess Corp. strong during low oil prices and could make it stronger when prices recover.BY PATRICK C. MILLER

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Executing on Theme

Luke GeiverEditorThe Bakken [email protected]

EDITOR'S NOTE

For the Latest Industry News:www.TheBakken.comFollow us:

twitter.com/thebakkenmag facebook.com/TheBakkenMag

Given the challenges fluctuating oil prices have created for E&Ps, why would Gary Gould, a 25-year-plus oil indus-try veteran and vice president of operations for one of the Williston Basin’s most prolific operators, add to his duties and put himself in the middle of a national debate? He is beyond busy, overseeing drilling, completion and production segments for Continental Resources Inc.––and Harold Hamm, Continental’s CEO, is already working hard in Washington, D.C., and with national media to get out the message. Convinced that future economic opportunities for Continental and the U.S. are linked to the production of U.S. crude, however, Gould is working to get the truth out about the connection between U.S.-based oil producers and a decades-long ban on the export of crude oil to be told.

Our conversation for the story, “Focused on the Ban,” on page 38, included talk of drill-ing achievements, enhanced completion designs and the need for new artificial lifts as a result of increased production per well—Continental expects to produce 25 to 45 percent more oil per well in the Williston Basin with new completion designs. Each time the subject of lifting the crude oil export ban came up, Gould stated the same view, helping explain why Gould and Continental are in the thick of the export debate. “The bottom line is that it [the export ban] doesn’t as much impact the quality of the work we do day-to-day, but it does impact the quantity of the work we can perform,” he said. Read how oil refining and U.S. storage capacity combine with gas prices to further complicate the debate. Gould found the time to share his perspective on how it —Continental, energy service firms, refiners (foreign and local), world gas prices, and U.S. consumers—are all con-nected.

Nonoperators and shale-focused energy investors understand what it means to be connected to the Bakken. As oil prices have fluctuated, each industry entity has had to tweak drilling and comple-tion schedules and alter oilfield development plans. Both non-op firms we spoke with this month said that low oil prices have, and can, actually be an opportunity in disguise. Split Rock Trading, the small-team, small-town investment firm that has succeeded with its North American Shale Energy account and its ties to the Bakken, offered a similar view. And, although the near-term opportunity of investing in segments of the Bakken will be hampered by what Split Rock’s talented analysts believe will be another downturn in oil prices, Split Rocks says the cliché investment philosophy of thinking long-term will truly pay off when oil prices recover further next year and the good names start to look great.

Few would argue that Hess Corp. should be—if it isn’t already—included in the great class. Reading Patrick Miller’s inside look at Hess’s approach to developing the Bakken, “Leaning in the Right Direction,” on page 56, it is easy to see why Hess is a shining star in the Williston Basin. As Alf Tischler, manager of completion operations told Miller, the Bakken-focused team has worked hard the past five years to implement a lean-manufacturing approach to everything it does in the Bakken, from sending trucks out to scheduling service work to completing a well. The economic results of the work have been undeniably successful and today, Hess is bringing some of the best Bakken wells online every month at an incredibly low price point. Tischler and Gerbert Schoonman, vice president of Hess’ Bakken assets, both credit the success to constant lean-approach focus within the Hess team and the entities it works with. “You create an army of problem solvers out there,” Tischler says. “All of a sudden, you see effectiveness and efficiency improvements all over the field so fast that you can’t even catch up with the savings.”

Our team is excited for you to have the July issue in-hand or on your screen. Our theme this month was to provide operator updates and, as this issue shows, we’re connecting you with a wide range of perspectives, each playing out their own themes in the Bakken this summer. Enjoy the read.

THEBAKKEN.COM 9

www.THEBAKKEN.com

VOLUME 3 ISSUE 7

Subscriptions Subscriptions to The Bakken magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States. To subscribe, visit www.TheBakken.com or you can send your mailing address and payment (checks made out to BBI International) to: The Bakken magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or [email protected]. Advertising The Bakken magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about The Bakken magazine advertising opportunities, please contact us at 866-746-8385 or [email protected]. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to The Bakken magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to [email protected].

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COPYRIGHT © 2015by BBI International

EDITORIAL

Editor Luke Geiver [email protected]

Staff Writer Emily [email protected]

Staff Writer Patrick C. Miller [email protected]

Copy Editor Jan [email protected]

PUBLISHING & SALES

Chairman Mike Bryan [email protected]

CEO Joe Bryan [email protected]

President Tom Bryan [email protected]

Vice President of Operations Matthew Spoor [email protected]

Vice President of Content Tim Portz [email protected]

Marketing & Sales Director John Nelson [email protected]

Business Development Manager Bob Brown [email protected]

Account Manager Austin [email protected]

Circulation Manager Jessica Beaudry [email protected]

Traffic & Marketing Coordinator Marla DeFoe [email protected]

ART

Art Director Jaci Satterlund [email protected]

Graphic Designer Lindsey Noble [email protected]

ADVERTISER INDEX44 AE2S

20 Allied Oil & Gas Services, LLC

36 American Power Group, Inc.

21 Bartlett & West

43 Braun Intertec

7 CARBO

26-27 Centek Group

24 Corval Group

22 DryRock Products

25 Dunlop Protective Footwear

51 Fortis Energy Services, Inc.

12 iLevel Digital

52 Independent Technologies, Inc. (WESROC)

37 Intertek

53 Johnson Controls, Inc.

19 J-W Energy Company

2 Kimzey Casing Services, LLC

62 KLJ Progress Solutions

61 KW Commercial

47 LPP Combustion

18 Lunnen Real Estate Services

23 Matrix Service

32 Miller Insulation

64 NCS MULTISTAGE LLC

65 Peak Oilfield Service Company, LLC

67 Pentair Flow Technologies

33 Port of Vancouver USA

42 Presto Geosystems

13 Profire Energy, Inc.

68 Quality Mat Company

60 R360 Environmental Solutions

63 SBG Energy Services LLC

54-55 The Bakken Conference & Expo

31 Torrid Technologies Group

50 Total Safety

5 Tyco Fire Protection Products

46 Valley Industries LLC

45 Wanzek Construction Inc.

30 Wood Group PSN

3 Worthington Industries


There is nothing I love more than summers in North Dakota. Each weekend from Memorial Day to the start of the North Dakota State Fair, I hit the road and drive back to my hometown of New Town to spend the weekend on Lake Sakakawea.

What used to be a pretty quick drive from Bismarck to New Town has been slowed these past few years by something I never thought I’d see in New Town: stoplights.

This summer, traffic flow at those stoplights has been worsened by road construction, and as I sat waiting at one stop for what felt like an eternity keeping me from the pontoon on the lake, I thought about all the stories I’ve been reading in the national papers and blogs about the Great North Dakota Oil Bust and the imminent doom and gloom falling upon our humble state. I thought about it as I glanced in the rearview mirror and saw semis and trucks lined up behind me. I looked ahead at the intersection and the lines of trucks and semis on either side waiting for their chance to go. I looked ahead at the guy in an orange safety vest trying to direct

all these people who are going about their day in the oil patch. I looked at this bustling intersection and messy road construction, and I wondered, “Where’s this bust everyone is talking about?”

To be fair, things are slower. I have friends who had the miserable job of laying people off this year. I’ve been the recipient of emails that have bounced back from friends and colleagues as either undeliverable or stating “this person no longer works here.” I’ve had to be the person telling a deserving nonprofit that unfortunately, due to oil prices, many companies are having to be more diligent in their community spending. It’s hard for some to understand, but it’s even harder to dole out big contributions at the same time that employees are being let go.

I’ve also talked to friends who have been fortunate enough to receive small royalty checks to help pay bills or live more comfortably. They’ve confided that those checks are getting much, much smaller. When you talk to those people and you think about the thousands of faceless others who you know are out there who have lost their jobs or seen their

businesses slow, it’s not realistic to tell inquiring reporters or others that everything is still great. That would be insensitive. There is a human element to oil and gas development that too often gets missed, and for those people, it’s not great.

To be sure, we’re in a slowdown, but it would be inaccurate to call it a bust.

At the 2015 Williston Basin Petroleum Conference, a presenter, Tony Cadrin, spoke about this

slowdown and the cycles we’ve seen before. Coincidentally, he, too, had been laid off not long before the conference. Still, Cadrin didn’t lose perspective and he didn’t become victim to the bust mentality. Instead, he saw opportunity.

After all, there are two things to keep in mind about the petroleum sector. First, we have gone through many commodity cycles in the past, and we will continue to in the future. It’s the

NORTH DAKOTA PETROLEUM COUNCIL THE MESSAGE

CLEAR PICTURE: Calling the current activity slowdown in the Bakken a bust is inaccurate, according to the North Dakota Petroleum Council. PHOTO: THE BAKKEN MAGAZINE

Moving beyond the bust mentality

By Tessa Sandstrom

THEBAKKEN.COM 11

NORTH DAKOTA PETROLEUM COUNCIL

nature of commodities. Second, the industry has survived each and every one of these cycles, coming out stronger through innovation and optimization. After all, hydraulic fracturing and horizontal drilling were born from a bust, and they’ve helped create perhaps the single greatest opportunity for our nation to improve its economic trajectory and standing in the world.

