Federal Commodities Regulator Believes US Oil Industry Can Wait for Prices to Improve

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One of the nation’s leading commodities market regulators said Monday he’s confident the American energy industry can remain stable through the current period of lower oil prices, despite what overseas competition believes.

Christopher Giancarlo, a commissioner on the U.S. Commodity Futures Trading Commission, discussed North Dakota’s role in world oil markets with Sen. Heidi Heitkamp and two of the state’s energy industry leaders at the Dickinson Public Safety Center before getting an oil rig tour in Dunn County.

“Some of our overseas competitors are hoping we can’t wait it out — that we can’t wait out the low prices,” Giancarlo said. “I think they’re going to be surprised when they see this type of ingenuity, preparing ourselves for the lower prices. We can wait it out.”

Giancarlo received a crash course in the state’s oil and gas industry Monday as part of a visit to the upper Midwest that also included agricultural stops in western South Dakota and northwest North Dakota.

“You can’t really understand how to assist a business with the regulatory concerns if you don’t actually understand how they make their money, how they get up in the morning and put food on the table at night,” Giancarlo said.

‘All about survival’

North Dakota Petroleum Council President Ron Ness and Justin Bethancourt, the Bakken operations and maintenance superintendent for ConocoPhillps in Dickinson, gave Giancarlo a nuts-and-bolts walkthrough of how the North Dakota oil industry came to be and how its economy has been shaped by the most recent boom of the past decade.

Giancarlo said a sluggish world economy is keeping oil prices from climbing back to levels seen when the Bakken oil play boomed. He said volatile currency prices around the globe have spilled over into commodity prices of all kinds and has forced producers to hedge their risks.

“You guys have done enormous, fantastic work in supply — both in terms of discovery and production, and then also in terms of productivity and efficiency,” Giancarlo said. “So the supply side of the equation is in really good shape. The problem is the demand side. The demand side is caught in this sort of sluggish global growth that we’re seeing across the western world, across the developing world. Part of the times we live in right now is that anxiety over that missing global growth.”

Ness and Bethancourt said an oil producer’s ability to drill more than a dozen oil wells on a single well pad, an unheard of practice of at the start of the Bakken oil boom, has helped drive profits while lowering production costs.

“I do come away proud of American ingenuity,” Giancarlo said. “The ability to first ramp up and then build this amazing infrastructure. Then, almost as a reward for their success, to see the fall in prices and then once again readjust to that is tremendous. I don’t know if any other country in the world could have done what we’ve done. But we’re a victim of our own success in some ways.”

Ness said oil companies involved in the Bakken shale play are in a better place now than they were at the beginning of 2016.

“The independents, their stock value has been decimated, their balance sheets have been decimated,” he said. “If you would have been here in January or February, we were at risk of losing two or three of our top-five producers to bankruptcy.”

Ness added later that one of the latest trends in the state’s energy market is that operators are selling interests in their drilled-but-uncompleted wells to hedge funds as a way to finance wells that haven’t been brought into production.

“At this point, it’s all about survival,” he said.

Saudi Arabia’s role 

Heitkamp and Giancarlo also delved into Saudi Arabia’s role in guiding the world oil markets. The senator said she frequently hears from North Dakotans who are quick tell her the Saudis are forcing oil prices down in an effort to push the American shale producers out of the market.

“I think the Saudis have been driving the market down. I’m not convinced the Saudis can drive the market back up,” she said. “At some point, they’re going to have more competition than what they want.”

Giancarlo and Heitkamp both said the Saudis, much like North Dakota, are creating value-added industries to help them move past this period of lower oil prices instead of relying solely on crude oil production.

Heitkamp said she also believes the Saudis have recalibrated their long-term price expectations.

“They’re looking at this as transitional,” she said. “They’re trying to figure out what the new Saudi economy is going to look like. They look at the long-term trends in supply and demand.”

Giancarlo added that the Saudis are fine with prices where they are right now “because it’s causing all this pain in the most innovative oil production area in the world, which is right here. It’s causing a lot of pain. It’s an ideal situation for them to be in. They want to maintain their distribution relationships.”

