BAKKEN PLAY: BOOM OR BURDEN? The race is on

Area businesses cashing in on North Dakota oil play
2010-08-15T00:15:00Z 2010-08-16T00:13:42Z BAKKEN PLAY: BOOM OR BURDEN? The race is onJAN FALSTAD Of The Gazette Staff The Billings Gazette
August 15, 2010 12:15 am  • 

WILLISTON, N.D. — Looking over to a badlands butte flanking the shore of Lake Sakakawea, Bev and Bruce Conway, of Williston, N.D., pointed out their truck window to a 30-foot natural-gas flare burning up from a coulee under a brilliant July sky.

“Look at that huge flare! That wasn’t there before,” she said. “That can’t be on our land, can it?”

Indeed the flare, lit that morning after a week of underground hydraulic fracturing to shatter shale 2 miles below ground, burned from a new well on the Conway ranch. The lone well sits 250 yards from the front of her brother’s house and just over the hill from the deck she and Bruce built to start their lake-view retirement home.

The family owns the surface rights to the 360-acre ranch but not the mineral rights.

 “We’re so far rural, we remained naively hopeful that they wouldn’t drill,” said Bruce Conway, who retired from the U.S. Air Force.

North Dakota is the fourth-largest producer of oil behind Texas, Alaska and California, and it is expected to pump more than 100 million barrels this year, up 20 million barrels from 2009. And North Dakota just became the nation’s third-most-active drilling state for oil and natural gas.

“We think we’ll issue 2,000 drilling permits this year,” said Lynn Helms, director of the North Dakota Oil and Gas Commission, while Montana is on track to issue 300 oil drilling permits this year.

The activity on the Conway ranch is just one well among 143 drilling rigs, each punching a well a month across western North Dakota.

The unprecedented boom includes an estimated 50 Montana companies working the oil fields in western North Dakota. The atmosphere is one of a race for riches before the boom goes bust again, as it inevitably does. Signs of the boom are easy to see:

Hundreds of heavy trucks rumble down what used to be rarely used rural roads.

Billings-area ranchers are heading east for steady truck-driving paychecks.

ConocoPhillips last month opened a Billings office with 15 employees just for its Williston Basin operations.

A Billings oil service company has purchased 18 more trucks to keep up with demand.

Bainville’s school enrollment has nearly doubled in two years, and the boom is just beginning there.

Housing is so scarce and expensive that workers camp in tents, sleep in their trucks or rent bunkbeds in storage containers.

Development is so rapid that environmental concerns about the million-plus gallons of water needed to hydraulically fracture Bakken shale, which releases the trapped oil and gas, has drawn little attention.

Price drives production

Despite the sweet profits of oil, the bosses at Tractor and Equipment Inc., Fiberglass Structures Inc., and CMG Construction are all keeping experienced, wary eyes on the boom.

Rob Harris hasn’t forgotten buying Fiberglass Structures, which makes tanks to capture the salt brine water pumped up with the oil, on April 1 a quarter century ago.

“On April 2, the oil field went to hell. They dropped pipe and left. The bust hit, and our sales dropped off 50 percent the day after I bought,” Harris said.

Last year, oil prices plummeted again and Harris’ sales fell 20 percent. Now, times are good again and a record year is in sight.

“If things stay on track, and I believe they will, I expect sales up be up 35 percent over 2009,” Harris said.

By hiring another six employees, Harris will add a second shift at his two Laurel plants to manufacture 85 tanks per month instead of 60.

“I’ve got customers telling me the boom is here to stay, maybe for 10 years. But they don’t have the manpower right now to operate all those rigs,” he said.

Love, hate

Like many in what is called the hottest new oil play in the United States, the Conway family of Williston is conflicted about the boom: sad that their ranch, blessed with rare native prairie grasses, has an oil well, but hoping for one of their own.

During the Great Depression, Bev Conway’s grandfather bought mineral rights on 60 acres near Wildrose north of Williston, so the Conways have the power to allow oil drilling on somebody else’s land.

“If they can drill up there, that’s where we’ll get some money,” Bev Conway said.

A nutrition instructor at Williston State College, Conway is grateful for the $1 million fund that oil has brought to campus, offering virtually every student a generous scholarship.

