DENVER—The landlocked Rockies’ unconventional plays, including the Bakken, will gain a share of the nation’s growing oil and gas export business—if the midstream sector adds the proper infrastructure. That was a point emphasized by several speakers in presentations at Hart Energy’s DUG Rockies Conference & Exhibition here April 25.

An example of what can happen came last year with the start-up of Energy Transfer Partners’ Dakota Access Pipeline (DAPL) that provided a direct link between Bakken producers in the Williston Basin and the sprawling downstream markets on the U.S. Gulf Coast, said Brad Holly, president and CEO of Whiting Petroleum Corp. (NYSE: WLL), in the conference’s opening keynote.

“North Dakota is a long ways from markets,” he said, adding midstream infrastructure will decide producer profitability.

Brad Holly, president and CEO of Whiting Petroleum Corp. gives the conference’s opening keynote. (Image: Hart Energy)

“Differentials are the name of the game today, and the game has changed,” Holly told a crowd of more than 1,200 attendees at the Colorado Convention Center. Gone are the days when the play suffered a significant shortage of pipeline capacity, which created wide differentials between Bakken crude and the West Texas Intermediate benchmark.

With DAPL in service, there’s now “excess takeaway capacity out of the basin,” Holly added. He quoted North Dakota Pipeline Authority (NDPA) statistics that set current pipeline capacity at 1.4 MMbbl/d, along with 1.5 MMbbl/d of rail capacity and modest regional refining capacity. That easily exceeds the 1.2 MMbbl/d that Williston wells produced in February, the most recent data available.

NDPA’s low-case estimates project sufficient pipeline capacity until early-2023. High-case numbers rate the pipelines adequate through 2019—and the substantial rail capacity will remain in place on top of what pipelines can handle, Holly said.

Natural gas is another matter, he added. Gas output could max out the region’s processing capacity, around 2.1 Bcf/d, this year. “We’re right at the limit,” the CEO said. “We have to work closely with our midstream providers.”

Whiting ranks as one of the top Bakken producers. Another big player, Hess Corp. (NYSE: HES), is taking an “if you want it done right, do it yourself” approach to midstream infrastructure. Barry Biggs, vice president of onshore at Hess, said his firm is “focused on the future” because its “midstream business is positioned to support increased activity.

“Midstream is a big part of our business plan and it also offers the opportunity to serve third parties,” creating an additional revenue stream. “Midstream has a lot of growth potential for us to support our drilling,” he added. In-house midstream infrastructure forms part of the company’s emphasis on “lean practices,” which employ advanced technology to pinpoint problems early and provide appropriate responses.

Barry Biggs, vice president of onshore, Hess Corp., told DUG Rockies in Denver that the midstream business is positioned to support increased activity inthe region. (Image: Hart Energy)

Colorado’s lacking infrastructure

In Colorado, infrastructure—or the lack of it—is one of the negatives hanging over the Denver-Julesburg (D-J) Basin, according to Trisha Curtis, president and co-founder of Denver-based PetroNerds LLC, a consulting firm. But new processing capacity will make a big difference she added, noting DCP Midstream Partners expects to bring on its 200 MMcf/d Mewbourne plant in the third quarter and the similar-sized O’Connor 2 plant in the first half of 2019.

New NGL takeaway capacity will be aligned with the increased processing capacity, Curtis added.

One D-J Basin producer closely monitoring the gas processing situation is PDC Energy (NASDAQ: PDCE), which splits its production with two-thirds flowing to DCP and one-third to the Southern Ute tribe’s AKA Energy Group LLC. The new DCP capacity will drop line pressures in many areas, allowing PDC to add production from wells that flow little at very near the same pressures as the field lines.

“We’re getting ahead of the line pressure problem,” said Scott Reasoner, PDC’s COO. “But it will be hard to predict how long it will take to work it off with the flush of production. Some wells are essentially shut in.” That increased flow will represent “a lot of good business.”

Wyoming’s Powder River Basin may be overlooked by many energy players but it offers great opportunities, in part because the play has comparatively good midstream infrastructure, according to Matthew Phillips, vice president-engineering and operations for Samson Resources II LLC.

Phillips told the conference the mature multiplay/multipay Powder River has six gas plants now “but the unconventional plays make more gas” than conventional wells and more capacity will be needed. Major midstream players include Meritage Midstream, Williams and ONEOK. Evolution Midstream is new to the area with its 2017 acquisition of the Rowdy Gathering System from Lucid Energy Group. Altogether, processing capacity is expected to rise by 170 MMcf/d between late 2018 and the middle of 2019, Phillips added.

Even after years of drilling, “the Powder River is underdeveloped, in my opinion,” he added and there’s plenty of running room for producers as midstream infrastructure grows.

Production growth, export potential

The world needs it and the U.S.—perhaps more than any other major oil and gas producer—can supply it. That was the macro view of two energy executives.

Blu Hulsey, senior vice president-government and regulatory affairs for Continental Resources Inc. (NYSE: CLR), noted in his presentation that “the Bakken just keeps getting better” as takeaway capacity grows. Continental’s fourth-quarter 2017 Bakken differential from WTI improved by $4.54/bbl from the firm’s 2015 average, “and that’s a huge, huge deal for us, thanks to [DAPL-operator] Energy Transfer Partners and the Pony Express Pipeline” owned by Tallgrass Energy Partners.

Those kinds of results showcase “American energy dominance and what that means,” Hulsey said. He quoted President Donald Trump from a rally held at Andeavor’s Mandan, N.D., refinery last year when Trump observed that “The truth is that we have near-limitless supplies of energy in our country.” Improving infrastructure will enable the nation to make the most of that asset, Hulsey emphasized.

The Continental executive listed three points on what America’s ascension as an energy exporter means:

  • The U.S. will overtake Russia to become the world’s largest oil producer by 2023;
  • American influence on global oil markets is also expected to rise as U.S. exports more than double to 4.9 MMbbl/d by 2023; and
  • The International Energy Agency sees little sign that worldwide oil demand will peak in the next five years.

“We are already the world’s largest gas producer…we’re moving toward places unknown,” Hulsey said. “In the next 50 years, there is nothing more important than what you guys are doing,” Hulsey said, pointing at his audience.

Appropriately, the conference’s closing keynote was “A Global/Geopolitical Perspective On Rockies Petroleum Resources,” given by industry observer Tom Petrie, chairman of Petrie Partners and author of the book “Following Oil.”

“There is this notion that the center of the country is landlocked and not involved with the rest of country,” Petrie said, adding that’s not true and the Rockies are enjoying “a hydrocarbon homecoming.”

“Global oil supply and demand curves have continued to converge meaningfully vs. 2016 and 2017, with a tightening supply picture becoming manifest on a worldwide basis much earlier than originally forecasted,” he said. The dynamic that joined the U.S. to Saudi Arabia, Kuwait and other producers in the unstable Middle East is breaking down.

“The agreement was, ‘we provide you the oil and you prove us the security.’” he said, and that’s no longer the case.

Saudi Arabia, in particular, is trying to find a new world role. The agreement among OPEC members and Russia to hold back production has worked remarkably well—given the cartel’s reputation for rampant cheating on production limits.

But it has worked this time.

“We have seen the excess inventory gap meltdown to a rounding error,” Petrie said.

Those foreign producers will have to maintain higher oil prices to fund vast social programs and security efforts. Potentially higher prices will be good news for the Rockies where distance to markets is always a question.

“The real key for the Rockies is the degree of deliverability to export terminals” for both oil and gas, Petrie added.

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