So as I sit in traffic this weekend on my way to the lake to

celebrate Independence Day, I’ll be thinking about opportunity and will try to imagine the incredible technologies that some smart guy is going to come up with to make the industry and our state stronger. And, while that smart guy is coming up with his ways to make the industry stronger, I’ll be thinking of ways to help spread the message that while things may not be great, they’re still pretty good in North Dakota. The industry may not be able to

contribute as much financially as we used to, but we’re finding ways to pitch in and give back and show our dedication. We have people ready and willing to volunteer. We’re planning blood, food and coat drives to help give back. We have teams entering marathons and 10ks to help good causes. Activity may have slowed down, but our dedication and commitment to the communities has not. In other words, we’re here to stay.

And, when that tired, dirty guy in the orange safety vest waves me along through construction, I’ll smile and wave back, because that construction and those lines of traffic aren’t signs of a bust. They’re signs of progress.

Author: Tessa SandstromCommunications Manager,North Dakota Petroleum [email protected]


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The Bakken magazine will be distributed at the following events: Unconventional Resources Technology Conference (URTeC)July 20-22, 2015San Antonio, TexasIssue: July 2015The Bakken magazine

The Bakken Conference & Expo July 27-29, 2015 Grand Forks, North DakotaIssue: July 2015The Bakken magazine

2015 North Dakota Petroleum Conference Annual MeetingSeptember 21-23, 2015Fargo, North DakotaIssue: September 2015The Bakken magazine

OilCommNovember 4-6, 2015Houston, TexasIssue: November 2015The Bakken magazine

Houston Oilfield ExpoDecember 9-10, 2015Houston, TexasIssue: December 2015The Bakken magazine

NAPE DenverDecember 9-10, 2015Denver, ColoradoIssue: December 2015The Bakken magazine

• amine reboilers• combustors• dehydrators• gas production units

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BAKKEN NEWS BAKKEN NEWS & TRENDS

Fracking Impact on Drinking Water:NOTHING WIDESPREAD OR SYSTEMIC

Draft SummaryThe U.S. EPA has utilized more than 950 sources and five years to issue a draft

assessment on the potential impacts to drinking water resources from hydraulic fractur-ing activities. The Congress-requested, most-complete compilation of scientific data on hydraulic fracturing in EPA history has concluded that hydraulic fracturing has not led to widespread, systemic impacts on drinking water resources.

“EPA’s draft assessment will give state regulators, tribes and local communities and industry around the country a critical resource to identify how best to protect public health and their drinking water resources,” said Thomas Burke, science advisor and deputy assistant administrator of EPA’s office of research and development.

According to the EPA, the draft assessment is based upon a robust literature review and offers state-of-science integration and its ability to synthesize information. It not designed to identify or evaluate best management practices, inform policy decisions or identify and evaluate policy options.

950 sources

5 years

12 EPA technical reports

4 EPA-authored journal publications

FRACKING AREAS OF INTEREST: 1. Water acquisition2. Chemical mixing3. Well injection4. Flowback and produced water5. Wastewater treatment and disposal

STUDY MAKE UP:

THEBAKKEN.COM 15

BAKKEN NEWS

Geologic Information To Note The Dakota formation is a distinct geologic zone located

within the greater Williston Basin. Produced water and flowback are injected into the Dakota formation for wastewater disposal purposes. The formation exists several thousand feet above the Bakken formation where fracking stimulation occurs. The North Dakota Industrial Commission also requires a saltwater disposal well to avoid any freshwater aquifer by at least a quarter mile (1,320 feet).

Killdeer Case Study To formulate its conclusion, the EPA turned to several active

hydraulic fracturing areas in the country, including North Dakota. As part of its draft assessment, the EPA used results from a well blowout incident near Killdeer, North Dakota, in 2010. The infor-mation gleaned from the blowout showed that samples from the area of the blowout did not include the presence of chemicals or brine associated with the blowout.

Pennsylvania (2)

North DakotaColorado

Texas

RANDOM STATS For most counties, hydraulic fracturing activities account for less than 1 percent of total water use and consumption. –EPA

Instant Reaction Despite the EPA’s conclusion issued in its executive

summary, reaction to the draft assessment was mixed and the topic continues to inspire varied perspectives.

“After more than five years and millions of dollars, the evidence gathered by the EPA confirms what the agency has already acknowledged and what the oil and gas indus-try has known,” Erik Milito, American Petroleum Institute upstream group director said. “Hydraulic fracturing is being done safely under the strong environmental stewardship of state regulators and industry best practices.”

Sen. John Hoeven, R-N.D., issued a statement pro-claiming what the state has believed all along regarding hy-draulic fracturing and drinking water. “We in North Dakota have been regulating hydraulic fracturing effectively for years with good environmental stewardship,” adding, “this report comes as good news for residents of oil producing lands in our state and across the country.”

Others, like Earthworks, a group formed from two groups started in 1988 and 1999, offered different perspective, voicing their belief that the study confirmed that communi-ties living near fracking have known for years that fracking pollutes drinking water.

Williston Basin Drinking Water Study The U.S. Geological survey has studied energy activity im-

pacts on groundwater in the Williston Basin. The study, released last year, found that oil and gas developments in North Dakota and Montana have not impacted shallow ground water quality.

Final Assessment The EPA has not provided a date when the study will be

complete, but it will be finalized only after a public comment period and a review by the Science Advisory Board.

RETROSPECTIVE CASE STUDIES


BAKKEN NEWS

1) Economics are based on long horizontal wells. Capital assumption includes drill, complete tie-in and facility costs2) Break-even supply costs are referenced to WTI3) Includes North Dakota Extraction Tax reduction from 6.5% to 5% on 1/1/16

IMAGE: ENERPLUS CORP.

Fort Berthold Type Curves

0

5

10

15

20

25

30

35

40

45

50

0 10 20 30 40 50 60

Mon

thly

Oil

Prod

uctio

n (M

bbl)

1,200 Mbbl Type Curve

900 Mbbl Type Curve

600 Mbbl Type Curve

Type Well Economics (1)(2)(3)

WTI: US$60/bbl 1,200 Mbbls 900 Mbbls 600 MbblsNYMEX: US$3.25/ Mcf (1,400 MBOE) (1,050 MBOE) (700 MBOE)

30 Day Cum Prod (bbls) 48,118 36,089 24,059

1st Year Cum Prod (bbls) 267,121 200,341 133,560NPV 10% ($MM) $8.8 $3.4 ($2.0)IRR Btax (%) 40% 20% 5%Payout ( Yrs ) 2.2 4.0 10.7Recycle Ratio 3.0 2.2 1.4BESC ($/bbl ) $42.7 $50.8 $67.2

Capital ($MM) $11.5 $11.5 $11.5

WTI: US$80/ bblNYMEX: US$4.00/ Mcf

NPV 10% ($MM) $20 $12 $3

IRR Btax (%) 100% + 53% 20%Payout (Yrs) 1.1 1.8 3.9

Recycle Ratio 4.6 3.4 2.2

Months

FORT BERTHOLD COMPLETION PERFORMANCE IMPROVING ECONOMICS

The greater Bakken community hasn’t typi-cally considered Enerplus, the Calgary-based operator, to be an industry trendsetter, but recent moves by the company could have the entire Bakken world looking to Enerplus as a leader for others to follow. The exploration and production company announced in June that it would accelerate its plans in North Dakota and complete an additional eight Bakken wells for a total of $60 million.

The decision to increase production for the year was based on what the company believed to be strong economics that included rising oil prices and its ability to get more from its energy service firms. “The additional completions are underpinned by robust economics. The average expected rate of return for the completions (ex-cluding the drilling capital already spent), using a flat West Texas Intermediate oil price of $60 per barrel, is approximately 60 percent. The average expected payout period for the completions is less than two years under a flat WTI oil price of $60/barrel,” said Ian Dundas, president of En-erplus, adding “well completions are expected to improve our 2015 and 2016 debt-to-funds-flow ratios as a result of accelerating funds flows.”

Following this activity acceleration, En-erplus said the next step will be continued ramp-up in North Dakota. It currently has several drilled but uncompleted wells.

Like many Bakken operators, Enerplus has tweaked its completion technqiues in the past two years. In 2012, the company used sliding sleeve, 30-stage fracks with roughly 270 pounds of proppant per lateral foot. In 2013, it added plug and perf, more stages and increased prop-pant poundage per stage. Today, the company has gone exclusively to plug and perf and now pumps roughly 1,000 pounds of sand per stage. Most wells are completed with 38 to 44 stages. The company now plans on drilling 7 wells per pad and has 270 drilling locations remaining in its acreage that is mainly centered in the Fort Berthold Indian Reservation near the best acre-age in the Williston Basin.

Enerplus changes plan, adds 8 Bakken wells

THEBAKKEN.COM 17

BAKKEN NEWS

Hess Corp., one of the largest exploration and produc-tion companies in the Bakken shale play, has agreed to sell a 50 percent interest in its Bakken midstream assets to Global Infrastructure Partners, an infrastructure investor, for cash consideration of $2.675 billion. The two companies will create a midstream joint venture—Hess Infrastructure Partners. The total after-tax cash proceeds to Hess of $3 billion include joint venture debt issuance. Hess will retain operational control of Bakken midstream assets. The venture, valued at $5.35 billion, will incur $600 million debt with proceeds distributed equally to both partners. Hess said in its company conference call, that upon closing, the joint venture plan is to continue to pursue a proposed initial public offering of Hess Midstream Partners LP common units.

The Hess midstream assets included in the joint venture are: a natural gas processing plant in Tioga, North Dakota; a rail loading terminal in Tioga and associated rail cars; crude oil truck and pipeline terminal in Williams County, North Dakota; a propane storage cavern and rail truck transloading facility in Mentor, Minnesota; and crude oil and natural gas gathering systems in North Dakota. The transaction is expected to close in the third quarter of 2015.

