August 2014

PlusSaltwater Disposal FirmsBusy But Look to ExpandPage 36

AND Oilfield Waste Changes AheadPage 44

Unprecedented New PolicyShifts Approach to Flaring

Page 24

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EXECUTINGPLANTHE

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A conversation over lunch with a financial analyst gave Dave Sco-bel, chief operating officer of Caliber Midstream, an idea of what the company was up against in transporting and processing natural gas produced in the Bakken.

“We were picking each other’s brains and I said, ‘Do you have any advice for us as a midstream group in the Bakken?’”

The answer surprised Scobel and his colleagues. “The pipelines you’re putting in are too small,” the analyst replied. “We laughed,” Scobel recalled. “You don’t know what size we’re putting in.

How can you say that?” The analyst’s explanation was simple: “Whatever size you’re putting in, it’s

too small.”When it comes to the issue of fl aring natural gas in the Bakken, Scobel’s

lunchtime discussion fi ttingly summarizes the current problem for midstream gatherers: how to correctly scale the infrastructure required to handle the produc-tion output.

Understanding The Scale“We still don’t claim to have the knowledge of how many wells we can put on

a section in any given location,” he says. “The producers went to the midstream providers and said, ‘Here’s what we think we’re going to have. We’re going to have four wells for every unit.’ The midstreams came in and built infrastructure to ac-commodate that.”

As the true production potential of the Bakken became apparent, four wells became eight, which were further downspaced to 12 and may someday grow to 24.

The impact of unprecedented flare regulations on midstream gas gatherersBy Patrick C. MillerPhotos By Gaylon Wampler

EXECUTING THE

GASCAPTURE PLAN

INFRASTRUCTURE & CONSTRUCTION

LAYING THE FUTURE: Caliber Midstream 16-inch crude oil pipe line awaits installation on a right-of-way leading off a drilling pad in McKenzie County, North Dakota.

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“Several rounds of pipe have gone in, and they’ve all been too small,” Scobel says. “As an industry, we’ve been trying to get our arms around the Bak-ken reservoir and understanding how much downspacing we can do. How big are these IPs going to be in any given area? Without that understanding, without that knowledge, it’s diffi cult.”

That’s been the hardest struggle, according to Scobel. “If we, as a midstream group, knew a few years ago exactly how much gas was going to be coming from every township, it would have been easy to lay out a grid to accommodate that. We’ve constantly been surprised to the high side at how much is going to come out of the Bakken.”

And that’s what made it a challenge early in the Bakken’s re-cent development for midstream companies such as Caliber to ac-curately predict how much gas

transport and gas processing in-frastructure was needed.

“Nobody envisioned that it would be as successful as it’s be-come—not even close. At the time, that would have been a big risk for a midstream company to build out to an unknown,” he says.

Enter The GCPOn July 1 this year, the

North Dakota Industrial Com-mission implemented regula-tions to signifi cantly reduce the level of fl aring in the Bakken and Three Forks Formations by using an approach Department of Mineral Resources Direc-tor Lynn Helms described as “a completely new way of control-ling fl aring.”

The commission’s goal is to reduce fl aring to 26 percent by fourth quarter this year; 23 percent by fi rst quarter 2015; 15 percent by fi rst quarter 2016 and 10 percent by the fourth quarter

FOR CRUDE: Caliber's Hay Butte crude oil processing facility. Caliber’s crude oil processing and stabilization system is designed to bypass tanks and recover 100% of crude oil vapor gas, while delivering 9.5 RVP crude oil to truck, pipeline and rail delivery points.

GROUND PREPARATION: Construction equipment levels a Caliber Midstream right-of-way for high-diameter crude oil pipeline (left) and natural gas pipeline (right) in McKenzie County, North Dakota.

'We’ve constantly been surprised to the high side at how much is going to come out of the Bakken.'Dave Scobel, chief operating officer, Caliber Midstream

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of 2020, with the potential for a reduction to fi ve percent.

The policy—which gives the state regulatory teeth to limit gas fl aring—establishes oil pro-duction limits that take effect if a producer fails to meet require-ments to capture natural gas at the well site.

Gov. Jack Dalrymple called it “a dynamic shift in the way regulators approach reducing natural gas fl aring.”

“The surge in shale gas production has required the commission to take an un-conventional approach at regulations by getting opera-tors to make plans to capture natural gas at day one,” he added.

Industry Reaction“Nobody wants to fl are

gas,” Scobel says. “Produc-ers want to monetize it. We all want to get the fl ares out.”

He also doesn’t accept the idea that the oil and gas in-dustry has been lax in address-ing the fl aring issue and needed regulatory persuasion from the NDIC to get serious about re-ducing the amount of gas fl aring in the state.

“There’s been 10,000 miles

of natural gas pipe laid and $6 billion spent since 2006,” Scobel says. “It couldn’t be further from the truth to say that industry hasn’t been trying to tackle this issue.”

Brad Stevens, a research en-gineer at the University of North Dakota Energy & Environmen-tal Research Center, agrees that reducing the amount of fl aring by a signifi cant percentage has been easier said than done for a number of reasons.

