Update On Flaring In North Dakota -- Economic Value of Natural Gas In The Bakken: 12%?

Updates

Later, 5:00 pm CDT: as noted, my original post was in error (see update below and the first comment). Assuming the correction is accurate, that's another remarkable story line for the Bakken. As noted in the original post, the economic value of the natural gas in the Bakken, which is considered an oil play, was originally estimated to be around 3%. I believe that figure came from the NDIC monthly Director Cuts early on. If, in fact, the real economic value is closer to 12% that has to be incredibly good news to a company like Hess and/or ONEOK. It would be interesting to sort out how the original estimate was low. It cannot be due to a lowering of the estimate of the OOIP or a lowering of the price of crude oil. Both have gone up, and both have gone up significantly since the Bakken boom began in 2007 (North Dakota).

Later, 10:45 am CDT: I don't know if I will correct the post -- for various reason -- but a reader caught a huge mistake that I made -- see first comment. The value of flared natural gas represents about 4.5% of the $2.21 billion figure for crude oil. About of a third of produced natural gas is being flared, so the economic value of all produced natural gas should be about $300 million.  $300 million/$2.51 billion =  12% of economic value of boe (oil + natural gas). I added the $300 million to the denominator.
 

Original Post

The most interesting bit of trivia is at the very end of the posting.

Despite the headline, this is a good article. Nothing new for regular readers. I have absolutely no idea why folks have such continuing interest in this story. It is what it is. It's a red herring. ONEOK figured this out four years ago. Investors take note. (Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you might have read here.)

Reuters is reporting:

Flaring has tripled in the past three years, according to the report from Ceres, a nonprofit group that tracks environmental records of public companies.

"There's a lot of shareholder value going up in flames due to flaring," said Ryan Salmon, who wrote the report for Ceres. "Investors want companies to have a more aggressive reaction to flaring and disclose clear steps to fix the problem."

The amount lost to flaring pales in comparison to the $2.21 billion in crude oil production for May in North Dakota.

Still, energy companies are working to build more pipelines and processing facilities to connect many of the state's 9,000 wells - a number expected to hit 50,000 by 2030. But it is a process that takes time and is not always feasible.

"Nobody hates flaring more than the oil operator and the royalty owners," said Ron Ness of the North Dakota Petroleum Council, an industry trade group. "We all understand that the flaring is an economic waste."

The article states it but it's buried: the big story line -- the big story is this -- if $100 million/month is being flared -- $100 million/month -- $100 million/month -- and "the amount of flaring pales in comparison to the $2.21 billion in crude oil production...." wow -- that should tell one how huge the Bakken is.

Again, remember, the Bakken is not a very large geographical area. "They" keep equating "the Bakken" with "North Dakota." In fact, the Bakken is limited to about four counties: MMDW, and a few cities: Watford, Dickinson, Williston. $2.21 billion/month. $100 million/month. Hard to get my arms around those numbers. Each month.

But flaring? It's all a red herring. A McGuffin.

Oh, the most interesting bit of trivia. When I first started blogging about the Bakken in 2007, or thereabouts, I remember folks saying that the economic value of the natural gas in the Bakken was 3 percent. I remember that vividly because a) I knew nothing about the oil and gas industry, and was trying to put things into perspective; b) the Bakken is an oil play, not a natural gas play; c) I never understood why ONEOK invested a gazillion dollars on natural gas gathering and processing plants; d) I was absolutely 100% impressed with the foresight that ONEOK had -- 3% of $2 billion is not trivial (the Steve Jobs business theory); and, e) how MDU missed this in their own back yard.

So, back in 2007, the natural gas in the Bakken was said to account for 3% of the total economic value.

In the linked article, what percent does $100 million of $2.21 billion represent? 4.5%. The experts had it right. For all intents and purposes, 4.5% is not all that far from 3%. And that tells me the experts who suggest the Bakken is a trillion-barrel reservoir have that right, also. By the way, the percent of flared gas has decreased since the boom began and will continue to decrease.

4.5% being flared, but that will get better. I wish the federal government was that efficient with the revenue they collect.