Post-Oil Boom, There’s ‘More Dope Than Ever’ in Bakken

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The Bakken oil boom may be over, but people on the front lines of fighting crime in western North Dakota say drug trafficking here is worse than ever.

The price of drugs is dropping and an influx of out-of-state gangs are intensifying the problem, a lead agent with the North Dakota Bureau of Criminal Investigation says.

“Because the oil industry has slowed down, people automatically assume the drug world has slowed down. What we’ve found out is that’s absolutely not the case,” said Rob Fontenot, a BCI agent and member of the Southwest Narcotics Task Force. “There’s more dope here now than there ever has been.”

There’s been a 75 percent drop in the price drug traffickers are getting for methamphetamine, Fontenot said. Plus, deadly fentanyl-laced heroin has spread from eastern North Dakota to the Bakken.

The plummeting price of meth because of its prevalence in western North Dakota has led to it being trafficked and sold in greater quantities. Fontenot said meth that was going for $3,300 an ounce in the height of the oil boom is now worth about $800 an ounce on the street.

“I never imagined in my law enforcement career — and I’ve been working dope for 14 years — that I would see meth for $800 an ounce,” he said.

U.S. Attorney for North Dakota Chris Myers said it’s obvious by his office’s caseload that drug cases in the Bakken aren’t slowing down.

“There’s a myth outside of our state,” Myers said. “People believe that because oil activity has slowed, that the criminal activity has stopped. That’s just not true. It definitely has not slowed down and there’s a good argument to be made that it’s continuing to increase.”

 

Gangs at the center

Dickinson Police Capt. David Wilkie said the known gang activity in the city isn’t stereotypical of what most people think it would be.

While there are gang members in Dickinson, he said — notably, the Country Boy Crips out of Bakersfield, Calif. — they’re not here in droves.

“The gang is down in (California) and they’ve got a couple guys up here that are accepting packages for when they send dope up here. These guys are using the local guys, or doing it themselves, to sell drugs,” Wilkie said. “They’re not out recruiting, they’re not taking up turf and they’re not embezzling or asking for protection money from people. But they’re definitely here.”

Fontenot said many one-percenter motorcycle gangs — the clubs who self-identify as outlaws and criminals — have a presence in western North Dakota as well.

He said the Hells Angels have an interest in the state, and the Bandidos and the Outlaws are already here. Wilkie added that the Prairie Rattlers gang has also taken up shop in western North Dakota. The Chicago-based Gangster Disciples street gang is also in the state, Fontenot said.

“They’re not out flying their colors, but they are here,” Wilkie said. “Anytime they are here, they have the potential to do gang activity or be the front for the club.”

The Country Boy Crips have had a presence in the area since the summer of 2013, according to federal court documents. Many with that gang affiliation were indicted on drug-related crimes during an Bakken Organized Crime Strike Force sweep of 29 defendants in August 2015, Myers said.

Gang-related gun crimes also consistently happen in western North Dakota, though they rarely lead to arrests.

There was a brief shootout on April 30 between multiple African-American men with alleged gang ties in a Dickinson mobile home park. The incident left a 59-year-old man, who was in his home during the shootout, injured by stray bullet. Dickinson police say while they continue to investigate and search for the suspects, they’ve made no arrests in the case and have encountered several uncooperative witnesses.

In November 2015, 30-year-old Roger Falana — who Minot police say had gang ties in Florida — was shot and killed. The murder suspect, 26-year-old Johnny Cleveland Norwood Jr., was finally arrested Friday in Las Vegas.

The most public gang-related crime in Dickinson history — the drive-by shooting murder of 37-year-old David Porter outside of Century Apartments on Nov. 16, 2014 — has still not been solved.

“A lot of times, this stuff is retaliation over a business dealing they had or a disrespect,” Wilkie said.

North Dakota Senate Majority Leader Rich Wardner, a Dickinson Republican, said he’s encouraging local law enforcement and the BCI to be transparent about incidents like these because, he said, “the community needs to know.”

“We have to work with the law enforcement to know what we can share with the public,” Wardner said.