“It’s easy to fall into that

trap of vilifying the industry by saying that they’re just after oil and just fl aring the gas because it’s easy and they can’t make any money at it,” he says. “Most companies don’t want to lose one dime anywhere, but they can’t undertake projects that are uneconomical.”

Gas fl aring is exacerbated by the way the wells are devel-oped, Stevens also says. “The initial fl ow-back of both oil and gas is very high, but it’s a very steep decline curve. It’s diffi cult

PIPE READY: New pipeline sits stacked at the Caliber Midstream pipe yard in Hay Butte, North Dakota.

GATHERING EXPERIENCE: Before joining Caliber, Dave Scobel was vice president of operations at Meritage Midstream where he served on the management team that built the Eagle Ford Escondido and Cuervo Creek gathering systems in Texas.

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to overbuild and sink all those dollars into infrastructure. If you build it to be peak capacity, it’s potentially oversized later on. You know you’re going to have that peak on the front end, but where do you build to, capacity-wise? It’s a challenge, especially as a mid-stream, when you’re not controlling where and how fast these wells come on.”

The EERC worked with the North Dakota Petroleum Council gas fl aring task force to develop an online database of technologies and expertise to provide a “one-stop shop” for oil producers looking for alternatives to fl aring gas. The database currently lists 50 different entities.

“It’s not as simple as just putting these technologies out there and saying you’ve got it licked,” Stevens believes. “We took a high-level view of the different technologies and the impact they’d have on fl aring. There isn’t a single technology you can deploy to wipe out the fl aring to the extent that people would like. It’s going to be a basket of solutions.”

Starting Oct. 1, all Bakken and Three Forks wells will be subject to production restrictions if they are fl aring more than the 74 percent gas capture goal.

According to the Department of Mineral Resources, if a gas capture percentage is not met, oil production at the well will be re-stricted to 200 barrels of oil per day, “if at least 60 percent of the monthly volume of associated gas produced from the well is cap-tured, otherwise oil production from such wells shall not exceed 100 barrels of oil per day.”

In addition, gas fl aring will not be permitted if the North Dakota Department of Health determines that the activity is violating the state’s air pollution control rules, which could trigger further produc-tion restrictions.

Oil producers will be required to have a gas capture plan (GCP). This plan details how much natural gas an operator anticipates pro-ducing from a well, the method of delivering the natural gas to a pro-cessor, and where the natural gas will be processed. Operators failing to comply with a GCP, as well as fl aring reduction targets, may face the production restrictions.

“The overarching goal is to reduce the number of wells fl ared and the amount of gas fl ared,” Helms said earlier this year. “With the help of the commission, we won’t just see percentage of gas fl aring go down, but the volume go down as well.”

However, Scobel believes that production trends in the Bakken are already moving the oil and gas industry in the direction of fl aring reductions.

Meeting The Flare Reduction Goal“I think the NDIC might get some undeserved credit,” Scobel

says. “My take when I look at what’s going on up here is that it’s been diffi cult for the producers and the midstreams to have long-term plans together and collaboration while everybody was HBP (held by production) drilling.”

LACT BUILT: Alexander, N.D.-Truck Lease Automatic Custody Transfer (LACT) units measure out exactly how much stabilized crude oil goes into trucks for delivery.

FINE-TUNING: A Caliber Midstream facilities engineer adjusts a patented crude oil pressure vessel that bypasses crude oil storage tanks and enables centralized crude oil processing on a well pad in McKenzie County, North Dakota.

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INFRASTRUCTURE & CONSTRUCTION

Producers had a hard time scheduling their rigs and understand-ing what areas production was going to come from and they were scrambling just to hold leases, he explains.

The move away from HBP drilling to an overall fi eld production mode has helped operators and midstreams unite. “The pad locations are more conducive to getting pipe to them, and producers can work with the midstreams to come up with a systematic approach. I think that’s happening, regardless of the changes that NDIC has come out with.”

Still, Stevens expects that the new regulations will help bring some clarity to the North Dakota’s fl aring situation.

“All of the operators have unique scenarios where certain things fi t and other things are not applicable technology-wise,” he explains. “It takes time to work through those details. Any given company might have certain wells where a different type of technology is a better fi t. That’s the stage we’re in right now.”

Finding The Right PlanEconomics greatly impact the options available to a producer

developing a gas capture plan. “The most important, effi cient plan is to tie into a pipeline,” Sco-

bel says. EERC researchers are continuing to gather data in an effort to

help government and industry understand fl aring from a big-picture perspective.

“As part of our Bakken optimization program, we’re doing data analysis to better capture what’s going on with fl aring,” Stevens says. “Everybody heard the fl aring percentage number, but there wasn’t a real good understanding of what that meant—where it was coming from or what types of wells.”

Stevens believes that there’s still much to learn to develop an ac-curate big-picture understanding of fl aring.

“It’s nuanced because you’ve got issues related to fl aring on the (Fort Berthold) reservation that are different from off the reserva-tion, and the numbers come out differently,” he says. “It’s one thing to say that the fl aring is a certain percentage, but it’s another thing to understand where that number comes from and why it’s happening.”