Still, the money comes with plenty of trade-offs.

Oil wells are labor-intensive activities with a steady flow of heavy trucks and workers to service the rigs, featuring fumes and the constant roar of diesel generators.

And while the oil dumps tons of money into the local economy and into the pockets of scores of companies and thousands of employees, there are no riches for surface owners. The Conways rejected the first offer of $6,000, but settled for a one-time $10,000 check allowing use of a quarter-mile of road and six acres of land.

“You don’t really have a choice,” Bruce Conway said. “And this well will last past our lifetimes.”

The race is on

The unimaginable riches and sharp changes sweeping across Eastern Montana and western North Dakota are part of a rush to punch wells in every other section, tying up as much land as possible and beating the clock on the shorter two- to five-year leases being signed.

“The companies are drilling like mad and trying to control the most land by production so they don’t have to go out and buy the same lease over again in this time of competition,” said Williston attorney Greg Hennessy, his desk piled high with oil leases and lawsuits. He also acts as city attorney for Bainville and Culbertson, both of which are seeing more drilling activity.

As horizontal drilling techniques have improved, allowing oil companies to drill in six different directions from the same well site, finding oil in the Bakken field has become less risky and more profitable.

“Five years ago, the wildcatters hit (oil) about 20 percent of the time. But now all that proprietary information has come out, the majors have learned from the small guys’ mistakes and there are virtually no more dry holes,” Hennessy said.

Even with improved drilling techniques, the price of wells that cost $2 million a few years ago has quadrupled.

“That’s a ton of money. But, even at $8 million, a good well can pay for itself in a year or less,” said Williston Mayor Ward Koeser, who used to teach math in Terry. “Where else can you get your $8 million back in a year?”

The rush to drill also is driven by good old-fashioned competition.

“They are like wildcats marking their territory in the forest, trying to control whole sections of land,” said Tom Rolfstad, executive director of Williston Economic Development.

Like many who are unabashedly pro-oil, Rolfstad fills his office with Bakken-boosting literature, including bumper stickers like “Rockin’ the Bakken” and “Frackin’ the Forks,” referring to the Three Forks formation, another oil-rich layer of shale just under the Bakken.

“It’s just a crazy world. You just can’t compare it with anything else,” he said. “It’s all good, as long as the oil keeps flowing.”

For a town booster whose telephone didn’t ring much back when the area was losing so many residents that some outsiders seriously proposed handing the land back to the buffalo, times have changed.

Now Rolfstad fields nonstop calls and text messages from oil players and a who’s-who of worldwide media. Reporters from The New York Times and the Arabic international new organization Al Jazeera recently visited the area to report on a region some have called the Saudi Arabia of the U.S.

“There is so much resource and the success ratios are so strong, I have heard many people say there is at least eight to 10 years of play,” Rolfstad said. “But I kind of wonder if anyone can do it that fast.”

Guessing the price of oil is like guessing what the stock market will do, so nobody knows if or when the economics might either slow or spur on this boom.

“Truth be known, all of us in Montana, we’re blessed with what’s happening in western North Dakota and Eastern Montana,” said Greg Cross, owner of Cross Petroleum, a wholesaler in Billings. “It’s keeping us working. If it was just the economy west of here, we’d be growing a lot slower.”

Earthmover ballet

Along U.S. Highway 2 at the Montana-Dakota state line, a half-dozen scrapers performed a well site ballet.

One dozer, its blade filled with topsoil, yielded to the next dozer. On some farms and ranches, oil storage tanks outnumber the shiny rows of grain bins.

The drill count today doesn’t compare with the last boom because drillers don’t have to put a well atop each oil pool. Horizontal drilling techniques allow them to drill six directions from a single well site. Drillers drill down 2 miles and then go horizontal, running laterals another 2 miles to access oil from shale under two sections of land. Wells can be drilled in a month now, far faster than before, and move on. 

Some modern rigs can be loaded onto trucks and hauled to the next site, saving dismantling time.

This is North Dakota’s third oil boom in 70 years, and it’s a beehive swarming back into Eastern Montana. The money from oil, 95 percent of it from the Bakken, generated $2 billion in taxes, leases and royalties for North Dakota’s treasury last biennium.  

