FOCUS: UNCONVENTIONAL OIL & GAS: Bakken oil producers turn to railroads, pipelines

Billions of dollars worth of infrastructure projects are being built or are planned in North Dakota's Bakken formation to transport oil and associated gas to market.

In preliminary estimates made Nov. 8, the North Dakota Industrial Commission reported record statewide oil production at 464,122 b/d from a record 6,071 wells for September and also record natural gas production at 485,075 Mcfd. About 6% of the oil comes from the Red River formation in Bowman County, scene of a horizontal drilling play centering on Cedar Hills field in the 1990s.

As much as another 100,000 b/d originates in adjacent Richland County, Mont., southeastern Montana, and South Dakota.

Production, transportation outlook

Most oil production leaves North Dakota by pipeline or rail.

The Tesoro refinery in Mandan, ND, receives 58,000 b/d. Regional pipeline takeaway capacity is 325,000 b/d, and the rest is moved by railroad, the NDIC Department of Mineral Resources reports.

DMR forecasts 1.2 million b/d of production by 2020.

Continental Resources Inc. Pres. Jeff Hume said, "We forecast [that volume will be reached] earlier with increased rig activity and improved completion technology."

Industry generally accepts forecasts that call for production to reach 0.9-1 million b/d in 5 years while IHS has forecast North Dakota production of 0.8-1 million b/d by 2018.

When asked about transportation to handle the anticipated oil and condensate production growth, Jack R. Ekstrom, Whiting Petroleum Corp. vice-president of corporate and government, believes pipeline volumes will increase and trucking will decrease.

Currently, natural gas liquids move by rail, propane is used locally most of the year, and ethane is mixed with residue gas or used for plant fuel. Ethane and Y-grade pipelines are being permitted, DMR reports.

Lynn Helms, director of DMR oil and gas division, said, "Processing plant and gathering system construction is very high. The low value of processed natural gas does not justify investment in infrastructure, but the natural gas liquids make gathering and processing of Bakken gas economic," Helms said.

"Up to this point in the Bakken play gas has been flared at record levels in order to promote the resource to the natural gas gathering and processing industry and demonstrate the size and potential of the resource. The result of allowing this evaluation time is a plan presented by industry to invest over $3 billion in natural gas gathering and processing infrastructure in 2011, 2012, and 2013," Helms said.

Operators have installed oil and gas gathering systems to minimize the impacts of weather. Road restrictions can go on for months, particularly in wet springs.

North Dakota Gov. Jack Dalrymple outlined what he calls "a dramatic expansion in pipeline infrastructure and rail transportation," during an Oct. 26 conference in Denver.

Pipelines and rail expansions and new projects will triple North Dakota's shipping capacity to 758,000 b/d by yearend, Dalrymple said.

Rig count, drillsites

The Bakken is a long-term play that industry considers to still be in relative infancy.

State officials suggest infrastructure, housing, and workforce stability will catch up with demand when the first blush of exploration and development settles into more of a manufacturing cycle.

Oil and gas companies plan to start announcing 2012 capital spending plans this month, and observers will be watching for indications of how transportation bottlenecks might affect the Bakken rig count next year. Still, more rigs are being built.

The Bakken and Three Forks formations are the target of more than 95% of all drilling in the state, the DMR said in a November newsletter.

North Dakota's statewide rig count was 187 as of Nov. 23 compared with 154 on Jan. 28, 2011, and 27 for the week ended Jan. 6, 2006.

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