 

Prosecuting cases

Myers, who was appointed as the U.S. Attorney for North Dakota last October, said the Bakken Organized Crime Strike Force — a collaborative law enforcement program in North Dakota and Montana between federal, state and tribal law enforcement agencies — has been successful in prosecuting drug traffickers and other crimes in western North Dakota since it was formed last June.

“We’re planning to have meetings this summer in Bismarck and revisit where we’re at, where we’re headed and what we’ve achieved,” Myers said.

In June alone, three people were sentenced in federal court for crimes involving meth trafficking in western North Dakota.

Two Dickinson men — Rocky Laurence Fowler and Laquan Andre Thomas — are in the process of being indicted by a federal grand jury after their March arrests for the possession, distribution and intent to distribute heroin containing both fentanyl and furanyl fentanyl, a designer version of the powerful opioid.

Myers said every prosecutor in his office — including himself — carries a large caseload. The U.S. attorney’s office has prosecutors in Minot, Williston and Dickinson — the Bakken’s three largest cities — as well as in Bismarck. Bakken Strike Force supervisor Rick Volk is the prosecutor in Williston and works alongside the Federal Bureau of Investigation at its office there.

Myers said while he doesn’t have concrete figures, his office has prosecuted or is currently prosecuting “many large-scale, multi-defendant drug trafficking cases.” He believes when they compile figures later this summer, they’ll see an increase in cases involving transnational organizations doing business in North Dakota.

Wilkie said Dickinson police are trying to be more proactive in thwarting drug trafficking alongside the Southwest Narcotics Task Force, but is “just trying to keep our head above water with these issues.”

Wardner said he and other legislators are hoping that despite across-the-board cuts to state agencies, the BCI can maintain its current budget.

He and other legislators met with BCI agents on Thursday to discuss funding and learn more about crimes the agency is investigating.

“They’re concerned about losing people,” Wardner said. “They are now finally in a position where they can confront this stuff. So if we can keep the BCI and local (law enforcement) — and the FBI is here now — and we can keep all those people working together, it’s going to help.”

Methamphetamine also known as crystal meth
Methamphetamine also known as crystal meth

Exec: Davis Refinery Not Affected by Dakota Prairie Refinery Sale

BELFIELD — The company trying to build an oil refinery just three miles from Theodore Roosevelt National Park in Billings County isn’t slowing down its efforts, even after the Dakota Prairie Refinery sold at a loss earlier this week.

Thomas Johnson, chief operating officer of California-based Meridian Energy Group, said Tuesday’s sale of the Dickinson diesel refinery doesn’t affect his company’s goal of building the Davis Refinery, which would process 55,000 barrels of Bakken crude a day.

“We did economic modeling, what our costs are going to be and concluded that we’re going to make some profits there in the Bakken and the Belfield area,” Johnson said.

Tesoro bought the Dakota Prairie Refinery from MDU Resources Group and Calumet Specialty Products, which broke ground on the refinery in 2013 and opened it in May 2015.

Johnson pointed to the Davis Refinery’s efforts to build a refinery that’ll produce gasoline, jet fuel and ultra-low sulfur diesel fuel as the difference between its plans and the Dakota Prairie Refinery, which processed 20,000 barrels of oil into around 8,000 barrels of diesel fuel a day, along with a set of byproducts.

MDU Resources spent $430 million on the refinery and reported that it lost $7.2 million in its first quarter of operations. The refinery’s construction was plagued by cost overruns and construction delays.

Johnson said he was involved in the building of PetroMax Refining, a 25,000-barrel-a-day refinery in Houston that opened last year, and said Meridian is using a similar business model with the Davis Refinery.

“We were successful last year, so we fully anticipate being successful this time,” Johnson said. “The key is not to get into a situation like Dakota Prairie. It’s unfortunate what happened, but it is a good lesson to learn.”

In an effort to rally community support for the Davis Refinery, Meridian is hosting a public gathering at 5 p.m. Tuesday atop Buck Hill, the highest point in Theodore Roosevelt National Park’s South Unit.

Opponents of the refinery have said it will be clearly visible from Buck Hill, and have used that as ammunition to stop it from being built.

