Coming off a 57% increase in crude oil sales in the Williston Basin in North Dakota in 1Q2014, Denver-based Kodiak Oil & Gas Corp. executives are predicting the exploration/production company will slash its flared associated gas this year.
Kodiak senior executives made the predictions early in the month on an analyst conference call reporting 1Q2014 net income of $29.1 million, or 11 cents/share, compared with $19.4 million, or 7 cents/share, for the same period last year. Sales for the quarter hit 3.1 million boe, up from 2 million boe in the first quarter of 2013.
Last year, Kodiak struggled in its wellhead gas capturing efforts, corralling approximately 55%, according to a report by Russell Branting, executive vice president for operations. The results were skewed lower than normal due to some operating considerations, including having to complete multiple wells within a small area.
Branting said that Kodiak is working with state and industry representatives to raise captured gas amounts to 75% by the end of this year. "This number will continue to increase over the next couple of years," he said. "We've already been working with our midstream providers to meet this challenge."
He cited an example of progress in one county (Dunn) in North Dakota in which midstream providers have increased both takeaway capacity and compression to allow Kodiak to begin capturing more than 80% of its produced gas, pushing flared amounts below 20%.
"This is an area where we have historically sold less than 50% of our gas production," Branting said.
In areas where pipeline gathering systems are not in place, Kodiak has instituted other measures to cut flared percentages, he said. "We have put in place NGL [natural gas liquid] recovery units to reduce flared volumes, along with placing small refrigeration units onsite to strip liquids out of gas before it is flared."
These other measures have helped reduce the volumes flared by up to 40%, said Branting, adding that the removal of the liquids significantly reduces the emissions from the flared gas. "We'll continue to look for other properties that are suitable for this recovery method," he said.
A major source of Kodiak's flaring is in the Polar area in southern Williams County, Branting said. "We've been collaborating with our midstream providers the past few quarters to bring in larger pipe and compression into the area."
There are also several areas where Kodiak is looking at replacing diesel-fired generators with natural gas-fueled generators, Branting said. The move should help reduce flaring amounts and also reduce the fuel cost of operations spent on diesel, he said.
Another challenge to reining in flaring is the variable areas within the Bakken and Three Forks plays. Things vary greatly from county to county, according to Kodiak CEO Lynn Peterson, who responded to analysts' questions by saying the company needs time to drill more wells.
"Right now what we're focused on is getting all the infrastructure built out so we can move the oil and gas by pipe," Peterson said. "As we go through the second half of this year, we will begin picking up activity, and then next year things will take off. We just need more pipe in the ground so we can move our product.
"A lot of it also goes back to completion techniques, and a lot of good work is being done in the [Williston] basin by a lot of companies. We're all moving and changing our style as the rocks change, and we are going to continue in that effort. It takes a big effort just to stay up with the changes."