“This transaction delivers significant and immediate value to our shareholders,” said John Hess, CEO. “The joint venture with its strategically located assets will be one of the largest midstream operators in the Bak-ken. By capitalizing on the fi-nancial strength and midstream energy experience of Global Infrastructure Partners, the joint venture will be in a strong

position to fund future energy infrastructure investments and continue to grow its midstream business.”

“We are excited to an-nounce the formation of this strategic joint venture with Hess, one of the leading inde-pendent exploration and pro-duction companies in the U.S.,” said Adebayo Ogunlesi, chair-man and managing partner of GIP. “This transaction builds on GIP’s already deep experience in the energy midstream infra-structure space, including our unique ability to accommodate the needs of upstream play-ers such as Hess, and is in line with our strategy of developing partnerships with industry lead-ers. We look forward to working together with Hess’ best-in-class management team and further developing our relationship.”

According to the company, Hess will use proceeds from

this transaction to preserve the strength of its balance sheet in the current oil price environ-ment, provide additional finan-cial flexibility for future growth opportunities and continue to repurchase stock in a disciplined basis.

The board of directors for Hess Infrastructure Partners will be comprised of six directors, with three members elected by Hess and three by Global Infra-structure Partners.

Hess to sell half its Bakken midstream assets for $2.67B

A HESS EXPERIENCE: U.S. Senator Heidi Heitkamp, D-N.D., showed U.S. Department of Energy Secretory Ernest Moniz around Hess' Tioga Gas Plant last fall. PHOTO: U.S. SENATOR HEIDI HEITKAMP'S OFFICE

BAKKEN NEWS

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BUILDINGS FOR SALE OR LEASE.

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www.LunnenNorthDakota.com

The KPMG Global Energy Institute’s 2015 Energy Industry Outlook Survey, which polled nearly 200 senior energy ex-ecutives in the U.S., found that more than half are changing, or planning changes to, their business models over the next two years. With the fluctua-tion in commodity pricing and a volatile environment, energy executives said many planned to focus on growth, reducing costs and increasing cash flows in the upcoming years.

KPMG survey: energy execs to focus on growth strategies

35% say prices will fluctuate

53% say priceof Brent Crude

will stabilize

45% say prices will average $50-$59/bbl 24% say prices will

average $60-$69/bbl

200 U.S. SENIOR ENERGY EXECUTIVES WERE POLLED AND RESULTS SHOWED...

SOURCE: KPMG GLOBAL ENERGY INSTITUTE

BAKKEN NEWS

CONSULTING.

BUILDINGS FOR SALE OR LEASE.

LAND AND LOTS FOR SALE OR LEASE.

REAL ESTATE DEVELOPMENT.

CONSULTING.

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LUNNEN CAN HANDLE ALL YOUR REAL ESTATE NEEDS IN THE BAKKEN.

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www.LunnenNorthDakota.com

The 2015 Energy Survey Outlook found that 53 percent of oil and gas executives believe the price of Brent Crude oil will stabilize by the end of the year, however, 35 percent think prices will continue to fluctuate into next year. Nearly 45 percent believe Brent Crude price per barrel will average $50 to $59 for this year, while 24 percent think the average price will reach $60 to $69 per barrel. These predic-tions are a significant change from last year’s survey results, where 94 percent of all respon-dents expected the price of oil would be $100 or higher.

“The recent collapse in oil prices is an issue on the mind of every energy executive, as

it caused a ripple effect that has had profound implications across the entire oil and gas value chain,” said Regina Mayor, advisory industry leader for energy and natural resources at KPMG LLP. “Companies are taking necessary actions to drive pressures and remain competi-tive in this environment.”

According to the survey, the volatile price environment is driving a strong focus on cost with most executives saying they are managing costs through: better managing staffing or out-sourcing; improving and budget-ing management tools; changing service delivery models, and optimizing inventory and repair costs.

“In order to achieve growth in this challenging environment, energy companies need to be agile and take a 360-degree view of their businesses, which will require many to make significant changes,” said John Kunasek, national sector leader for en-ergy and natural resources for KPMG LLP. “While managing costs is still important, these companies also need to iden-tify ways to drive growth and innovation across their organiza-tions.”

The survey found that more than 50 percent of oil executives surveyed plan to allocate capital over the next two years to ac-quire a business, expand facilities or transform a business model.

Of those, 76 percent expect to see their organizations’ head-count increase or stay the same over the next two years.

“This data shows that even in today’s challenging price environment, short-term staff-ing cuts are not as pervasive as headlines may indicate, and per-haps there is more job opportu-nity across the broader energy market,” said Mayor. “It’s not all doom and gloom in the oil sec-tor; the companies that employ a variety of actions around supply chain, cost optimization and a well-designed core operating model will come out of this downturn with a successful future.”

BAKKEN NEWS

Depend on Us

“Allied is committed to the Bakken. Over 47 years in business, we have developed a reputation of providing high quality people, innovative technology, and a personalized service every time. When it comes to your cementing and acidizing needs, you can depend on Allied.”

-David McLaurin, Chief Executive O�cerwww.AlliedServices.com | Contact us: 832-482-3730

C e m e n t i n g & A c i d i z i n g S e r v i c e s

Opportunities in its utility, pipeline and construction business units are too great to ignore for MDU Resources. After sev-eral months of indication during investor calls, the company has officially put its oil production segment, Fidelity Exploration & Production Co., up for sale.

Fidelity has producing assets and acreage in the areas of North Dakota, Montana, Wyoming, Utah, Texas and Louisiana. Al-though a company spokesperson has said Fidelity does not intend to provide comment or updates of the potential sale, MDU has set-up a data room for prospective clients to view.

Goldman Sachs will assist

in marketing Fidelity. “We have a broad base of oil and natural gas assets in the Rocky Moun-tains and Mid-Continent/Gulf states regions of the U.S. along with a solid base of high-quality reserves,” the spokesperson said.

While the sale is in progress, Fidelity will continue to operate. According to the spokesperson, Fidelity’s greatest accomplishment to date is managing a successful transition from being a natural gas operator to successful oil operator all from a grassroots project. The company had previously said it would use the proceeds of the sale to boost its utility, pipeline and construction strategies.

Goldman Sachs to market sale ofFidelity Exploration & Production

MULTISTATE SALE: Fidelity officials talk during a tour of its Utah-based oilfield sites.PHOTO: SALT LAKE CHAMBER

THEBAKKEN.COM 21

BAKKEN NEWS

Quantum Energy Partners, a private equity capital firm focused on the oil and gas industry, has partnered with the founders of a crude oil and natural gas mid-stream company purchased earlier this year by Kinder Morgan for $3 billion, to form a new midstream company. Intensity Midstream will be run by the founders of Hiland Partners LP, the firm that previously focused on the Bakken shale play through its work on the Double H pipeline. The partner-ship will be supported by initial equity commitments in excess of $300 million from Quantum and the founders, Joseph Griffin, formerly president and CEO of Hiland, and Derek Gipson, chief financial officer. Intensity will pur-sue the acquisition, development and operation of high quality

midstream assets across various North American shale plays.

“We are excited to grow a producer-focused midstream company that will provide our customers with creative mid-stream solutions,” said Griffin. “We intend to bring responsive-ness, quick decision making and solid execution to these solutions. We decided to partner with Quan-tum because of the firm’s deep industry relationships, partnership orientation, shared core values and similar investing philosophy.”

The founders successfully re-focused the partnership into the largest dual provider of crude oil and natural gas midstream ser-vices in the Bakken until its sale to Kinder Morgan Inc. for $3 billion in February.

“We took into account lower

oil prices,” Steve Kean, KMI president, said of the acquisition. According to Kean, KMI used revised production totals from its Bakken customers and then re-duced them again before arriving at what it believes the gathering system would receive and generate for revenue. “We paid a price to get a position in this basin,” he said.

Through the acquisition, KMI received all of Hiland’s crude gathering and transporta-tion pipelines in North Dakota and Montana.

The Double H is a 485-mile pipeline that moves crude oil from Dore, North Dakota, to Guernsey, Wyoming, where it interconnects with the Pony Ex-press line connected to Cushing, Oklahoma. Although the Double

H is nearing completion, it could reach 108,000 barrels of oil per day capacity by 2016. Take-or-pay contracts are currently in place for roughly 60,000 bopd and an open-season call for additional producer commitments is cur-rently underway.

“We are thrilled to be partnering with such an entrepre-neurial team and look forward to building a substantial midstream platform alongside Joe and Derek,” said Bill Montgomery, managing director of Quantum. “We are confident that the found-ers’ extensive operational experi-ence, impressive track record, and strong customer relationship will allow them to succeed in today’s dynamic midstream environ-ment.”

Private capital firm, Bakken pipeline execs form midstream company

Depend on Us

“Allied is committed to the Bakken. Over 47 years in business, we have developed a reputation of providing high quality people, innovative technology, and a personalized service every time. When it comes to your cementing and acidizing needs, you can depend on Allied.”

-David McLaurin, Chief Executive O�cerwww.AlliedServices.com | Contact us: 832-482-3730

C e m e n t i n g & A c i d i z i n g S e r v i c e s


BAKKEN NEWS

If the U.S. Bureau of Land Management’s hydraulic fracturing rule had gone into effect in June, North Dakota could have lost hundreds of millions of dollars in mineral royalties, and oil and gas development in the state would have been disrupted and delayed, according to Attorney General Wayne Stenehjem.

