The Bakken/Three Forks shale play is massive, covering areas of the Williston Basin in the northeastern parts of Montana, northwestern North Dakota and extending across the Canadian border into neighboring Saskatchewan. During the past 50 years, the Williston Basin has produced over 100 million barrels (bbl.) of oil from Montana and North Dakota.

Early oil production from the Antelope field of North Dakota, using vertical wells and sand fractionation, allowed the industry to produce over 11 million bbl. and 20 billion cubic feet (Bcf) of natural gas from the Bakken/Three Forks interval.

The Bad Lands at Theodore Roosevelt National Park in North Dakota grace one of the union’s most recent states to ramp up oil production.

Due to the remoteness of the area, the output of the initial wells and the then-existing oil price, development was slow in the area in the 1970s. In the late 1980s, the first horizontal well was drilled in the area and targeted the upper Bakken shale. This created a modest burst of activity, but product prices and some technical issues that still hampered regional growth in the 1990s. The play boomed in 2000 when, using the right combination of fractionation techniques and targeting the Middle Bakken interval, a horizontal well in Montana’s Elm Coulee field provided impressive results.

Soon, operators in North Dakota followed suit by targeting the Middle Bakken as well. In 2006, EOG Resources Inc. is credited with the discovery of the Bakken “sweet spot” via its well in North Dakota’s Parshall field. Other operators have since extended the play during the past few years. One of the “oilier” shale plays and with significant potential, oil production from the overall Williston Basin region – which includes conventional supplies - has grown rapidly, exceeding 450,000 bbl. per day as of year-end, 2010. Major operators have aggressive resource development plans and expect to continue those plans.

Major acreage holders and developers include Continental Resources Inc., Denbury Resources Inc., EOG, Hess Corp., Marathon Oil Corp., Newfield Exploration Co., Oasis Petroleum Inc., Rosetta Resources Inc., Samson Oil & Gas Ltd., SM Energy Co., Whiting Petroleum Corp., and ExxonMobil Corp.’s XTO.

Growth to date has been disciplined and is awaiting significant additional infrastructure. Natural gas associated with the oil production is high in hydrocarbon content, so operators need solutions to facilitate processing of associated gas and delivery of natural gas liquids (NGLs) to markets.

Some of the rich gas is destined to enter the Alliance Pipeline Ltd. system and will be processed downstream in Illinois. The residue gas associated with other gas now processed in the Bakken area could require access to capacity on the Williston Basin Interstate Pipeline system or the Northern Border Pipeline. However, a significant amount of gas is being flared while operators wait for commercial options.

More developments seek to integrate into existing infrastructure, but it is nearing full capacity. Producers are seeking additional exit capabilities and new markets for their various products.

Crude and condensate pipelines

Midstream infrastructure growth supporting Bakken shale development has focused heavily on crude-oil logistics efforts. Trucking provides significant gathering support and existing crude-pipeline operators are proposing expansions. Also, rail facilities will enter the overall logistics mix in a big way.

For much of the Williston Basin region, crude has been gathered by pipe or truck and has been aggregated at pipeline origins for delivery downstream. Kinder Morgan Inc.’s Platte Pipeline was a 1952-built system that originally traversed from Casper, Wyoming, to refineries in Wood River, Illinois. It was later integrated with the Express Pipeline system that transports a variety of Canadian crude oil grades from Hardisty in Alberta, Canada, to Casper for shipment to Wood River via Platte or to local refinery markets in Montana and Colorado.

Crude oil capacity out of the Williston Basin is presently provided by two major interstate systems. The first, and the larger of the two, is Enbridge’s North Dakota System, a 330-mile gathering and 620-mile transportation system that moves some 161,500 bbl. per day of oil from wells in 22 oil fields in North Dakota and Montana. The pipeline runs to northern Minnesota, where it connects with key downstream pipelines with access to Midwest refineries in Minneapolis and Chicago. The Enbridge system functions as a regional export pipeline, with all volumes finding access in markets outside the region.

