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Oil production continues to break records

Posted 11/28/12 (Wed)

By Kate Ruggles
Farmer Staff Writer

“We continue to do more with less,” states Lynn Helms, director of the North Dakota Department of Mineral Resources Oil and Gas Division.
Helms is referring to the fact that North Dakota continues to set production records despite declining rig counts.
In September, though the rig count average was 190, the state produced a new all-time high of 728,494 barrels of oil per day and a new all-time high of 7,798 producing wells.
“Even though the rig count has dropped significantly, we are able to add wells and increase production because of the efficiency of rig crews and newer rigs,” states Helms. “There are roughly 180 rigs operating in the Bakken, yet we continue to add almost 200 wells a month.”
While those figures are good for the North Dakota oil industry, continuing to make it a reality is not without its challenges.
Two of the biggest issues facing the North Dakota Department of Mineral Resources are finding ways to reduce flaring and developing the best methods of transporting the crude North Dakota is producing.
“Even though we’re seeing a lot of build-out of infrastructure for gathering and processing gas, we’re still struggling to reduce flaring in the state,” states Helms.
So why is that a concern?
According to Helms, once Bakken drilling is mature and North Dakota is producing the excess of one million barrels of oil a day it is projected to, that will in turn produce over two billion cubic feet of natural gas a day.
“If we are flaring five to 10 percent of that, it will be equal to all the gas we produced in the first five years of the 21st century,” states Helms, meaning that eventually the oil wells will make a shift from predominantly producing oil to predominantly producing natural gas. “We need more technology and more incentives for the use of flared gas.”
The problem the North Dakota Industrial Commission is finding is that without tax breaks and government incentives, dealing with flared gas isn’t economical.
However, one solution may be on the horizon.
“Yesterday the Industrial Commission approved $1 million to a company that is developing technology to turn flared gas into anhydrous ammonia,” states Helms.
Helms states that anhydrous ammonia prices are at record highs, so the technology should be a benefit both to the North Dakota oil and agriculture industry.
“Anhydrous should be more easily distributed when it is made locally, so from the farmer’s standpoint, they should see a reduced price from the same distributors that they’ve already been working with,” states Helms.
While that is one possible solution, Helms states that the Industrial Commission will continue to try and encourage uses for flared gas, because as production continues to increase, it will continue to be a hard problem to solve.
Another issue facing the oil industry is take-away.
According to Justin Kringstad of the North Dakota Pipeline Authority, 50 percent of the crude oil North Dakota produces is transported by rail, 39 percent by pipeline, eight percent is taken to the Tesoro refinery and two percent travels by truck to a Canadian pipeline.
“We are short on pipeline capacity right now, so we need the rail system for transportation,” states Kringstad.
However, that may be changing. Kringstad states that two pipeline projects are projected to come on line in the first quarter of 2013, and another large pipeline project was just approved and has a projected completion date of 2016.
“The Bakken Expansion program and the Plains-Bakken North Pipeline will come on line in the first quarter of 2013,” states Kringstad. “They will both transport oil north into Canada and then back into the United States.”
The Enbridge-Sandpiper project is slated to originate in western North Dakota and move oil to Superior, Wisc., where it will then connect with other existing Enbridge infrastructure.
“It is the largest mid-North Dakota project and will add an additional 225,000 barrels of oil daily take-away capacity toward the Midcontinent refinery,” states Kringstad.
The Enbridge-Sandpiper pipeline project will use a 24-inch pipeline and is projected to be running by 2016.
The North Dakota Industrial Commission is expecting North Dakota production levels to reach 800,000 barrels of oil a day in the first quarter of 2013.
“And if things go right, we will build to a million barrels of oil a day,” states Helms.
However, should things not go right, Helms states that the Industrial Commission has looked at models of what it would take to sustain current production rates.
“If the worst happens, and all we could do is sustain 730,000 barrels of oil a day, it would take 550 wells a year and 50 drilling rigs,” states Helms. “Therefore, we are very confident that we can sustain the current production rate and that we will continue to increase production.”