North Dakota along with Wyoming, Colorado and Utah filed suit in Wyoming federal district court to stop the rule from taking place, however. A hear-ing held before the day the rule would have been implemented has delayed the BLM’s fracking plan. U.S. Secretary of the Interior Sally Jewell said the rule would support safe and responsible fracking on public and American Indian lands by helping to protect groundwater

by updating new requirements for well-bore integrity, wastewater disposal and public disclosure of chemicals. The states participat-ing in the Wyoming lawsuit, along with the Independent Petroleum Association of America, the West-ern Energy Alliance and the Ute tribe of Utah, all said the new rules would interfere with existing rules and environmental standards.

Judge Scott Skavdahl said the rule was to be delayed until after the U.S. Department of Justice filed an administrative record on the lawsuit. The record will be filed July 22, after which time all parties involved have seven days to supplement their legal papers. A final decision on the rule could come in August.

“The court’s decision today was an important first step in

holding BLM account-able to the standards the Administrative Pro-cedures Act imposes on federal agencies,” said Mark Barron, attor-ney with BakerHostetler, arguing on behalf of IPAA and WEA.

Kathleen Sgamma, WEA vice president of government affairs said that BLM was “ill-prepared” to implement the new complex rule, noting that “the judge agreed that it makes no sense to implement an ill-con-ceived rule which could ultimately be overruled in court.”

“We look forward to strengthening our arguments,” Barron said, “and hope to have the temporary stay converted to a preliminary injunction later this summer.”

States vs BLM: fracking standards

OPPOSING VIEWS: The BLM and the states hold different positions on the same element of the pro-posed regulation. The BLM maintains the rule includes a process that allows states and tribes to request vari-ances or opt out of provi-sions of the rule if they have equal or more proctective regulations in place. But, the states argue that such an element, or opt-out option, is in place and that there is no true mechanism for state and tribal variances.

BAKKEN NEWS

President Barack Obama has announced nominees for two key administrative posts in pipeline and railroad regulation.

The president nominated Sarah Feinberg, current acting ad-ministrator of the Federal Railroad Administration, to head the agency, and Marie Therese Dominguez to lead the Pipeline and Hazardous Materials Safety Administration.

The nominations came after criticism from members of Congress and following accidents involving train derailments, and a pipeline leak along the California coast. Both nominees must be ap-proved by the U.S. Senate.

In nominating Dominguez and Feinberg, Obama said, “It gives me great confidence that such dedicated and capable

individuals will serve the American people as part of this administra-tion. I look forward to working with them.”

Dominguez presently serves as the principal deputy assistant secretary of the Army for civil works at the Department of De-fense, a position she has held since 2013. Prior to that, she served as vice president for government relations and public policy for the U.S. Postal Service from 2007 to 2013. She has also held positions in the Department of Transportation (DOT) and the Federal Avia-tion Administration. Dominguez received a bachelor’s degree from Smith College and a law degree from the Villanova University School of Law.

Before becoming the acting

FRA administrator last January, Feinberg was chief of staff at the DOT from 2013 to 2014. From 2011 to 2013, she was the policy and crisis communications director at Facebook. She served as director of global communications and business strategy at Bloomberg LP and Bloomberg Government from 2010 to 2011. In the White House, Feinberg worked for three years as a special assistant to the president and as a senior advisor to the chief of staff. She has a bachelors degree from Washington and Lee University.

A week before the nomina-tions were announced, Sen. Heidi Heitkamp, D-N.D., joined nine other senators in signing a letter to Obama urging him to quickly nominate a PHMSA administrator.

The position had been filled by act-ing administrator Timothy Butters for more than seven months.

During an earlier hearing, Rep. Jeff Denham, R-Calif., chairman of the U.S. House Subcommittee on Railroads, Pipelines and Haz-ardous Materials, noted that the Obama administration had missed deadlines for rules on pipeline and rail safety regulations while failing to nominate administrators for FRA and PHMSA.

“Mr. Butters and Ms. Feinberg have been good to work with,” he said. “We appreciate their service and our frustration has nothing to do with either of them personally. But these are very important times and we need certainty in these agencies’ leadership.”

Obama nominates candidates for top pipeline, railroad posts

BAKKEN NEWS

Study: Bakken at night isn’t that brightMillions have seen the

satellite images from space in publications such as National Geographic and circulated on the Internet which purport-edly show gas flaring in the Bakken making the night sky glow more brightly than large metropolitan areas.

However, a study conduct-ed by the University of North Dakota Energy & Environ-mental Research Center and the school’s John D. Odegard School of Aerospace Sciences concluded that the photos cre-ate a misleading public percep-tion.

“Results of this work suggest that popular satellite images of North Dakota’s night sky are a result of highly

processed data from highly sensitive sensors that amplify light and heat sources from a variety of sources, including manufacturing plants, resi-dences, construction sites, and gas production activities,” says Chris Zygarlicke, EERC deputy associate director for research.

Using images available through the National Oceanic and Atmospheric Administra-tion (NOAA), researchers at UND developed improved methods for identifying, char-acterizing and processing flare images for several locations in western North Dakota.

Xiaodong Zhang, associate professor in UND’s Depart-ment of Earth System Science and Policy, says the problem

with the satellite photos alleg-edly showing the full extent gas flaring in the Bakken is that the technology used to record the images is measuring heat, not light.

In addition, the study notes that the images are highly pro-cessed to amplify the heat spots from flaring, making them ap-pear far larger and far brighter than they really are. When using satellite imaging technology designed to show light rather than heat, highly populated urban areas are far more visible in comparison to the faintly lit area of the Bakken.

“Even though a flare gives off a lot of heat, it’s not that bright,” Zhang says.

To illustrate how heat

and light comparisons can be deceiving, the report compares a photo of a lit incandescent bulb to a photo of a candle flame. Even though the bulb is a thousand times brighter than the flame, it appears brighter because of the heat it emits.

Knowing that light-sensi-tive satellite imaging technol-ogy didn’t have high enough resolution to capture individual flares is one reason Zhang says researchers doubted that the photos were actually showing what they claimed. They began studying and comparing the im-ages after receiving a university research seed grant in late 2013.

“Even when you take a picture of the sun with your

THEBAKKEN.COM 25

BAKKEN NEWS

FLARING SPACED OUT: The photo on the left shows a more realistic satellite view of gas flaring in western North Dakota. The photo on the right shows an inaccurate image of flaring which a University of North Dakota study says is highly processed, manipulated and amplified a 100 times.PHOTO: UNIVERSITY OF NORTH DAKOTA

camera, it’s a tiny spot, but it appears to be spread out over a big, big area—it’s saturated,” Zhang explained.

“When you look at the Bakken at night using a highly

sensitive sensor, it does the same thing,” he continued. “The saturation is flooded to make a big blob. It doesn’t actually mean that the flare’s that big. It’s more a technical

saturation issue than the actual size of the brightness.”

He also noted that gas flares are much more widely spaced in comparison to the lights of a city, which are

densely packed. Satellite sen-sors designed to record heat rather than light tend to greatly exaggerate the amount of light a flare generates, Zhang said.


EXPLORATION & PRODUCTION

THEBAKKEN.COM 29


The NON-OP

A NON-OP PERSPECTIVE: While many operators view the current price commodity as a point of concern and reason to reduce expenditure, non-operators believe it will provide growth opportunities. PHOTO: NORTHERN OIL & GAS

Nonoperators have been prolific in the country’s shale plays since the beginning, but have become focused in the Bakken in recent years. By Emily Aasand

The nonoperator model in-vestment model has been used by several entities focused on the Williston Basin since the early days of the play. Despite low fluctuating oil prices and changes in production scheduling, non-operators are still able to minimize the risk associated with exploration and production. Non-op-erators purchase small leaseholds with a knowledge that the operator owning the acreage will begin drilling in that particu-lar acreage unit before the lease expires. The non-op participates on particular wells in that unit based on its own work-ing interest percentage it established on an individual well basis.

When an operator such as Hess Corp. or Whiting Petroleum Corp. pro-poses a well on a drilling unit, that oper-ator is required to send each entity with working interest in that unit a notifica-tion or authorization for expenditure, and those lease owners, including non-operators, have 30 days to consent (par-ticipate) or nonconsent (not participate)

in that well. If the company chooses to consent to that well, it would be respon-sible for the percent of the cost to drill and complete that well that agrees too, and in return, would receive the same percent of the proceeds of the oil and gas that’s produced from the well.

No two nonoperators are the same in terms of business models, however, and each approaches how they target leases and how they choose to invest in wells differently.

Non-Op ModelsNorthern Oil & Gas, a Minnesota-

based company, controls just more than 180,000 acres in the Williston Basin, which it believes gives its team a com-petitive advantage. They’ve participated in roughly 25 percent of all Bakken wells drilled in the basin, which gives the company a large data set and experi-ence level with which to make additional capital investment decisions.

Brandon Elliott, executive vice president of corporate development

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and strategy for Northern Oil and Gas, says Northern Oil’s corporate strategy and suc-cess goes back to the company’s willingness to make smaller deals. With Northern Oil’s finan-cial stability, the company is able to make quick decisions on purchasing a lease or lease from a landowner.