The second is the True Cos.-owned Belle Fourche and Butte Pipeline system that runs southwest from near Baker, Montana, to Guernsey, Wyoming. The system moves about 120,000 bbl. per day out of the Williston Basin. A number of small gathering pipelines in northeastern Montana and western North Dakota gather oil into Baker.

In its proposed Baker 300 project, True Cos. will expand its gathering systems by 80,000 to 200,000 bbl. per day into and out of Baker. The Belle Fourche/Butte systems route volumes south to Guernsey, where additional export capacity to the Midwest can be accessed. Alternatively, quantities can be routed to refineries in the Williston and Rocky Mountain region.

Elsewhere, Tesoro Corp. owns and operates a 700-mile intrastate gathering and transportation system that carries production to the company’s 60,000 bbl. per day refinery in nearby Mandan, North Dakota. Tesoro has indicated that it will increase the capacity of the Mandan refinery by 10,000 bbl. per day by mid-2012 and will seek additional Bakken supplies.

To supply additional gathering and connection capacity to the existing Tesoro oil pipeline system and to Baker, True Cos. plans to further extend its North Dakota oil pipeline gathering capabilities. Shippers will transport oil via a new Four Bears Pipeline, a 12-inch diameter line that will connect to the company’s Skunk Hill Junction and Fryburg Station, which is the origin of Bridger’s Little Missouri Pipeline. The integration of these systems will provide an initial capacity of 40,000 bbl. per day incremental delivery to Baker, and will interface with Butte Pipeline and Belle Fourche Pipelines proposed expansions.

Other crude oil gathering systems in the area include facilities owned by Plains Pipeline LP, which was purchased from Nexen. These facilities include a gathering system that handles some 55,000 bbl. per day and a pipeline from the area to Stanley, North Dakota, that flows about 20,000 bbl. per day.

Going forward, Enbridge Energy Partners LP plans several North Dakota pipeline capacity projects to grow its regional take-away capability. The midstream operator’s recently-completed Phase 6 upgrade project added 51,000 bbl. per day of much-needed exit capacity to the region. Building upon that is its completed Portal Reversal project with another 25,000 bbl. per day. Continuing to respond to need, Enbridge has proposed additional projects which would provide up to an additional 120,000 bbl. per day of transportation to be in service by January 2013.

Other future projects include Enbridge’s Alexander-to-Beaver-Lodge pipeline loop, its Berthold, North Dakota, truck-facility expansion and various other system optimizations projects. If required and supported by customer commitments, Enbridge has also indicated it could expand its storage capacity and terminal facilities at Cromer, Manitoba, in Canada.

Meanwhile, Plains All-American Pipeline’s proposed Bakken North pipeline project consists of a 100-mile, 12-inch pipeline from Trenton, North Dakota, northward to the Montana-Saskatchewan border, to link to the existing Wascana crude oil pipeline. The 75,000 bbl. per day Wascana pipeline would be reversed to flow up to 50,000 bbl. per day of Bakken crude northward to markets near Regina, Saskatchewan. This project would provide delivery to local facilities there and could potentially connect to TransCanada’s Keystone Pipeline and the Enbridge mainlines. If commitments are sufficient, it would be in service by late 2012.

In conjunction with its proposed Keystone XL, TransCanada Corp. signed contracts to ship from Montana and North Dakota. The Keystone XL project is proposing to transport heavy crude from Alberta oil-sands production to Oklahoma and Texas refineries. If both are implemented, the $140-million, five-mile-long Bakken Marketlink pipeline could route some 65,000 bbl. per day of Bakken crude oil from Baker and connect to Keystone XL to provide 100,000 barrels per day of incremental Bakken capacity toward the trading hub at Cushing, Oklahoma, or further south to refineries on the US Gulf Coast.

Railroads

Using individual rail cars or 100-car unit trains, rail facilities offer Bakken developers a take-away option that bypasses bottlenecks at Cushing and provides direct delivery options to distant refineries.

