Wednesday, August 1, 2012

Hess To Spend More In The Bakken in 2012

I think I posted this story earlier -- perhaps part of another story. Regardless, for those who may have missed it, Hess will spend more in the Bakken in 2012.
Hess has adjusted the company’s capital budget for 2012 and expects to spend an extra billion dollars on the Bakken play in the last half of the year.  The company is facing higher costs on drilling and completion services and more infrastructure spending.
I don't know about you, but to me, another billion dollars by one company going into the Bakken -- "basically" five or six counties in western North Dakota, sounds like a fairly huge chunk of change. 

Due to high costs of completing wells, some operators are decreasing the number of rigs in the Bakken, but my hunch is that any decrease in activity in drilling is being offset by a) road construction, such as the truck reliever route; b) more pipelines; c) additional natural gas gathering and processing plants/pipeline; d) spending by oil service companies; e) housing; etc.

7 comments:

  1. Interesting. Appears most of the 1b$ will go to cost growth and the desire to avoid top leasing on expiring leases. Good for the basin economy but not the best position to be in for Hess and it's shareholders as this seems like a downside unplanned surprise.

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  2. http://www.journaltrib.com/?id=67&nid=1565

    New oil rigs being drilled in northwestern North Dakota are “leveling off” in number.
    “We are in a period where rigs are transitioning to pad drilling,” Director of the North Dakota Department of Mineral Resources Lynn Helms said. “The rig count has really flattened out and we don’t see a lot of growth at least in the near future.”
    Pad drilling is when multiple wells are drilled from a single site and is much more efficient than a single-drill system.

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    1. Complicating this whole rig count is the fact that some rigs are moving across the border into Montana. Just a few days ago, it was reported that Montana will set a record for new permits. The record for rigs in North Dakota in this Bakken boom is 218 rigs; recently it's been 207 or 208. Frankly, that is not particularly startling (or concerning). Combine that with pad drilling and bigger, more powerful rigs; shorter drilling times to get to total depth; less urgency to drill to hold leases, etc.,....

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  3. Looks like ONEOK Partners will be significantly expanding the capacity of its Bakken Crude Express to Cushing. ONEOK Partners also has another $2 billion in unannounced backlogs: could it announce new nat gas plants in Divide County, southern McKenzie, western Dunn, or in Montana? Nat gas processing in Mountrail and eastern Williams seem covered by Hess's plant and the new Plains Plant, while Stark/ Billings seems covered by the Whiting/MDU plant.


    http://seekingalpha.com/article/771131-oneok-s-ceo-discusses-q2-2012-results-earnings-call-transcript?page=5

    Third, an update of our plan to build the 1300 mile Bakken Crude Express Pipeline. Discussions with crude oil producers indicate they project crude oil production to increase to well over 1 million barrels per day within the next five years requiring additional crude oil takeaway capacity. At the moment, we are in advanced stages of negotiations with two large anchor shippers who represent a majority of the 200,000 barrel per day initial pipeline capacity. We are also negotiating with multiple other producers for additional capacity. We expect to have committed in the near-term well before construction all the pipeline’s capacity that’s available for commitments. Final negotiations with the anchor tenants, as well as the open season results could increase the current pipeline capacity beyond 200,000 barrels. For obvious competitive reasons we are not disclosing the proposed rates at this time. However, it will be advantageous to rail with producers able to lock in rates for longer term compared with a contract for typical rail capacity.

    We continue to develop and evaluate a lengthy backlog of natural gas and NGL related infrastructure projects, including investments in processing plants, natural gas pipelines, NGL fractionation and storage facilities. Even with the recently announced projects totalling $1 billion, this backlog still totals more than $2 billion.

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    1. Thank you for taking time to write such a great comment. I am not being facetious: I can barely contain my enthusiasm for the potential of the Bakken. It is truly incredible. I have to chuckle. Just at the very time, we hear about fewer rigs, we get this story: the wet natural gas story. Maybe I'm the only one who finds this incredible, but ONEOK alone would be a huge story compared to what was happening in Williston when I was growing up. And ONEOK is but one story. It is very, very exciting. ONEOK has really impressed me, for any number of reasons.

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  4. Bruce, back on July 22, 2012 there was an interesting Article in the Bismark Tribune:

    Lessons from a Guided Tour of the Bakken – 07/22/12 - http://bismarcktribune.com/news/columnists/clay-jenkinson/lessons-from-a-guided-tour-of-the-oil-fields/article_22dbbfc0-d0ff-11e1-829e-0019bb2963f4.html with 20 local comments that should also be read.

    Below are the final paragraphs of the articles, that IMHO astutely describe the difficult decisions confronting No. Dakota’s politicians on
    an ongoing daily basis.

    If you accept either of these two propositions—that the Bakken Oil Boom is on balance not only a good thing for North Dakota, but potentially one of the best things that ever happened in North Dakota; and that the boom is here, here to stay, huge and growing, and at this point there really isn’t anything that can be done to chasten it or slow the pace—then it is in all of our interests (from Fargo to Fairfield, Grand Forks to Grassy Butte) to find ways to manage the boom to the best of our ability, to ease the pain and strain in the impact zone in every possible way, and to invest the bulk of our current surplus in the oil zone’s aching infrastructure.

    You know the television commercial: “This is not your father’s Oldsmobile.” One thing is absolutely certain.

    This is not your grandparents’ North Dakota. Either we embrace the change or it will roll right over us.

    (Clay Jenkinson is the Theodore Roosevelt Center scholar at Dickinson State University, as well as Distinguished Scholar of the Humanities at Bismarck State College and director of the Dakota Institute Clay can be reached at Jeffysage@aol.com or through his website, Jeffersonhour.org.)

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    1. The problem is the boom/bust cycle of the oil business. In the case of the Bakken, I assume it will be ups and downs, lots of volatility, but great opportunities.

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