“Because we’ve seen so many wells by so many different operators, we really have, what we think is a proprietary and a competitive ad-vantage when it comes to evaluating new wells

to be drilled,” Elliott says. “As a non-operator, we get to choose on a well-by-well basis which wells we want to participate in and which wells meet our investment hurdles. I think it’s an in-teresting position for us because most people don’t understand the nonconsent process from a nonoperator perspective. If we don’t think a well will bring us our desired returns on investment with today’s commodity prices, we can nonconsent in that well and if they come back in another three months and do some

infill wells or drill on an offset well pad, we maintain the opportunity to participate in those wells again.”

Darrell Finneman, executive vice presi-dent of land for Northern Oil, says the current oil price environment can create a unique set of circumstances for all non-ops. In some cases, oil companies that also participate in the funding of wells that don’t want to spend capital on wells that may not meet the company’s rate of return require-ments due to oil prices, may have to forfeit interest in wells being proposed by third par-ties. This situation gives Northern a chance to structure attractive deals with those com-panies and take over its working interest po-sitions.

Northern Oil is 100 percent Williston Basin-focused, and, in the past year, has added a regional office in Denver, Colorado, headed by Finneman.

Vitesse Oil, Vitesse Energy and Ger-rity Bakken, all under the ownership of Bob Gerrity and Brian Cree, are other non-operators who have a primary focus in the Williston Basin. The three companies, Cree explains, all have the same corporate strat-egy, but operate on different pools of inves-tor money.

Vitesse operates its three companies under one general philosophy, “Denser, deeper, cheaper, better,” a mantra the com-pany developed from past experience with operating wells in the prolific Wattenberg field in Colorado.

Prior to switching to the nonoperating side of the oil and gas industry, Cree and Gerrity were on the operating side, where they became familiar with the process of operating large numbers of wells and how operators drill and complete wells, which Cree says gives Vitesse a unique advantage in the Bakken.

“Along with our past experience, we also have incredible investors,” says Cree, president and CFO for Vitesse Oil LLC and Vitesse Energy LLC. “When we make an offer to another working interest owner’s position in the Bakken, we have the funds al-ready available and we can close very quickly. When we reach an agreement with a seller,


THEBAKKEN.COM 31

it doesn’t take us long to finish our due diligence and close the transaction. I think that’s kind of been our reputation and gives us an advantage with sellers.”

Flourishing in the Current Price Commodity

For many, the current price of oil is a concern and a reason to firm up capital expenditures. Non-operators believe it will provide opportunities to grow.

There tends to be a misconception that when oil prices decline, there will be op-portunities to buy leases, Cree says, but that hasn’t necessarily been the case.

“What happens is that when prices drop so rapidly, there becomes this big di-vide between what seller’s expectations are and what buyers are willing to pay,” Cree says. “I do believe as oil prices recover more and as that gap between buyer’s and seller’s expectations continues to diminish as oil prices level out, there will be opportunities to acquire more assets in the field. We as a company with a very deep balance sheet, hope to capitalize on those opportunities and leverage our ability to continue to par-ticipate in the drilling of wells.”

Vitesse hasn’t seen a big drop in drill-ing activity in their acreage despite the cur-rent price commodity, in fact, they say many rigs have moved back onto their acreage in order to focus on the core of the Bakken shale play.

“Operators have been able to reduce the drilling and completion costs dramati-cally to the point where operators have done a great job of figuring out how to drill wells for less money and in good areas,” says Cree. “While there aren’t as many total wells being drilled because the number of rigs are down, those rigs focused on the core and the wells being drilled have good economics, not that dissimilar from the rates of return we were seeing a year ago when the price of oil was $100 per barrel.”

Like Vitesse, Northern Oil sees the cur-rent price commodity as a time for potential growth.

“We want to look at the larger packages that are out there,” Elliott says. “Our ability


‘'We want to look at the larger packages that are out there. Our ability to buy those at

what we think is a reasonable price has been limited.’

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to buy those at what we think is a reasonable price has been limited. There has been other money that has been willing to chase those leases at higher prices, primarily the operators because they are willing to pay, from an eco-nomic standpoint, a lot more than we can, and because they know the timing with which they plan to drill the wells on that unit. But with oil prices down where they are, with some of the companies in the basin a little more financially stressed, we hope that we will be able to actu-ally bag one of those larger acreage packages.”

Low Oil PlansWhere active drilling operators find chal-

lenges in reducing well costs and discovering best completion models, nonoperators tend to find challenges in the lack of control of op-erating partners and working through the ac-counting and land issues with operators.

“From the beginning, Mike Reger, our

chairman and CEO, has been very sensitive to the fact that we want to be able to establish quickly a diversified acreage position across operators, so that any one operator’s change in behavior wouldn’t be a problem,” Elliott says. “With a good diversified portfolio across many different operators, you de-risk that lack of individual control.”

Northern Oil also says it’s important for a nonoperator to make sure it has excess liquidi-ty so it can choose which wells to participate in on the company’s terms, and not to be forced to nonconsent a well because it doesn’t have the capital to participate. Northern's recent $200 million debt offering has given it addi-tional liquidity to participate in future deals.

For Vitesse, working through accounting and land issues with the operators proves to be one of the biggest challenges. A challenge, Cree says, that can take a year or more to get everything correct. “It’s a lot of work,” he

adds. “You need to have a good infrastruc-ture, good relationships, and enough size to where the operators pay attention and work with you.”

“Operators have a lot of work going on and when nonoperator working inter-est ownership continues to change hands, it makes their job harder and accurate record keeping difficult,” says Cree. “One of our biggest challenge as a nonoperator, is to simply get all of the proper working interest and net revenue interest that we own recog-nized by the operators to where we are being billed and paid correctly.”

Outlook For Northern Oil, the biggest un-

known for the remainder of 2015 and through 2016, is the ability to acquire core Bakken acreage.

“We’re certainly trying to look at all the deals out there that need to be done and I think, if the commodity market and some of the companies in the basin continue to be under some financial stress, we hope we can grow that acreage position,” Elliott says. “Outside of additional acreage growth, we’re going to continue to be really focused on making sure that we’re only commit-ting capital to those wells that are going to generate a high rate of return. I think as the rigs and operators consolidate their activity within the core of the play, we’ll be able to see a pick up in activity and inbound autho-rization for expenditures that we can run through our review process and decide to participate in.”

According to Cree, the second half of the year will provide some very strong ac-quisitions and opportunities for Vitesse.

“As oil prices have stabilized and hope-fully will continue to increase, that gap be-tween buyers and sellers will diminish and a lot of transactions will take place,” Cree says. “We will be able to continue to make acquisitions and participate in the drilling and completion of some really good wells.”

Author: Emily AasandStaff Writer, The Bakken [email protected]


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Our personnel provide crude oil field sampling and inspection services, working with storage tanks, railcars, and pipelines. Intertek professionally calibrates and gauges, meters, storage tanks, and railcars.

API/Density/Specific Gravity ASTM D5002, D4052

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H2S in Vapor (Ambient Temperature) ASTM D5705M

H2S in Vapor (Elevated Temperature) ASTM D5705

Natural Gas and NGL Testing GPA

Effective April 1, 2015, under NDIC Rule Order 25417, North Dakota producers must ensure that the Vapor Pressure of the crude oil is less than 13.7 psi before the product is transported.

Intertek’s new laboratory in Bismarck provides the testing, on-site field sampling, and data management services needed in order to meet NDIC compliance.

Intertek uses ASTM test method ASTM D6377 (Determination of Vapor Pressure of Crude Oil: VPCRx). Field sampling is done by ASTM D3700 or ASTM D5842 (Sampling and Handling of Fuels for Volatility Measurement).

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Why Continental Resources’ Gary Gould, a 25-year oilfield veteran and executive, is joining the charge to lift the U.S. crude oil export ban By Luke Geiver

FOCUSED


JOINING THE DEBATE: Gary Gould, senior vice president of operations for Continental Resources Inc. pictured here at his Oklahoma City office, is joining other high-profile energy executives who have voiced support of lifting the U.S. ban on exporting U.S. crude. PHOTO: CARY ANNE PHOTOGRAPHY

ON THE BAN

THEBAKKEN.COM 39




MISMATCH: Foreign refiners are set-up for light tight oil sourced from places like the Bakken. Roughly 90 percent of foregin refinery capacity is alloted to light tight oil. PHOTO: CONTINENTAL RESOURCES

EXPERIENCED VOICE: Among many achievements, Gould worked on the first oilfield in the U.S. to be developed entirely by horizontal drilling. The past 10 years have been the most exciting, he says. PHOTO: CARY ANNE PHOTOGRAPHY

After 25 years working in the U.S. oil and gas indus-try, Gary Gould has earned a position few executives have ever held. Officially, Gould is the senior vice president of operations for Continental Resources, overseeing the Okla-homa City-based Bakken pillar’s drilling, completion, production, HSE, production services and supply chain segments. Unoffi-cially, Gould has recently joined a group of oilfield veteran leaders – including Harold Hamm – who have positioned themselves in front of Congress, policymakers and industry groups to explain a particular message on a unique issue that Gould says impacts more than just the oil industry: U.S. crude oil exports.

To his drilling, completion or production team, Gould is one of the main voices guiding Continental’s implementation of new drilling protocols, comple-tion methods or service con-tracts. To everyone else, Gould

intends to be one of the new lead voices of reason to work to lift the 1970s-era policy that bans the export of all U.S.-produced crude, a policy that is now irrel-evant post shale energy discovery and development. His willing-ness to transfer the information on the issue researched by Con-tinental’s own internal research team to the outside world is not about Gould’s willingness to tow the company line, but rather, as he explains to The Bakken maga-zine, a necessary and personal effort that he hopes will yield a momentous reversal of the ban to ensure growth opportunities for Continental, the industry, and our country.