EOG Resources has developed a rail terminal at Stanley that began service in late 2009. It can load up to 65,000 bbl. per day of oil onto rail cars. Utilizing unit trains and a transportation arrangement with Burlington Northern Santa Fe Railway and the Central Stillwater Railroad, the railroads move EOG crude from Stanley to a second EOG rail terminal facility at Stroud, Oklahoma. Once unloaded there, the oil is briefly stored and then moved via an EOG-owned 17-mile pipeline to Cushing.

Going forward, Enbridge North Dakota Pipeline wants to install new pipe and storage tanks at its loading terminal near Berthold that will be used to load oil into railroad tankers. It plans to buy or lease 320 acres of land for the project. This would provide additional flexibility to the Enbridge pipeline system.

Also, Hess plans a rail terminal and loadout facility at Tioga, North Dakota, that would be capable of shipping 120,000 bbl. per day of crude on two unit trains per day. The facility is planned to come online in late 2012.

Relative newcomer, Rangeland Energy LLC, plans a third-party crude oil loading terminal, or COLT, for railway loadout and storage, and a COLT Connector pipeline, to provide rail logistics services and exit pipeline connections for Bakken crude. For more on this project, see “Riding the Bakken Rails” in this issue.

In addition to these facilities, other smaller rail facilities in North Dakota provide an estimated combined capacity of 40,000 to 50,000 bbl. per day.

Downstream markets

On the downstream end, new and expanded facilities are in the works to deliver Bakken oil to refineries. Watco Cos., in conjunction with Kinder Morgan Energy Partners LP, is proposing to implement rail loadout and support facilities at a number of locations. Specifically, a Stroud, Oklahoma, facility would handle unit trains’ crude volumes and would provide customers direct access to the Cushing trading hub. This capability is proposed for late 2011.

Supporting the increase in upstream rail services, NuStar Energy LP’s St. James, Louisiana, train terminal recently unloaded its first rail-car shipments of Bakken crude. The company invested $2 million in its St. James facility so it can accept oil by rail in an effort to bring new sources of crude oil into the area. Through its manifest-rail expansion, NuStar will have the ability to bring in 10,000 bbl. per day of Bakken production.

Meanwhile, U.S. Development Group LLC (USDG) began construction on its own new St. James, Louisiana, rail terminal, which is an oil and condensate train-handling and distribution hub in Louisiana. USDG’s St. James facility is under development in partnership with Plains All-American Pipeline LP. The facility, with an initial capacity of 65,000 bbl. per day, will include several miles of rail track and a fully automated 26-spot rail rack for operation by year-end 2010.

Elsewhere, Savage Cos. and Kansas City Southern Railway Co. (KCS) have entered into a joint development agreement to construct, own and operate a large multi-user rail terminal in Port Arthur, Texas, on property owned by KCS. The Port Arthur Crude Terminal, or PACT, will be designed to bring unit trains carrying Bakken oil and supplies from other regions to the Texas Gulf Coast.

Gas processing and NGL pipelines

The processing of NGLs is an economic benefit to producers and is usually a requirement for the gas to be piped. In the Bakken, the exception is the Alliance Pipeline, which routes rich-gas from Canada, crosses through the Bakken region to pick up more there, and takes it to market.

However, to handle more rich gas, a number of natural gas processing plants and some associated NGL pipelines are being built to avoid the flaring of the increased production volumes. In fact, more than 25% of the gas in the region associated with new Bakken developments (since March 2011) is currently being flared awaiting future infrastructure solutions.

EOG Resources, via its 12-inch-diameter, 76-mile Prairie Rose lateral, was the first major Bakken operator to connect to the Alliance Pipeline system. Recently, Sable NGL LLC – the operator of the downstream Aux Sable Channahon, Illinois, processing plant, announced that it would purchase and operate the existing Bakken-area midstream infrastructure constructed by EOG. The facilities include the Stanley condensate recovery plant and the Prairie Rose Pipeline. This investment by Sable NGL LLC is indicative of their interest in securing EOG volumes and NGLs. The estimated capacity of the Prairie Rose pipeline is greater than 100 million cubic feet (MMcf) per day. The EOG pipeline had previously begun deliveries into Alliance Pipeline in the second quarter of 2010. For more on Alliance’s plans, see the cover story in this issue.

