BAKKEN UPDATE: GAS GATHERING Long Term Challenges January 30, 2014 William W Koch - Director Summit Midstream
GAS GATHERING: LONG TERM Ø Gathering pipeline issues Ø What are we dealing with Ø It s a Bakken Problem Ø The decline curve and the gas Ø Economics of connecting a well. Ø Exploring the use of Bakken natural gas for re-injection. Ø Examine new technologies to capture gas on site. Ø Evaluate on-site gas gathering systems against the value lost from flaring gas Ø Determine the distance from well site and account for additional transportation costs Ø Optimizing the recovery of NGLs from gas Ø Generate a transportable product and reduce flaring Ø Summary of the mega installations and the small footprints Bill Koch, Director - Business Development, Summit Midstream Partners LP
Gas Production from Oil wells Ø When oil is pumped to the surface it s accompanied by much-less valuable natural gas. Flaring is not regulated at a national level Ø When Oil is first found you can store it in tanks, on site and then truck the product off the lease. You can t immediately transport natural gas in a truck or rail car. The low volume of the natural gas relative to the oil means producers lack a strong incentive to capture it in the first place. Ø Pipelines are slow to permit and expensive to build, operate and maintain especially to remote oil wells. Ø The gas pressure on the lease is generally low pressure to facilitate the oil production.
Number of Wells in North Dakota by Pool Produc'on Month BAKKEN & 3Forks MADISON Various Spearfish/ charles/ ORDOVICIA Red River DUPEROW Madison PIERRE BIRDBEAR SANISH DEVONIAN N Tyler SILURIAN HEATH MIDALE/ NESSON LODGEPOL E STONEWAL L Others Grand Total May- 04 202 2,267 427 125 163 68 69 14 60 59 60 61 53 19 30 56 39 3,772 Nov- 04 202 2,262 422 125 163 82 78 14 60 59 56 60 51 19 30 56 37 3,776 May- 05 208 2,250 430 128 163 82 88 15 60 58 56 61 50 19 30 56 38 3,792 Nov- 05 232 2,255 441 126 162 106 99 15 62 58 56 62 50 21 30 54 37 3,866 May- 06 250 2,282 443 129 163 154 110 15 62 60 58 63 49 26 30 56 38 3,988 Nov- 06 295 2,312 462 127 162 163 114 14 62 62 60 63 48 29 29 57 44 4,103 May- 07 359 2,313 495 127 163 163 120 13 62 59 57 63 46 31 29 58 45 4,203 Nov- 07 452 2,299 505 126 166 160 119 13 64 59 58 63 44 31 29 58 43 4,289 May- 08 603 2,299 513 127 162 160 119 13 63 58 57 64 44 36 28 59 45 4,450 Nov- 08 860 2,303 518 126 158 161 123 15 63 58 57 62 43 39 28 60 43 4,717 May- 09 1,062 2,291 513 124 156 161 120 17 63 57 57 60 43 39 29 60 42 4,894 Nov- 09 1,337 2,281 501 126 157 161 121 18 61 58 57 57 44 39 30 60 43 5,151 May- 10 1,637 2,278 504 129 163 164 118 18 60 57 57 57 45 39 31 60 44 5,461 Nov- 10 2,087 2,284 506 127 166 164 115 22 60 58 56 57 43 42 31 60 44 5,922 May- 11 2,515 2,274 513 125 170 164 114 29 60 58 56 57 43 42 33 58 44 6,355 Nov- 11 3,258 2,267 504 123 170 164 114 44 60 58 55 57 43 42 34 54 44 7,091 May- 12 4,141 2,260 500 124 179 164 111 50 60 57 57 56 43 42 34 54 45 7,977 Nov- 12 5,073 2,255 507 125 192 164 113 53 58 57 56 56 43 42 34 54 46 8,928 May- 13 5,959 2,245 515 124 210 163 112 61 58 56 56 56 43 42 32 54 45 9,831 Nov- 13 6,789 2,231 509 124 223 164 111 71 57 56 56 54 40 42 32 51 46 10,656
Bakken is the issue 8000 7000 Number of Wells All other Wells Bakken Wells Number of wells 6000 5000 4000 3000 2000 1000 0 Flared but not Bakken Mcf per Month 1800000 1600000 1400000 1200000 1000000 800000 600000 400000 200000 0
