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.

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.

Target Logistics to temporarily close Dunn County crew camp

MANNING — Target Logistics is temporarily closing its massive crew camp in southern Dunn County, the company said Wednesday.

Citing dwindling capacity and low oil prices, the company says plans to close the nearly 600-bed crew camp 8 miles north of Dickinson and reopen in late spring or early summer.

“The capacity is down, somewhat due to the oil situation and somewhat due to the weather,” said Randy Pruett with Pierpont Communications, which provides media relations for Target Logistics. “This is not uncommon throughout the crew camp industry.”

Pruett said he didn’t know exactly when the camp was closing, but said those staying there were being relocated to other Target Logistics properties in North Dakota.

The news was announced earlier in the day at the Dunn County Commission meeting.

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Past year proof of life’s uncertainties

The only thing certain in this life is uncertainty.

Never was that more true than in southwest North Dakota in 2015.

We came into the year nervous about the state of the energy industry here as oil prices steadily dropped.

The commodity that had sparked so much growth, development and excitement in our little corner of the world all of a sudden wasn’t having such a great impact. Instead, everything seemed to hit pause, and oil companies began shuttering operations, taking down rigs and cutting workers by the dozen.

We now go into 2016 knowing it’s unlikely that the oil industry will soon return to the boom times that sparked and sustained our growth.

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Year of change in Oil Patch: City leaders move forward after unexpected crude price declines in 2015

An oil well pumps on the outskirts of northwest Watford City on Oct. 14. Despite the decline in oil prices, a hectic way of life continues in many Oil Patch cities, though some city leaders say 2015 brought many changes
An oil well pumps on the outskirts of northwest Watford City on Oct. 14. Despite the decline in oil prices, a hectic way of life continues in many Oil Patch cities, though some city leaders say 2015 brought many changes

Leaders in western North Dakota’s Oil Patch cities say life didn’t change as abruptly as many expected it to in 2015 as crude prices bottomed out, oil rigs disappeared from the landscape, and oilfield workers packed up and left the area in droves.

As traffic slowed, crew camps closed and apartments emptied, Williston, Dickinson and Watford City continued to build infrastructure and work on long-term projects while keeping a close eye on the industry for even the slightest changes.

“As a city, we haven’t had a chance to take a breath yet,” Williston Mayor Howard Klug said. “We had $100 million worth of projects going on. We’re finally getting them all buttoned up.”

In McKenzie County, which produces more oil than any county in the state, Watford City Mayor Brent Sanford said “it’s really business as usual.” But, he said, challenges are neverending, despite the creation of what city and county leaders believe is a long-term industry through both oil and natural gas production jobs.

“People are still busy,” he said. “There’s not a lot of job loss in Watford City, comparatively, and there are still job openings. There are still employers who are still trying to figure out plans for hiring the right amount of employees and the right employees.”

Dickinson, meanwhile, has fallen back on its manufacturing industry to soften the blow of massive oilfield job loss after what City Administrator Shawn Kessel said after the city experienced multiple years of 10 percent growth.

“I think people really have to look the whole thing in perspective. … That stuff is really not sustainable in the long term,” he said. “What the downturn has done has allowed our manufacturers to take advantage of the economy. They had a hard time expanding because of such a low unemployment rate. They couldn’t find employees. Now they can. Rather than having expansions happen in other communities, they can now look at Dickinson again. I think that’s great. I’m really glad to see that. It further diversifies our economy. It makes us more resilient in managing the back side of the boom.”

Continue reading “Year of change in Oil Patch: City leaders move forward after unexpected crude price declines in 2015”