From Cedar Hills To Overseas Refineries

Gould is no stranger to ma-jor industry events, and Conti-nental Resources has been a lead-er in developing unconventional resources with new horizontal well technology for over two de-

cades now. In the late ‘90s, Gould and Continental Resources were involved in developing the Cedar Hills oilfield stretching across the North Dakota and Montana border. At the time, the field was recognized as the largest onshore oil discovery in the continen-tal U.S. in the previous 30 years. It was also the first field in the United States to be developed entirely with horizontal wells and the largest horizontal flood in the world.

Since his time working in

Cedar Hills, Gould has been involved with several other im-portant milestone unconven-tional energy developments from Pennsylvania to Oklahoma. The continuation of the ban, he ex-plains, is what could limit the entire industry’s opportunity to achieve more milestone mo-ments. “It is very exciting work-ing in the industry in the past 10 years. It is more exciting than the previous 10 years when our country’s oil production was in decline,” he says.

THEBAKKEN.COM 41


HOW GASOLINE PRICES ARE DETERMINED5

CRUDE OIL: 65%

DISTRIBUTION AND MARKETING: 10%

REFINING: 13%

TAXES: 12%

GLOBAL SUPPLYAND DEMAND

OIL FUTURESSPECULATION

GLOBAL SPARECAPACITY

STRENGTH OF THEU.S. DOLLAR

CRUDE OIL PRICE IS DETERMINED BY...

CONSUMER FUEL PRICE IMPLICATIONS OF REMOVING CRUDE OIL EXPORT RESTRICTIONS FROM FOUR STUDIES

RESOURCES FOR THE FUTURE

ICF INTERNATIONAL IHS NERAA

U.S. Consumer Fuel Prices

Gasoline prices decline by 1.8 to 4.6 cents per gallon on average

Petroleum product prices decline by 1.5 to 2.4 cents per gallon on average from 2015-2035

Gasoline prices decline by 9 to 13 cents per gallon on average from 2016-2030

Petroleum product prices decline by 3 cents per gallon on average from 2015-2035 in the reference case and 11 cents per gallon in the high case. Gasoline prices decline by 3 cents per gallon in the reference case and 10 cents per gallon in the high case.

SOURCE: GAO ANALYSIS OF RESOURCES FOR THE FUTURE, ICF INTERNATIONAL, IHS, AND NERA STUDIES.

Note: Dollar estimates are in 2014 year dollars.bImplications refer to the difference between the reference case and its baseline with export restrictions in place, and the difference between the high oil and gas recovery case and its corresponding baseline. NERA also found that removing crude oil export restrictions would have no measurable effect in the low world oil price case.

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IMPROVING ON ARTIFICIAL: Due to better completion designs that yield greater oil recovery volumes per well, Continental Resources has had to look at and deploy new artificial lift technology in order to recover the higher volumes associated with new completion methods.PHOTO: CONTINENTAL RESOURCES

Lifting the ban and allow-ing oil producers from North Dakota to Texas the opportunity to market and move product on the global marketplace, he says, wouldn’t impact the quality of work being done, but rather, the quantity. “The bottom line is that it doesn’t as much impact the quality of the work we do day-to-day, but it does impact the quantity of the work we can perform.”

The inhibition of quantity is related to the refining capacities and oil type specifics for facilities in and outside of the U.S., a point Gould makes with a breakdown of U.S. and foreign refinery char-acteristics. “We have had a renais-sance developing light sweet oil, however, light sweet oil doesn’t fit

THEBAKKEN.COM 43

Seeing Through to the End

The Science You Build On.


into the current U.S. refining ca-pacity, which is two-thirds heavy sour oil and only one-third light sweet oil,” he says. “Meanwhile, the majority of oversees refiner-ies are designed for light sweet oil where the refining capacity is only 10 percent heavy sour oil and 90 percent light sweet oil. So, we have a mismatch.”

Currently, the U.S. is the only country in the world that doesn’t allow the export of crude oil produced from within its own borders. Despite the raw data revealing the makeup of the country’s refining capac-ity and the available information on crude oil storage in the U.S. that shows the country is nearing storage capacity, Gould believes that a major hurdle for removing

the export ban lies in proper un-derstanding of the gasoline price argument.

“I believe that some people have not read the dozen or more economic reports from multiple government institutions and re-nowned universities that show lifting the crude oil export ban will actually lower gasoline pric-es,” he says. The misunderstand-ing, he adds, is linked to how gasoline is actually priced. As Gould explains, gasoline prices are based on world prices, not U.S. prices. The proof lies with the U.S. refineries. Although crude oil cannot be exported, refined gasoline can be and is therefore linked to world prices. “Lifting the export ban will only increase the world supply of oil

to the refineries,” he says, which in turn will then reduce the price of gasoline. “It is not just the in-dustry saying that, it is multiple government and research institu-tions saying that,” he says.

At a time when hydraulic fracturing regulations on federal lands and oil price volatility seem to be dominating oil-industry-re-lated headlines, Gould says the is-sue of the crude oil export ban is still near the top in priorities. “Ev-eryone knows Harold is working very hard in Washington, D.C., to educate our policy makers,” he says. “Our lawmakers have a lot of diverse responsibilities and may not have an understanding of our industry or the ban.” To help speed up the ban’s removal, Gould has joined oil industry ex-

ecs working to explain the impact of the export ban.

Worth The EffortContinental Resources may

be recognized as one of the most successful and prolific Williston Basin operators in history, but even it hasn’t been immune to low oil prices. This year, the op-erator has run 13 rigs in the Bak-ken (with a plan to drop to 10), down 7 from the end of 2014. It has also reduced the number of completion crews working in the Williston Basin for the first part of 2015 from 10 to three. In the first quarter, Continental report-ed a net loss of $33.8 million.

“Looking ahead, U.S. oil production is starting to roll over, as anticipated,” Hamm said



THE LONG VIEW: For Gary Gould, lifting the export ban doesn't impact the quality of work a company can or will perform, but rather, the quantity. PHOTO: CONTINENTAL RESOURCES

THEBAKKEN.COM 45


earlier this year in the company’s first quarter update. “Given the depth and quality of our assets, Continental is well-positioned to resume growing cash flow and earnings when the oil price en-vironment improves. We remain encouraged by the outlook for the second half of the year and for 2016.”

It’s that optimism that has Continental and Gould so fo-cused on lifting the export ban. Every major shale energy devel-oper has oil to move now or in the near-term future. But, if U.S. storage and refining capacity is maxed out soon, the possibility for growing U.S. production fur-ther could be halted. For Conti-nental, which could be drilling the Williston Basin for several more decades, not to mention other plays located in Oklahoma, that is a possibility it believes is not only unfortunate, but unac-ceptable.

From his time in Cedar Hills, Gould has seen firsthand how technology and operational efficiencies can change the in-

dustry in developing unconven-tional resources. Currently, he is excited about several facets of the segments he oversees for Continental. “In the Bakken, our operations team is focused on increasing production and capi-tal efficiency through optimizing drilling, completions and artifi-cial lift capacity,” he says.

On the drilling side, Con-tinental reached total depth on eight wells earlier this year in a period of less than two weeks, four days faster than its previous average spud to total depth time. On the completion and pro-

duction side, the company has increased its per-well profitabil-ity with enhanced completions based on hybrid and slickwater designs deployed in the North Dakota counties of Williams and McKenzie that have resulted in 40 to 50 percent improvement in the 90-day production timeframe and a 25 to 45 percent increase in the estimated ultimate recovery volumes.

Because of its success with enhanced completion designs, Continental’s Bakken team has even found success with new artificial lift methods. More pro-

duction has led the team to use larger pumping unit capacities “in order to produce back that incremental oil production in a timely fashion.”

The company’s success in 2015 during a time of difficult oil prices has Gould excited for the future and the team he is working with, he says. The success and ex-citement around Continental will continue for decades, he adds, es-pecially if his and others’ efforts to remove the export ban are successful. Doing so will elimi-nate any doubt that the growth of the industry will continue re-gardless of foreign producers or refinery characteristics. “As great as the history has been,” Gould says of the unconventional en-ergy industry pre-export ban removal, “the future looks even better.”

Author: Luke GeiverEditor, The Bakken [email protected]

‘I believe that some peoplehave not read the dozen or more economic reports from multiple governments or university-led

reports that show lifting the crude oil export ban will actually lower

gasoline prices.’Gary Gould, senior vice president of operations, Continental Resources

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This nationally recognized shale energy investment firm has a plan to leverage low oil and its small town style for economic gain.By Luke Geiver

Bakken Investing

ON THE MAP: As part of its services to investors and subscribers, the Split Rock team provides customized, informative maps on the Bakken shale play. PHOTO: SPLIT ROCK TRADING & WEALTH MANAGEMENT LLC

Split Rock’s Guide To

Tyler Kocon can’t see drill-ing rigs from his Duluth, Minne-sota, office window. In a long day’s drive, Kocon, portfolio manager and co-founder of Split Rock Trading & Wealth Management LLC, can barely make it to the fringe of the Bakken shale play where oil wells and drilling rigs litter the landscape much like the shipping vessels that dot Lake Supe-rior only minutes from Kocon’s of-fice. The office view and the long drive haven’t stopped Kocon and his small team from becoming a nationally rec-ognized shale energy investment firm. “In today’s day and age, we can manage money from Smalltown, USA,” Kocon

says. In 2011, Kocon and Mark Cool launched Split Rock’s North American Shale Energy separately managed ac-count (SMA) offering, soon followed by a hedge fund also focused on the shale industry. Both offerings have performed well since their inception and drawn investors from the Midwest, East Coast and internationally. Formed after the great recession of 2008-‘09, the Split Rock team has navigated market fluctuations since, including rig count contractions and increases, and oil price volatility. Through their Williston Basin road trips, investment strategy changes and constant interac-tion in the greater shale energy indus-

try, they’ve lived the Bakken story from their northern Min-nesota headquarters much as any Houston-based operator would.