Historical Data Total Well Count Total Volumes 12,000 25,000,000 10,000 20,000,000 8,000 6,000 4,000 Well Count Mcf per Month 15,000,000 10,000,000 Gas Flared Gas Sold 2,000 5,000,000 - May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 - May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Bakken Well Count Bakken Volumes 8,000 7,000 6,000 5,000 4,000 3,000 2,000 6,757 Well Count Mcf per Month 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 Gas Flared Gas Sold 1,000 - May-04 201 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 2,000,000 - May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13
Madison and Red River Madison Volumes Madison Well Count 2,500,000 2,320 2,300 2,000,000 2,280 Axis Title 1,500,000 1,000,000 Gas Flared Gas Sold 2,260 2,240 2,220 Well Count 500,000 2,200 - May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 2,180 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 Red River Mcf per Month 900000 800000 700000 600000 500000 400000 300000 200000 100000 0 Red River May-13 May-12 May-11 May-10 May-09 May-08 May-07 May-06 May-05 May-04 Gas Sold Gas Flared Number of Wells 215 210 205 200 195 190 185 Well Count Nov-13 May-13 Nov-12 May-12 Nov-11 May-11 Nov-10 May-10 Nov-09 May-09 Nov-08 May-08 Nov-07 May-07 Nov-06 May-06 Nov-05 May-05 Nov-04 May-04
How much is Gas and how much is Oil? From CLR Investor Update January 2014
What does the decline look like
What does the Type curve look like
Economics of a well connect First Prod >= 1/1/2008; Status Types: ACTIVE; Reservoirs: BAKKEN POOL; States: ND $ 8 35.0% $ 2.80 Date Gas Day 1 NPV P of the Gathering $ 10% $ 785,894 $ 15% $ 703,443 $ 20% $ 639,950 $ 30% $ 549,604 1 Jan- 00 9134 $ 25,575 25,575 2 Feb- 00 15227 24361 6.5% $ 42,636 68,211 3 Mar- 00 12790 37151 9.9% $ 35,812 104,023 4 Apr- 00 12246 49397 13.2% $ 34,289 138,312 5 May- 00 11113 60510 16.2% $ 31,116 $ 169,428 6 Jun- 00 9296 69806 18.7% $ 26,029 195,457 7 Jul- 00 8628 78434 21.0% $ 24,158 219,615 8 Aug- 00 8699 87133 23.3% $ 24,357 243,972 9 Sep- 00 7612 94745 25.3% $ 21,314 265,286 10 Oct- 00 7001 101746 27.2% $ 19,603 284,889 11 Nov- 00 6618 108364 29.0% $ 18,530 $ 303,419 12 Dec- 00 6136 114500 30.6% $ 17,181 $ 320,600 13 Jan- 01 5624 120124 32.1% $ 15,747 $ 336,347 14 Feb- 01 4755 124879 33.4% $ 13,314 $ 349,661 15 Mar- 01 4375 129254 34.6% $ 12,250 $ 361,911 $ 12,250 16 Apr- 01 4384 133638 35.8% $ 12,275 $ 374,186 $ 24,525 17 May- 01 4302 137940 36.9% $ 12,046 $ 386,232 $ 36,571 18 Jun- 01 5093 143033 38.3% $ 14,260 $ 400,492 $ 50,831 19 Jul- 01 4270 147303 39.4% $ 11,956 $ 412,448 $ 62,787 20 Aug- 01 4291 151594 40.6% $ 12,015 $ 424,463 $ 74,802 21 Sep- 01 4473 156067 41.8% $ 12,524 $ 436,988 $ 87,326 22 Oct- 01 3935 160002 42.8% $ 11,018 $ 448,006 $ 98,344 23 Nov- 01 3972 163974 43.9% $ 11,122 $ 459,127 $ 109,466 24 Dec- 01 3514 167488 44.8% $ 9,839 $ 468,966 $ 119,305 $ After One Year NPV P Gathering $ 10% $ 513,168 $ 15% $ 449,401 $ 20% $ 399,912 $ 30% $ 329,217 Data from DI Desktop
Economic Results Ø Assumptions Total Sales Value of $8.00 per Mcf Gatherer charges 35% or $3.20 per Mcf Does not include any operating costs, taxes, insurance or overhead. Cost is looking at just the well connection, not the capital for compression, dehydration, treating, processing, fractionation or product delivery Ø Results If The Gatherer gets there on Day 1 the NPV P @ 20% Btax is $640K vs. $400K if there a year later. Gatherer would have to charge 56% or $4.50 to get the same NPV P after Year 1.
