Bakken Potential Stunted by Lack of Infrastructure

By Beacon Staff

BISMARCK, N.D. – Full exploitation of the oil-rich Bakken shale formation in western North Dakota will require extensive infrastructure expansion so oilmen do not idle rigs, government and industry officials say.

North Dakota oil production is hamstrung by the lack of refineries, pipelines and rail facilities to move the crude to market, said Sen. Byron Dorgan, D-N.D., who held a Senate committee meeting here Wednesday to discuss maximizing the Bakken potential.

“It appears to me we have stranded energy in place,” said Dorgan, chairman of U.S. Senate Appropriations Subcommittee on Energy and Water Development.

Lynn Helms, director of the state Department of Mineral Resources, said North Dakota is on track to reach its pipeline, rail and refining capacity sometime in October. The lack of capacity likely will drive down prices for North Dakota crude and slow activity in the state’s oil patch, he said.

“It could delay new rigs coming in until they can put them to work and sell the oil,” Helms said in an interview.

In April, the U.S. Geological Survey estimated that up to 4.3 billion barrels of oil can be recovered from the Bakken using current technology. The agency said the Bakken, much of which lies two miles under the surface in western North Dakota, was the largest continuous oil accumulation it has ever assessed.

“There is an unbelievable amount of production capability,” Dorgan said. “But it won’t happen just because it’s there — it will only happen if we can pick (the oil) up and move it.”

Helms said North Dakota could jump from the eighth-biggest oil-producing state to fifth by increasing pipeline and refining capacity. North Dakota has only one oil refinery, the Tesoro Corp. plant near Mandan.

Because of the increased distances to market, North Dakota sweet crude generally fetches about 10 percent less than a barrel produced elsewhere and sold on the New York Mercantile Exchange, Helms said. Dorgan said that will continue unless improvements are made.

State Rep. Shirley Meyer, D-Dickinson, said every $1 increase or decrease in the price of oil impacts the state budget by $8.75 million per biennium.

“Any discounts whatsoever amounts to huge losses of revenue to the producers, the royalty owners and the state,” she said. “Bakken crude is a premium crude and should be bringing a bonus instead of being discounted.”

North Dakota set an oil production record in June, at 166,000 barrels a day. Helms said the state’s pipeline, rail and refining capacity is about 189,000 barrels a day, with another 30,000 barrels being added by the end of the year through two additional rail shipping stations and a pipeline expansion project.

Helms said about 51,000 barrels of capacity will be added in 2010 with a planned $120 million pipeline expansion by Enbridge Pipelines North Dakota LLC.

“The state is doing everything it can, and we’re aggressively pushing additional rail and pipelines,” he said.

Harold Hamm, chairman of Enid, Okla.-based Continental Resources Inc., said his company is forced to ship about 3,000 of its 20,000 barrels of daily oil production from the Bakken by rail because of the lack of pipeline capacity. That adds several dollars to the price of each barrel, he said.

Hamm said Continental is the largest leaseholder in the Bakken Shale, with more than a half-million acres in North Dakota and Montana, and that it will spend $400 million this year on leases and drilling in North Dakota.

He criticized a Canadian company for bypassing the state’s oil patch in its plans to transport oil from Canada through seven states, including North Dakota. TransCanada Corp.’s Keystone pipeline will extend through eight counties in eastern North Dakota.

“Basically, it was by design that they sidestepped North Dakota,” Hamm said. “And we’re caught in the middle.”

Helms said it would cost about $300 million to link the pipeline to the state’s western oil patch.

Robert Jones, a vice president who is overseeing the Keystone project, told The Associated Press that the route chosen by the company was based on economics and location. He said the company saved “hundreds of millions of dollars” by incorporating an existing pipeline in Canada that extends to the border in eastern North Dakota.

Jones said a big part of North Dakota’s capacity problems comes from increased shipments of Canadian crude on existing pipelines. He said when the Keystone project comes on line next year it will “de-bottleneck” existing pipelines.

“(Canadian crude) will be freed up to go on the Keystone — big time,” Jones said. “That is a fundamental benefit.”

The company also is planning a crude pipeline from Alberta to the Gulf Coast. The pipeline is slated for completion in 2012, and will run through Montana on its route south, Jones said. TransCanada is “entertaining interconnections” to North Dakota’s oil patch with that pipeline, he said.

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