Now, armed with a gifted, North Dakota-grown market analyst and five-years experi-ence the Split Rock team be-lieves it can leverage low oil prices and its small-firm status to help investors from around the world understand the same prosperous view Kocon sees every day from his Duluth of-fice.

Early Work, Lasting Lessons

The first industry pullback Cool and Kocon experienced during their careers as money managers happened in 2003 during the tech bubble. The second came during the 2008 financial meltdown. Following the second pullback, the duo decided to branch out on their own and apply a conservative

approach to money manage-ment. “We went from having over 1,000 clients each to hav-ing 300,” Cool says. “About the same time we launched our firm [2010], we started getting news of what was happening in North Dakota.”

Oil and gas production ac-tivity was high and generating buzz on a national scale. The duo’s early enthusiasm for cre-ating a Bakken-linked product offering wasn’t just about oil production activity or their de-sire to be connected to a grow-ing industry. When the team looked at other investment options that would expose a portfolio to the successful firms growing in the Bakken, only the big investment shops offered large cap names like Chevron or Halliburton. The wildcatters, pure-plays and midstreams responsible for much of the Bakken’s fast rise, were not offered, a facet of the investment industry that pro-

vided the niche opportunity for the team.

“We are not your typical Wall Street firm that invests in the energy space,” Kocon says. “Large firms are too big to effectively play in this space as they tend to push around pieces of these smaller shale players as they enter or exit positions. We are small enough that we can enter and exit these names without disrupting the market. As such, we can focus on the large as well as small names that truly comprise the U.S. shale space.”

According to Kocon, the large firms can’t buy or identify a name they feel has incredible acreage or tremendous growth opportunity because doing so would push that individual company stock around. On the flip side, those same large firms can’t exit or sell stock in a company because doing so would drive the price of that stock for sale down. Because

of that, the Split Rock team is quick to explain it is nimble and small enough to not affect the stock price either way. “We are very much fine letting peo-ple know we are a small firm,” Kocon says.

The early positioning of the company in the shale en-ergy investment space made it a strong option for investors. It also exposed the team to the ups and downs of the shale world. After only three months of managing its NASE fund, the team knew it had to diver-sify itself from exploration and production companies linked to commodity prices. Since then, the company has run its portfolio with other energy-related investments compris-ing roughly 80 percent of the entire fund. The vast majority of the clients work with the team on a discretionary basis, meaning Cool and Kocon have 100 percent discretion to in-vest client money if it fits into


THEBAKKEN.COM 51

their respective risk tolerance ranges.

No matter where the com-pany is looking to in the shale industry—from the Permian to the Wattenberg or the Bak-ken—the team has adopted and practiced a lesson it be-lieves will pay dividends now and in the future. “We manage our portfolios for the down-side,” Cool says. “The upside will take care of itself. We have some exciting names in there but we are not trying to hit a homerun all at once with the portfolio and we will settle for base hits.”

Last year, the company’s index—a measure of the changes and performance of stocks in a portfolio that rep-resent a portion of an overall market (energy)—was up 26 percent. This year, in the down market, it is only down 2 per-cent, a number both Cool and Kocon say investors are happy with. The team has learned that

East Coast investors are misin-formed about the Bakken and that many looking for shale-based investment options are turning to Split Rock. Although most of its upper Midwest in-vestor clients contract the team to manage all monetary assets, East Coast investors are using the team to specifically man-age shale-related energy assets based on the knowledge and track record of the team.

View From Split RockTrips to western North

Dakota combined with an ob-sessive analytic effort into the shale energy industry weren’t enough for Cool and Kocon. Two years ago the team enlisted the help of a Michael Filloon, a Fargo-based industry analyst who has established a large fol-lowing on several investor-re-lated websites. In his early days performing industry-related research, Filloon became frus-trated with analysts who were


SERIOUS VISITS: Throughout the year, the Split Rock team will gather in western North Dakota to check in on operations in the region and witness firsthand what activity is or isn't taking place. PHOTO: SPLIT ROCK TRADING & WEALTH MANAGEMENT


high on certain firms without supporting information why. “People were saying they loved this company because of this or because of that and they would say the numbers looked good and everything was go-ing to be great and then they would miss on earnings or their revenues were down,” Filloon says. “I would say what is going on?”

Not agreeing with that un-informed approach to invest-ing, Filloon began researching individual well files to track production results based on completion design. “I would see a huge variance between one operator from another even if they were a couple of miles apart,” he says. Since he first began publishing or post-ing his views on well comple-

tion design and the resulting production totals, Filloon has been recognized by his peers. “I’ve been lucky enough to have a lot of people support my work,” he says. Those people certainly include Cool and Kocon, who now utilize Filloon’s insight to explain the industry to clients and to drive future investment decisions.

Filloon-based research tells the team that oil prices will dip once again this year. Kocon believes oil inventories, already high, will push the price of oil

down later this year, especially if Iran begins to sell into the market again and offshore oil off the coast of Africa hits the market. “We are bearish on oil. We are a little worried about inventories,” he says. The fact that the shale energy industry hasn’t, too date, rolled over as some expected, also adds to the sentiment that inventories will remain high for the next several months, Filloon says. “Our outlook is we are going to be in more of a w-recovery. We have hit a low and we will

probably come back and hit that low again,” Kocon says.

Managing a shale basin portfolio can be a tough pitch at times, Cool says. “When we put out subscription informa-tion, people sometimes scratch their heads and wonder why we are even in this space,” he says. The company is currently in a holding pattern on most Bakken-linked producers, as the subscription shows. The team is focused on reenter-ing the Bakken in six to nine months and investing in sev-


‘We are not your typical Wall Street firm that invests in the energy space. We are small enough that we can enter

and exit these names without disrupting the market.’Tyler Kocon, co-founder, Split Rock Trading & Wealth Management

THEBAKKEN.COM 53

eral names it wasn’t able to get into the last time the Bakken was on the rise. In fact, the team isn’t afraid of the lower oil price environment.

According to Kocon, the supply and demand curves will correct themselves eventu-ally. The decreased rig count and wells a waiting comple-tion will eventually come on-line and create a short-term dip in oil prices again, but at some point that will go away and create a tipping point for increased production. “The market is such with the supply and inventory that we could see some pretty huge swings,” Filloon says. “But, when things become a little more transpar-ent, the good names start to look really good.”

Good names for Filloon

are those that are located in the core areas of a play, such as the Nesson anticline or Sanish and Parshall fields of the Wil-liston Basin.

Cool believes that as oil prices slump again, bigger names with better balance sheets will purchase acre-age that was left to expire by worse-off companies unable to hold leases by production.

Despite the hold pattern they are currently explaining to current clients, the team is certainly excited for the future. “If you can withstand this low period and you have the risk tolerance, there will be an in-credible amount of opportu-nity in the future,” Kocon says. The optimism is linked to Fil-loon’s analysis of completion designs and the fact that many

companies are now deploying highly productive designs that yield more oil than ever before. The positivity is also linked to the simple fact, Kocon says, that the oil is in place for the taking and demand is showing no signs of staggering. Com-bine all of that with the po-tential that certain players can or will purchase acreage pre-viously unavailable to add to growth runways, and Bakken producers, in particular, look highly attractive for the future.

Right now, it isn’t fun to talk about oil prices, he says. “People sometimes ask us why they shouldn’t invest in tech or healthcare instead. In real-ity, this is the time you want to be adding too or getting in the space. This is so cliché and you hear it all the time: Buy and

hold. That is very true in this space.”

The Split Rock team may not truly know where oil prices will lead the shale energy in-dustry, but regardless the price of oil, the team has invest-ment strategies that will yield positive outcomes, Kocon be-lieves. The future viewed from Duluth could be one worth watching, based on the team’s outlook. “If you enter now it [oil] is going to go lower, but the rewards down the road will be great.”

Author: Luke GeiverEditor, The Bakken [email protected]




THEBAKKEN.COM 57

Hess Corp. uses lean manufacturing principles to weather the low-oil-price storm and looks to emerge even stronger when it’s over. By Patrick C. Miller

DIRECTION

READY FOR A REBOUND: Infrastructure improvements, higher efficiencies and lower costs combined with prime acreage in the heart of the Bakken put Hess Corp. in good position in the low-price environment.PHOTO: HESS CORP.


Even before oil prices took a nosedive that sent shock waves through the U.S. oil and gas industry, Hess Corp. was on the road to improving efficiencies and cut-ting costs in its Bakken operations.

The early pessimistic outlook for the Bakken has given way to the view that producers such as Hess in the Williston Ba-sin of western North Dakota will rebound in an even-stronger, more-competitive position as infrastructure catches up to pro-duction, efficiencies improve and cost savings are realized.