What are the issues even after the mega infrastructure is built? In August 2013 16% of North Dakota's natural gas was flared from wells connected to a gas sales facility Ø New high pressure wells knock off older lower producing wells Ø Add Compression only needed for lower pressure wells Ø Change pressure at the suction side of the compressor Ø Loop Pipelines expensive for a short term problem Ø Bringing on multiple wells from the same pad can exacerbate this situation
More issues causing Facility Flaring Ø Liquids take up capacity in the gathering lines and cause problems Ø Frequent pigging can help Ø Stuck pigs cause high pressure and downtime Ø New Well or Pad tie ins require the shut down of some equipment Ø Scheduled Maintenance and Emissions Testing Ø New Fields have a lack of spiderwebbing Ø Power Blips or Power Failures Ø Frequent callouts to remote locations Ø North Dakota s weather
Regulation added by the NDIC for flaring exemption Ø After one year flaring of gas from the well must cease and the well must be capped connected to a gas gathering line equipped with an electrical generator that consumes at least seventy-five percent of the gas from the well. Equipped with a system that intakes at least seventy five percent of the gas and natural gas liquids volume from the well for beneficial consumption by means of compression to liquid for use as fuel, transport to a processing facility, production of petrochemicals or fertilizer, conversion to liquid fuels, separating and collecting over fifty percent of the propane and heavier hydrocarbons. Equipped with other value-added processes as approved by the industrial commission which reduce the volume or intensity of the flare by more than sixty percent.
Flaring issues Ø Permitting and regulating side and some financial aspects are in the state s hands. Ø Entrepreneurial systems for well site gas processing are underfunded. Ø 1,000 wells flaring and a few dozen machines doesn t equal much progress. Ø Onsite capture vendors and pilot testing the technology. Ø Flaring solutions will require a shift in the way industry conducts business. Hard to change that long-standing business process that s always been in place.
NDIC news from January 29th Ø The North Dakota Petroleum Council Flaring Task Force 85 percent within two years, 90 percent six years and then 95 percent of gas with full engagement from the NDIC, state agencies, the Legislature, Three Affiliated Tribes, landowners and oil and gas companies. Ø Recommendations presented by the Task Force include: Gas Capture Plans (GCP) that require operators to create a plan prior to filing for a drilling permit GCP will include a location of the well and closest pipeline and processing plant; the system capacity of gathering and transport gas lines; the volume of gas flowing from multi-well pads; and, a time period for connection. Regulatory consequences for failure to comply. Extensions for force majeure. Enhance Right of Way (ROW) access. Support infrastructure and technology. NDIC develop and manage a pipeline hotline for reporting issues related to pipeline reclamation. Midstream Planning and Tracking. By North Dakota Petroleum Council January 29, 2014
Is it possible to capture natural gas without mega-infrastructure? Ø Can Bakken gas be injected back into formation: Bakken shale is very permeable, so, unlike traditional oil fields well operators can t re-inject the gas to maintain reservoir pressure Ø Convert natural gas to fertilizer: The U.S. imports 60 percent of its nitrogen fertilizer. Natural Gas is a major ingredient for synthetic fertilizer Beowulf Energy LLC announced it has acquired the rights to N-Flex distributed ammonia technology Beowulf plans to sell the ammonia locally, and link North Dakota s top industry agriculture with oil and gas. Ø Use it to generate power for the grid: At well sites that already have power line connections, natural gas can power a generator and that sends energy back to the grid. Mark Wald, the president of Blaise Energy, said that as far as he can tell, his company is the first in the U.S. to generate third party verified renewable energy credits from captured natural gas, something allowed by North Dakota s renewable energy law.
Is it possible to capture natural gas without mega-infrastructure? Ø Use it to power a tiny grid Gas pipe from many wells to a central processing location, process the gas and use generators powered by natural gas for the wellhead equipment and to return to the grid, Ø Convert from gas to natural gas liquids on site: Billings-based G2G Solutions, moves a small processing skid on site to remove some of the natural gas liquids at the well site and pump the liquids into 18,000-gallon tanks. Later we will hear from Dow Chemical on an expected solution that Dow has to capture ngls from the gas stream on site.
Small Footprint Summary Ø Manpower is always an issue with remote facilities. Ø Trucking lowers value. Ø Scattering these technologies around the Bakken won t replace pipelines, but they are stopgaps until pipelines arrive, or they can be longer-term solutions for extremely isolated parts of the oil field. Ø Distributed gas capture isn t the ultimate answer to flaring on a large scale, but it s good to see innovation in a persistent problem that needs an economic solution. So in Summary I have one important point to make as a take away for all of you
Go Broncos!
Summary Ø No one solution will bring natural gas flaring down to an acceptable level in western North Dakota. It will take a bundle of different strategies, large and small, to get flaring into single-digit percentages. Ø The flaring needs to be reduced from its present level of 29 percent of production. That level of flaring, or higher, has been ongoing since the beginning of the Bakken boom. Ø Adding pipelines, to gather, dehydrate and compress natural gas to central facilities where the gas can be separated into commercially viable components and sold are big solutions. That work is ongoing, but it takes a great deal of capital and time. Ø Building Gathering Systems and approaching the problems unique to the shale gas and North Dakota are critical to the success of capturing the gas and its value. Ø What are the answers for mega infrastructure to run gas 365? Do the designs for gathering of the Red River and Missouri Gas Plays work for the Bakken? How has pad drilling affected what we need to do as Gatherers and should our approach change? Ø We are now seeing the issues and working on solving the problems.