“Basically, we want to give everybody kind of an opportunity to see that the view from Buck Hill towards the refinery,” said Adam Williams, Meridian’s director of corporate communications. “We’re going to have some surveyors out and we’ll be floating several large weather balloons at the exact height as the top of the crude tower from grade. We want to do all we can to give people an opportunity to see what the effects will be, or if there’s any visual line of sight from Buck Hill. My guess is it won’t be too visible from the naked eye.”

The Billings County Commission is scheduled to discuss the Davis Refinery for its third straight monthly meeting at 9 a.m. Wednesday. Williams said Meridian CEO Bill Prentice plans to attend the meeting, along with several other of the company’s key players.

Western North Dakota energy service leaders, legislators optimistic after oil conference

BISMARCK — As the price of oil hovered around $50 a barrel last week, many western North Dakota oilfield and energy service companies turned to the Williston Basin Petroleum Conference to try to get a feel for where their industry is headed.

Most said they now feel better about the future of their businesses, as do state legislative leaders.

“What stood out to me was really the positivity,” said Matthew R. Kostelecky, president of B. J. Kadrmas, a Dickinson oilfield service company. “I really thought we’d be coming here with a lot of doom and gloom, obviously. But after listening to a lot of these CEOs and important people in business, it really just seems like this is the time to be efficient, smart, creative, kind of weather the storm, and it’s all going to come back.”

The past two years have been the 37-year-old Kostelecky’s first oil price downturn. He took over the business midway through the boom, only to watch work slow after a couple years. He paid close attention to what Whiting CEO Jim Volker and ConocoPhillips Lower 48 President Don Hrap said when they spoke at the conference.

“The attitude is that ultimately there’s a positive outlook for the future, but I think this is a new normal,” Kostelecky said. “For my generation, this is the first time that we’ve seen this. So it’s new to us, but the industry veterans, they’ve been there, they’ve done that. It’s just like anything else. You have to get past these difficult times.”

State Sen. Kelly Armstrong, R-Dickinson, said he felt conference attendees left invigorated by Thursday speeches from Republican presidential candidate Donald Trump and former college football coach Lou Holtz.

He said Trump’s energy platform resonated with the industry folks in the building, and tied into themes he heard throughout the week.

“We need consistent, reasonable regulation that protects the environment while allowing people to do business,” said Armstrong, the NDGOP chairman and son of Dickinson oilman Mike Armstrong. “All they want is tax certainty and regulatory certainty. That’s what they want. Especially for some of these tertiary things for the oil industry.”

Along with an industry push for better regulations, innovation at the wellhead and the future of value-added petroleum byproducts and industries were focused on throughout the week.

North Dakota Senate Majority Leader Rich Wardner, a Dickinson Republican, sat through multiple sessions, listening to everything from the future of natural gas liquids to industry price predictions. He said he feels that while recovery may time some time, “things are looking up for the industry.”

“I heard this: $65 oil is the new $100 oil because they’ve now got so many efficiencies,” Wardner said. “Technology is moving forward in allowing the industry to get more oil out of the rock.”

Paul Steffes, CEO of Dickinson-based Steffes Corp., said many industry leaders anticipate gradual uptick in work. Hearing that, he’s a more enthusiastic about business prospects.

Steffes Corp. manufactures equipment used at the wellhead during the extraction process, most notably its engineered flare systems that have decreased the amount of natural gas flared throughout the Bakken.

Steffes said he spoke with several people who said their companies will need more equipment to support their drilled but uncompleted wells (DUCs) once they’re put into production.

“It certainly has a possibility that we could be spiked and be much busier than we have ever planned we were going to be, as soon as they finish these DUCs,” he said. “It is possible that we’ll be busier than we’ve ever been. That is kind of a scary thing.”

KC Homiston, the co-owner and president of Highlands Engineering in Dickinson, said he’s accepted the oil industry’s “new normal.”

The oilfield aspects of Highlands’ business have declined during the slowdown because, as a civil engineering and land surveying firm, they service companies who put up rigs. There are less than 30 rigs in North Dakota today. Throughout much of 2014, there were more than 190 rigs.

“That’s the bread and butter of what we do for them,” Homiston said. “A lot of our work is dependent on the number of rigs that were in play.”