Also, Hess operates a 100 MMcf per day gas plant at Tioga, North Dakota, where Hess is also building a large rail-loading facility for service in late 2012. Hess has indicated plans to expand its Tioga gas plant to accommodate volumes up to 250 MMcf per day. With the Alliance lateral, total capacity in the Tioga area will be 370 MMcf per day.

Another key Bakken operator, OneOk Partners LP, focuses its Bear Paw Energy LLC subsidiary on gas gathering, processing and NGL management in North Dakota. In the Bakken, Bear Paw is implementing major gas gathering and three gas processing facilities. Its Garden Creek plant will process 100 MMcf per day by late 2011. Stateline I gas plant in Williams County will process another 100 MMcf per day by early 2013. And Stateline II will process still another 100 MMcf per day by mid-2013. Initially, NGLs from the plants will be delivered by pipeline to Bear Paw’s Riverview rail-loading facility, until OneOk’s proposed Bakken NGL pipeline lateral is available.

The disposition of historical NGL products extracted in the region has been truck transportation, rail, or local regional consumption. Some quantities of butane can be used in the region at the Mandan refinery for gasoline blending, and an liquefied petroleum gsa market exists in the winter months for heating fuel. However, most NGLs extracted at the various processing plants in the region have generally been transported by truck or rail to markets outside the region.

This limited ability to manage regional plant y-grade output and limited area fractionation facilities for creation of NGL products has led to area operators to seek the connections to the Alliance system. Similarly, OneOk will connect the NGL y-grade outputs of its new plants to a new 615-mile NGL pipeline (Bakken NGL Lateral). This y-grade output will route southward and connect to OneOk/William Cos.’ existing Overland Pass NGL pipeline. Overland Pass, which might be expanded to accommodate these incremental y-grade volumes, would then route the y-grade to the NGL regional hub at Conway, Kansas for local or downstream fractionation and NGL product disposition. The scope of OneOk’s project would include a 60,000 bbl. per day expansion of OneOk’s fractionation facilities at Conway to handle the additional product barrels.

With Sable NGL LLC purchase, volumes will be processed in Illinois. Not included in total

Gas transmission and gathering

Williston Basin Interstate Pipeline Co., the wholly owned gas transmission pipeline subsidiary of MDU Resources Group Inc., plans to expand its existing gas pipeline capacity by 33% in the Bakken in northwestern North Dakota. The expansion will add up to 30 MMcf per day to existing volumes of 90 MMcf per day, which are delivered to Northern Border Pipeline. The targeted service date is November 2011.

OneOk’s Bear Paw Energy LLC has possibly the largest gas gathering system in the Williston Basin, with 3,700 miles of existing gas gathering facilities and four gas processing plants already active in the region. Bear Paw is expected to continue to add to or enhance these facilities in conjunction with its three new gas processing plants in the area.

Elsewhere, Bear Tracker Energy LLC is constructing a natural gas gathering system in Burke and Mountrail counties and will deliver the gathered volumes to Stanley for further handling by late this year.

With several existing gas processing plants and proposed additions in the Watford City area of McKenzie County, new connections to Northern Border Pipeline are expected to provide access to downstream gas markets. This will reduce the amount of gas being flared in the region and return that lost value to the Bakken producers.

Overall, major infrastructure additions in the Bakken region have focused heavily to the oil-side. A layer of gas processing plant additions is following next and will ultimately allow regional parties to capture added value from NGLs. Apparently lacking, though, is a focus on completing natural gas export pipeline projects to increase the ability to route dry gas from the region, meaning that some volumes of natural gas will continue to be flared in the region for quite some time.