Tom Richmond, director of the Montana Board of Oil and Gas in the Department of Natural Resources and Conservation, is frequently asked why North Dakota has a hotter boom now than Eastern Montana.

“The shoe’s on the other foot now, but that’s coming around again,” Richmond said.

Sidney’s Elm Coulee Formation, which has 659 of Montana’s 4,451 producing oil wells, was easier to drill earlier this decade, so drilling took off first in Eastern Montana. When that drilling peaked in 2006, the horizontal drilling methods had improved enough to tackle the harder-to-drill North Dakota Bakken shale and the activity moved across the border. Now, that same advanced technology is coming west again to reach oil in Montana shale outside Elm Coulee, Richmond said.

“We’ve already got 45 permits issued in the last three months in Roosevelt County,” he said.

Last year, Montana issued 80 oil drilling permits. But this year, the state has issued 132 permits in six months and should top 300 by the end of 2010, Richmond said.

Water and power

Fracking is thirsty work, with each drilling rig using 1 million gallons or more of fresh water. The Williston Basin is pulling water from Lake Sakakawea, the fifth-largest man-made lake in the U.S.. Water is also being pulled from Lake Trenton near the confluence of the Missouri and Yellowstone rivers, where explorers Lewis and Clark camped two centuries ago. Williston is considering piping water north to Tioga and south to Watford City to aid the drillers.

“This is a man’s river. There’s a lot of water in the Missouri, no matter how big a straw you put into it,” Rolfstad said.

The Missouri River reservoir is at flood stage now, thanks to plentiful rains. But for the last decade, boaters couldn’t easily access the reservoir because of long-term drought that eventually shrunk the Missouri to a river narrower than before the Garrison Dam northwest of Bismarck, N.D., was built 60 years ago. Forests of willows grew on the dry lakebed and a herd of moose moved in to dine. Then the heavy rains raised the lake by about 40 feet.

Because of a lack of pipeline capacity, oil must be trucked from the wells and hauled to railroad loading facilities. EOG Resources (Enron Oil and Gas) constructed a massive oil transfer facility and an office complex for 70 employees in Stanley, 45 minutes east of Williston. Hess Corp. is building a rail-loading complex at Tioga, where the first North Dakota oil was discovered in 1951. And a grain-loading facility by Fairview’s railroad tracks now loads oil.

The oil industry also has tremendous appetite for electricity. The Mountrail-Williams Electric Cooperative has built a second transmission line and towers for a third are lying prone in fields along U.S. Highway 2.

“Three years ago, they needed 30 megs (megawatts) of electricity. They’re at 83 megs now and expect to be at 350 megs by 2025,” Rolfstad said.

Oil is once again bringing opportunities and wealth to the region, the Williston mayor said. Halliburton’s chief executive officer flew to town in July and promised to invest more than $30 million in the area this year, Koeser said.

“But we need help with our infrastructure,” he said.

And the mayor said he needs to find solutions to dodge the bitter endings of the last two oil booms, where the companies dropped pipe and left town in a rush, sticking local taxpayers with millions of dollars’ worth of improvements to roads, bridges, housing and other services planned or built to accommodate the oil industry.

But perhaps this time is different.

“We could be drilling for oil for 40 to 50 years. It may take that long,” Koeser said.

How hot is this well?

By fall, a pipeline should be connected to the well on Conway’s ranch to capture the natural gas and eliminate the flare.

While picking juneberries near the well, the Conways talked about the weeds the development has been bringing to the native prairie grasses. And they wonder whether the well is hot enough to lure more drillers to their rural paradise.

Williston attorney Chuck Neff said any well that shoots flares as high as the one on the Eide/Conway ranch probably is a major well, producing up to 3,000 or more barrels a day.

When the well came in July 28, drilling consultant Arlin Fischer told the Conways that North Plains Energy of Denver wouldn’t know for a couple of weeks how much oil the well could produce. But then he said the company was flying in some investors from California that afternoon to take a look.

Kevin O’Connell, manager of operations for North Plains Energy, said this is the third well his company has drilled in North Dakota. After drilling the Conway land, the rig was moved to Wildrose for the next try, he said, but he wouldn’t comment on investors’ travel plans or the well.

“Most everybody in North Dakota is requesting confidentiality for six months,” he said.

 

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.

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