Homiston said he thought the conference had “less buzz” and fewer people compared to the one he attended in May 2014, when the price of a barrel of oil was around $109 and there were 191 drilling rigs in the state. Still, he’s more optimistic about the industry than he has been.

“You talk to people, I think they still have a smile on their face and they think the long-term optimistic conversation is still there,” he said.

Homiston said he anticipates a slow uptick in business once DUCs starting going into production.

Referencing speeches given by from MBI Energy Services CEO Jim Arthaud and other industry leaders, Homiston said the overarching message from the conference was simple.

“Hang in there. It’s coming back.”

Whiting CEO: We believe in the Bakken

Volker says oil companies still profiting despite lower oil prices

BISMARCK — The chief executive of North Dakota’s largest oil producer said Wednesday that his company is still making big money on Bakken and Three Forks wells despite the industry’s economic downturn.

Whiting Petroleum Corp. President and CEO Jim Volker said during the second day of the Williston Basin Petroleum Conference that he foresees a gradual upturn for the state’s oil industry as crude prices steadily creep upward and more drilled but uncompleted wells are slowly brought into production.

“We’re a big believer in the Bakken, not only its future but even where we are today,” Volker said. “This is why we believe so much in the Bakken. We put our money where our mouth is here.”

Volker pointed to technological improvements for allowing production companies to operate with fewer rigs, allowing them to continue investing in the North Dakota Oil Patch — even if it’s not at the same rapid pace as years prior.

Volker said even at Wednesday’s price of about $50 a barrel — a comment that drew applause from the crowd — a Whiting well is still projected to produce a future net revenue of $27 million at a cost of about $7 million.

Whiting produced more than 4.1 million barrels of crude from nearly 1,500 active North Dakota wells in January 2016. In Stark County, the company had 131 wells that produced around 180,000 barrels.

“This is all happening with improvements in technology and improvements in the way we drill and complete,” Volker said. “Not only are we cleaner, we’re more efficient and we’re doing it for less money.”

Don Hrap, president of the Lower 48 states for ConocoPhillips, echoed that in his keynote address later in the day, as he said innovation and entrepreneurialism created out of necessity by the 2015-16 oil price downturn will make the industry “smarter, better and more efficient.”

“I think that technology innovation is what brought us this renaissance and also it’s what’s going to support us as we move forward,” Hrap said.

Hrap showed charts detailing the ups and downs of oil over the past 150 years, and said while this recent price drop is one of the most sustained in history, it could lead to more level and sustainable long-term prices.

“As we adapt and adjust, we have a tendency to provide the supply that’s needed that kind of moves us to a lower price,” he said. “That’s important to us, because it says we can’t count on $100 oil. We need an industry that’s supportive of a price that’s more moderate.”

Volker, meanwhile, wrapped up his speech with a summary of how Whiting recently paid down $500 million in debt.

Paul Steffes, CEO of Steffes Corp., a Dickinson manufacturing firm heavily invested in the production side of the oil business, said hearing that “certainly makes me feel good.”

“They’re a major player in the Bakken, so it’s an important piece for North Dakota to see Whiting be healthy,” Steffes said.

Lynn Helms, director of the state Department of Mineral Resources, said Volker’s optimism about pushing forward with a slow ramp-up is “consistent with what all the other operators are saying.”

Volker pointed out Whiting’s obligation to continue drilling wells, especially those on federal and tribal land, or risk losing their leases. Helms said those comments prove that rigs will continue to operate in the state, even if there’s only around 30. North Dakota had 28 drilling rigs as of Tuesday.

“I think that’s going to help the state to stay in this 30-rig paradigm that we’re in, because those drilling obligations are really expensive to walk away from,” Helms said.

Keystone XL denial affected Dakota Access Pipeline strategy, executive says

BISMARCK — The denial of the Keystone XL pipeline affected how the company building the Dakota Access Pipeline executed its strategy, one of its engineering executives said Tuesday at the Williston Basin Petroleum Conference.