“That’s the way that we’re looking at it,” says Gerbert Schoonman, vice president at Hess responsible for the com-pany’s Bakken assets. “We are in a fortunate situation in that we’ve got a very strong position in what we call the heart of the Bakken.”

Leaning In The Right



For Hess, lower prices haven’t meant a retreat from the Bakken, but instead a con-centration of activity among its 610,000 net acres in the areas where the best rock for drilling exists.

“Hess has got more loca-tions than anybody else in DSUs (drill spacing units) in the heart

of the Bakken,” Schoonman notes. “As a consequence, we didn’t reduce very drastically. We only went down from 17 rigs to eight rigs.”

While some producers elected to back off on well completions, Hess did not. The company doesn’t want to risk losing the gains it made after it

began implementing lean man-ufacturing methods in 2009, an approach emphasizing the in-troduction of process improve-ments while eliminating waste.

“The reason Hess decided to execute on continuing their completions was we want to maintain a capability within our teams and have a steady stream

of completions that were exe-cuted at less than $3 million per well,” says Schoonman. “The cost of completions has come down even more since the start of the year because we’ve be-come more efficient at it and better.”

As an example of how lean has benefitted Hess,

EXPLORING THE SPACE: Hess Corp. has focused on continuing well completions because it has more drill spacing units than other operators and has executed completions at less than $3 million per well.PHOTO: HESS CORP.

THEBAKKEN.COM 59


Schoonman says it once took them an average of 40 to 45 days to drill a well in the Bakken from spud to rig release.

“At the end of the fourth quarter last year, we were al-ready down to an average of 19.5 days,” he notes. “It didn’t stop there because we were able to migrate the rigs we were us-

ing and the people operating them. We’re now seeing very significant numbers of wells al-ready at less than 15 days from spud to rig release.”

Alf Tischler, Hess manager of completion operations, goes as far as to say that the current low-price environment hasn’t had a great impact on how the

company operates in the Bak-ken because it has simply con-tinued to use the lean principles that have been so successful in ramping up efficiency and cut-ting costs for Hess over the past four years.

“It really doesn’t change what we were doing,” he ex-plains. “I think we were better

situated than most companies because we started on our cost cutting earlier than everybody else did. Listening to presenta-tions from other companies, there was not a lot of focus on cost. Nobody talked about eco-nomics; it was all on IP.”


Leaner ApproachLean manufacturing, built upon prin-

ciples introduced by W. Edwards Deming, was developed by Bell Labs after World War II and put into practice by Japanese auto-maker Toyota, which has used it to great success. The process relies on the imple-mentation of standards that not only im-prove efficiency and lower costs, but also creates a safer work environment and pro-tects the environment.

“On the completions side for 2015, we’ve seen $80 million in effectiveness and efficiency savings because of standardiza-tion work,” Tischler says. “Almost 50 per-cent of the cost savings this year come from efficiency improvements—and they’re sustainable.”

Providing another example of how lean has benefited Hess, Tischler says that in early 2012, the company spent an average of $13.4 million to drill and complete a well

in the Bakken. Those costs have since come down to $6.8 million per well, and continue to decrease, according to Tischler.

“For those improvements, there is no magic wand,” Schoonman stresses. “We look at how the individual well is being drilled, how it’s being completed and every single piece. The people who run the rigs themselves determine how they can make each step of the process more efficient and more effective while using less time to carry out a particular activity. When you go

through the entire assembly line of a well, you make it better every single time.”

And that, says Schoonman, has led to accomplishments that can’t simply be dis-carded because of a downturn in oil prices.

“We wanted to make sure that we pre-serve the lean capability that we’ve built up in all of our employees,” he says. “This is not something that comes all of a sudden. We spent the last four or five years train-ing, educating and honing those skills in all of our employees. The last thing that you want is suddenly losing all those skills and capabilities.”

Knowing that the oil and gas industry is cyclic and that it’s a matter of time before crude prices trend upward, Schoonman says Hess plans to be in a position to capitalize on what it’s built in the Bakken.

“We want to make sure that we are im-mediately ready to pick up our activity levels and maintain those efficiency gains that we fought so hard for,” he explains. “I don’t

‘What Hess always tries to do is drill the most valuable well in

the Bakken.’Gerbert Schoonman, Vice President of Onshore Bakken

THEBAKKEN.COM 61

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want to go back to wells that take 35 to 40 days to complete. I can’t afford that. The wells will need to be at the same perfor-mance level we’re drilling and completing right now.”

Tischler—a native of Austria who’s been with Hess since 2011—spends every other week in the Bakken where he’s in charge of fracking, flow-back operations and rod pump installation and mainte-nance. His time in the field is another lean principle in action.

“We actually don’t manage out of the office,” he says. “We go to the field to understand what’s going on and talk to people.”

The purpose is to get groups of peo-ple—and that includes Hess vendors—to discuss how they can do their jobs more efficiently, more effectively and more safely.

“You create an army of problem solvers out there, and all of a sudden you see effectiveness and efficiency improve-ments all over the field so fast that you can’t even catch up with the savings,” Tischler says. “It spreads across the field and all of a sudden you go from a $5,000 saving per well to a half million to a mil-lion dollars. That’s an exciting thing.”

Leading, Not FollowingAnother lean principle is collecting

and using data to prove an idea works rather than relying on hunches, potentially misleading statistics or the old “because I say so” approach. Whether it’s chang-ing the location of flow-back tanks by 10 feet or trying a new fracking technique, Tischler says the decision must be vali-dated by good data.

“I’m willing to change,” Tischler says, “Show me the data; give me a reason. We don’t make those tough decisions based on what everyone else is doing.”

For example, Tischler said that al-though plug-and-perf has become a fa-vored fracking technique with some Bak-ken producers, data he’s seen indicates that sliding sleeves work best for Hess’ operations.

SAFETY FIRST: The lean manufacturing principles under which Hess operates emphasize safety, which has enabled the company to reduce its reportable incidents far below the industry average. PHOTO: HESS CORP.


“I’m not saying that plug-and-perf is bad,” he says. “I’m just saying what works for Hess is sliding sleeves right now because that’s what the data show us.”

To emphasize his point, Tischler notes that data from the North Dakota Industrial Commission shows that Hess operates many of the top producing wells in the state.

“What’s even more exciting is that we are the leader in the Bakken on production volumes per well if you average out all the wells,” he says. “It’s because of the standardized approach and utilizing data to understand how to drill and how to complete our wells.”

Or, to put it more concisely, Schoonman says, “What Hess always tries to do is drill the most valuable well in the Bakken.”

The drive for the most valuable well continues for Hess through pilot projects to determine optimum well spacing.

“Our current design for our wells is that we assume seven wells in the Bakken and six in the Three Forks,” Schoonman ex-plains. “We are running spacing pilots right now where we will actually have nine wells in the middle Bakken and eight in the Three Forks. Some of the wells have been brought on stream and actually their performance is pretty good.”

For Schoonman, maintaining the lean capabilities of his Bak-ken teams has been a key objective during the oil price decline.

“That’s why we wanted to keep our momentum and why we didn’t want to go for a complete start-stop methodology that you would see other places,” he explains.

Although Tischler speaks with passion about the lean pro-cess and all that it’s helped Hess achieve, he admits, “I hate the word. For me, it’s really common sense work by keeping people safe and having respect for them.”

That respect not only includes making use of employees and vendors intellect and ideas, but also keeping them safe on the job. As Tischler emphasizes, safety isn’t merely a priority at Hess. It forms the very foundation of the lean approach.

“I know it’s working because we reduced our costs by 48 percent and we reduced our total reportable incident rate by more than half,” he says. “Our most recent North Dakota reports show we’re at .3 and, according to the American Petroleum Institute, the U.S. Onshore rate is .65.”

With Hess, safety isn’t just lip service. “Many of the companies that work with us are actually sur-

prised when they’re introduced to Hess,” Schoonman says. “They find out this is not just talk, but that it really means something to us.”

Tischler also notes that a safe work environment is an impor-tant part of retaining good employees.

“Once you create a safe place to work, people won’t follow the almighty dollar because you give them something valuable,” he says. “You assure them that they will go home to their loved ones and spend time with them. That’s what it’s about.”

A year ago, Hess projected its crude production in the Bak-

THEBAKKEN.COM 63

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AN AUTOMATED FUTURE: Hess believes that automated controls are the solution to remotely operate thousands of wells in the Bakken. PHOTO: HESS CORP.

ken would reach 150,000 barrels per day by 2018. Schoonman says it’s still a goal the company expects to achieve, but because of the drop-in prices, it may take a few more years to get there.

Looking to the future, Schoonman believes that automated controls to enable the remote operation of perhaps thousands of producing wells is a tech-nology Hess will pursue.

“The old operating model of just driving around to see if you can find a problem has been there for years, but it’s not the kind of methodology I’d like to use going forward,” he says. “I want to make sure that those signals are coming up in an au-tomated way that we only have to respond and drive those valuable miles for reasons that are, in essence, predefined.”

Wherever the future leads, Schoonman is confi-dent that lean will be part of the principles that guide Hess in the Bakken.

“The development of a play like the Bakken is just the beginning,” he notes. “After that, you have to operate it for many years. There’s lots and lots of money to be gained by optimizing operating costs, and that’s certainly high on our agenda. Lean is actu-ally going to be expanded into the full extent of our operation.”

Author: Patrick C. MillerStaff Writer, The Bakken [email protected]


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Documents

July 2015 - The Bakken Magazine