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Proposed Bakken Gas Pipe Project Lacks Shippers, MDU Exec Says

An open season earlier this year has failed to generate enough interest to move forward with a major natural gas pipeline project from the Bakken to an interconnection in northwest Minnesota, an executive with a unit of Bismarck, ND-based MDU Resources Group told an analysts' day meeting Wednesday in Las Vegas, NV.

The sobering report on the $650 million, 24-inch diameter Dakota Pipeline proposal came in the midst of another MDU senior executive warning that third quarter results could be impacted negatively by some production problems with new oil wells in Paradox Basin where another MDU unit has a sizable stake.

Steve Bietz, CEO at MDU's pipeline/storage unit, WBI Holdings, said that North Dakota's Bakken/Three Forks shale plays continue to be "a big driver of some of the things that we're looking at and planning," and eventually he sees the Dakota Pipeline coming to fruition, connecting plentiful Bakken Shale supplies to markets in the Great Lakes (see Shale Daily, Jan. 31). Planning for the 375-mile pipeline continues, Bietz said.

In the presentation to financial analysts, Bietz used MDU's rough estimates of natural gas production growth in the range of 2.7-3.9 Bcf/d by 2025, and oil climbing to the range of 1.75-2.75 million b/d by that same year. (Most recent production statistics in North Dakota showed gas production at 1.29 Bcf/d and oil at 1.1 million b/d.)

"For every barrel of oil produced in the Bakken, there are about 1.1 Mcf of gas produced so you are going to see the need for gas processing and gathering continue to grow," said Bietz, noting that is the basis for his thinking that the new gas pipeline spanning North Dakota will eventually get built.

"It can provide much more diversity for Bakken producers because currently much of the gas is going down to the Chicago market or being consumed locally."

Anticipating the question, Bietz said that today WBI has not secured "the required capacity commitments that we need to move forward with the project." He emphasized that the MDU unit is seeking 10-year commitments, and many producers and/or end-users are uncomfortable with that long a commitment.

"I can say, however, that there continues to be a lot of interest in this project; we've talked to a lot of prospective parties both upstream and downstream, and all of them said the project makes sense from both an economic and a security perspective."

In response to analysts' questions, Bietz said WBI needs the 10-year shipper commitments to finance the $650 million project, and it has determined to build the project on a stand-alone basis. In response to another question, however, he indicated that the company would consider taking a partner.

"I can tell you that we continue to have meaningful conversations [with prospective shippers] about the project since the open season closed [May 30]," Bietz said. The targeted in-service date for pipeline was originally set as Nov. 1, 2017.

Regarding the Paradox Basin (see Shale Daily, Feb. 4), and MDU's financial announcement on Monday that it was revising earnings estimates for 2014 downward because of "challenges" in its drilling program there, Kent Wells, CEO of MDU's oil/gas exploration/production (E&P) unit, Fidelity E&P, told analysts what his company was doing an analysis aimed to turn things around in the 140,000 acres Fidelity holds in the Paradox in southwest Colorado and southeast Utah.

Noting that Fidelity is focused on  the Cane Creek area of the Paradox, Wells said the company feels it has the acreage it needs, plus an option for an additional 20,000 acres, but it is a matter of completing an analysis of three nonproductive wells it recently completed to determine if they need to be stimulated through hydraulic fracturing (fracking) or another means, or whether the wells were damaged in the way they were drilled.

"I would say the results from the wells were disappointing, and we realize we have to change our completion design to make those wells economical," Wells said. "We've been very fortunate [in this basin], we have never had to frack a well, which is kind of rare in today's world. We have been able to use our natural completions, and get very good wells, but in the future I think we will need to make a shift to stimulate the wells to get the production we're looking for.

"Whether that is fracking or some other technique, we don't know yet. We've been working on this for quite a while."

Wells also noted that Fidelity has been having trouble keeping production up on some of its high-producing Paradox wells, and thus, he previewed the fact that 3Q2014 production will be "weak." Oil wells that were delivering 600-800 b/d are now down in the 300-500 b/d range, he said/

"You can't lose that kind production from big wells, and some of our Bakken wells were slightly delayed, so we're going to have a weak third quarter, and we'll have the specific numbers in November on our 3Q2014 earnings conference call."

The issues and challenges Fidelity faces in the Paradox are what Wells called "short-term," while long term the area holds "tremendous potential."

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