Joey Mahmoud, the senior vice president of engineering for Energy Transfer Partners, said the $3.78 billion pipeline project now in the early stages of being built emphasized using labor unions and avoiding federal lands as the company watched Keystone XL fail to get built.

Mahmoud said 96 percent of the 1,168-mile, 450,000-barrel-a-day crude oil pipeline’s route from Stanley, N.D., to Patoka, Ill., is set and the project should be completed by the end of 2016. However, about 50 miles of the pipeline’s proposed route in Iowa are still awaiting approval and the U.S. Army Corps of Engineers still needs to approve river crossings.

“Developing a project of this magnitude in this economy, under this administration, has been very difficult,” Mahmoud said.

Continue reading “Keystone XL denial affected Dakota Access Pipeline strategy, executive says”

In lean times for oil industry, salespeople bear down

Joe Zayden, the Bakken region operations manager for Flow Data, had a booth Thursday, April 15, 2016, at the Bakken Oil Product & Service Show at the West River Ice Center in Dickinson. He said his company is weathering the slowdown by “basically just trying to maintain what we have.” Dustin Monke / Forum News Service
Joe Zayden, the Bakken region operations manager for Flow Data, had a booth Thursday, April 15, 2016, at the Bakken Oil Product & Service Show at the West River Ice Center in Dickinson. He said his company is weathering the slowdown by “basically just trying to maintain what we have.” Dustin Monke / Forum News Service

Charnel Zetsch came to Dickinson State University on a softball scholarship seven years ago.

She arrived in the early days of the oil boom and eventually found herself working in the energy industry.

Today, she’s a district sales manager for Magid Glove & Safety and is among several industry salespeople who are asking questions like this: “Why are you paying for a $10 glove when you could be buying a $2 glove?”

After all, with oil prices hovering around $40 a barrel at best, these truly are lean times in the North Dakota energy industry.

That point was drilled home at the Bakken Oil Product & Service Show this week in Dickinson. The trade show drew far fewer exhibitors than it did last year and, aside from some peak traffic moments, was considerably slower — just like the western North Dakota oil and gas industry.

Zetsch, who didn’t have an exhibit at the show, spent much of Thursday walking the West River Ice Center interacting with other oilfield industry salespeople to get a sense of how their businesses are doing.

“It’s tough right now,” she said. “We’re all kind of feeling this pressure. I think what most people are doing right now is really just ramping up and going back and looking at standard operational procedures. Whether it be inventory or the service side of things, they’re really trying to figure out where they were shorthanded and where they were super heavy-handed and try to balance the two.”

Tim Liston, who works in business development for Industrial Measurement and Control, said his company is looking at alternative ways to increase business. He said he made some good leads at the show and his booth drew attention because his company showed off its customized lease automatic custody transfer unit — a device that accurately measures oil.

As expected, Liston said business on the oil and gas production side has dropped off considerably. However, he said midstream companies — those who work with pipelines, refining or trucking — “are still spending money.”

“We’re looking for companies who still have project money available and they’re still going ahead with projects,” Liston said. “… That’s where I’m spending my time.”

The same was true for Winters Instruments sales representative Peter Chronis, who stood behind a table stocked with pressure gauges of all sizes and tried to make some connections.

The company, which has nine offices around the world, sells pressure instruments on every end of the oil production process. But, because the production is slower than a year ago, Chronis said he’s taking the opportunity to “lock in” to current customers who are still spending money, just not as much as they did during the boom years.

“It’s a double-edged sword, depending on which side of the market share pendulum you’re covering,” he said.

Joe Zayden spent two days at the trade show and called it “the slowest one I’ve been to in a couple years now.”

Zayden is the Bakken region operations manager for Flow Data, a Colorado-based company that manufactures and engineers products for wellhead automation. Though oil production in North Dakota hasn’t dropped off much in spite of the drilling drawback, Zayden said his company is weathering the slowdown by “basically just trying to maintain what we have.”

Zayden said his company is positioned well enough to pick up business from smaller wellhead service companies that are folding in the wake of the drop in oil prices.

And like most of the oil industry workers at the show, he remained confident that business will eventually pick up.

“We ain’t going anywhere,” Zayden said. “We’re not shutting down. We’re staying here.”