To emphasize how the industry has adapted and responded to fl aring concerns, Scobel points to Caliber’s accomplishment of devel-oping zero emissions pads from which there’s no fl aring of produced gas or tank gas—the “little fl are” to burn off volatile organic com-pounds from atmospheric tanks.

“You can truly have a zero-emissions pad, and that’s a win in anyone’s book,” he says. “Our goal is to have as small of a footprint as we can on these pads. By not fl owing through the atmospheric tanks, producers need fewer tanks on location so we have a smaller footprint when we’re out there. We’re turning those fl ares off on loca-tion, which is more environmentally friendly.”

Helms has said there are already examples of companies begin-ning to work together to improve the effi ciency of capturing and

LISTMAKERS: Chad Wocken, senior research manager, and Brad Stevens, research engineer, of the University of North Dakota's Energy & Environmental Research Center are the developers of the online database for flaring technology and expertise. PHOTO: PATRICK C. MILLER, BBI INTERNATIONAL

moving gas to processing sites. He is hopeful that the new fl aring regu-lations will help create industry partnerships that reduce fl aring.

“The message to me from the commission on the fi rst was very clear and that is that this policy is only going to make a difference if we are very, very strict about granting exemptions to it,” Helms said. “There is, I think, enough time between now and Oct. 1 and now and Dec. 1—when that October data comes in—for companies to form those alliances and make those cooperative agreements.”

Scobel and Stevens agree that collaboration and cooperation are playing a key role in getting fl aring under control.

“Collaborating with our competitors and our peer group in the Bakken, I’d just point out that none of this was done through regula-tion,” Scobel says. “This was operators getting together and seeing how we can meet best practices as an industry prior to any discussion from governing bodies.”

In hindsight, it might look like all this collaboration came out be-cause of the new gas capture plans, “but really, industry was starting to do this already. There’s much more collaboration going on because it’s just easier to forecast what’s happening with the leases being held.”

The EERC’s online database of organizations with gas fl aring technology and expertise has had the unforeseen benefi t of encourag-ing collaborations between different entities.

“Where there are opportunities to pair up a natural gas liquids company with some other company in CNG (compressed natural gas), they don’t choose to go down that path,” Stevens says. “It probably doesn’t make a lot of sense for them to create their own CNG plat-form, but they can partner with somebody who already has a system and strike an arrangement. They’ve got a broader package to offer than if they’re just NGLs (natural gas liquids) or just CNGs.”

“We’re seeing more of that happening, and we’ve encouraged it to help these vendors and technology people to get in line with what we’re seeing E and P (exploration and production) companies looking for,”

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THE RIGHT APPROACH: For nonremote wellpads, pipelines are the best option, Scobel says. The industry is just now learning which pipeline sizes are adequate.

Stevens also said. “They’re looking for a turn-key solution. They want someone to bring in a solution that they’re looking for and operate it and prove economics.”

However, bringing a solution to a well site can come with complications.

“One of the most misunderstood terms in our business is ‘skid mounted,” Scobel be-lieves. “When people hear that a process is skid mounted, it implies that you pull it up with your pickup, plug it into the wall and away you go.”

“Even skid-mounted equipment needs quite a bit of connection and construction to get it all bolted together on location,” Scobel explains.

It’s not so much that there isn’t a solu-tion to gas fl aring, but the amount of time needed and the number of obstacles that must be overcome to implement them.

“The areas that you see the most fl aring are the areas furthest from processing and that don’t have enough pipe infrastructure,” Scobel says. “The low-pressure gathering that’s required to get this gas to a processing point is intensive. It takes large pipe. It takes

dollars to do this. It takes time to acquire right of ways and get this stuff built and designed and installed and to work out deals with the operators.”

In addition, Scobel noted that other factors impacting the construction of infra-structure includes the cost of acreage, rugged topography, traversing U.S. Forest Service land and dealing with Lake Sakakawea and wetlands.

“On our side, when we’re evaluating the economics, it can make deploying those as-sets more complicated or more expensive,” he says.

Signifi cantly reducing fl aring isn’t the only area in which Caliber Midstream is working to improve the quality of life in the Bakken. Scobel said the company provides a full suite of services to its operators aimed at improving safety, reducing truck traffi c, creating better relations with landowners and minimizing environmental impact.

For example he noted that: “We’re put-ting in four or fi ve lines in a right of way. The landowner benefi ts from dealing with one company instead of four or fi ve. We can also

bring our safety program into a right of way and have a corridor where all the construc-tion is controlled by one company. It’s safer and more friendly to landowners as well.”

Caliber delivers freshwater to well sites by pipeline and transports produced water, crude and gas away from the site by pipe.

“As an industry, we’re seeing a reduction in truck traffi c as a result of being connected by pipe,” Scobel says. “We’re trying to get all the trucks off the road. It’s a lofty goal, but that’s where we’re headed.”

Besides eliminating gas fl ares, Scobel sees visible differences on well sites serviced by Caliber.

“You see a much smaller footprint, few-er tanks on location and less capital deployed by our partners,” he said. “That’s certainly a success story.”

Author: Patrick C. MillerStaff Writer, The Bakken magazinepmiller@bbiinternational.com701-738-4923