American Oil and Gas Reporter - June 2014 - 140

SpecialReport: Midstream Strategies
ality, the more the production can flow to
the most profitable path.
Bakken Case Study

Take-away by trucks adds flexibility to move crude oil and other liquids from the wellhead to central delivery points, storage, or rail or pipeline terminals.

ers can choose among different downstream geographies and markets to optimize net backs.
Markets will gyrate over time-either
seasonally or with supply and demand
fluctuations-and things will go wrong at
some point in the transportation system.
Pipelines have downtime, trains get delayed, and even trucks can be hindered by
weather. The capacity and flexibility of a
midstream provider can keep wells operating, so it is crucial to dig into the details
of tankage and optionality upfront, rather
than making piecemeal decisions.
Production life cycles also figure into
flow assurance. As drilling starts in a field,
the producer is holding acreage and beginning to figure out what production volumes to ultimately expect. Consequently, it's typical at first to truck early liquids
production (it is a bit different, but similar in principle, when working with gas
and pipes). A producer needs to engage
a partner with good trucking assets to get
those barrels to whatever market is most
attractive.
As the producer starts to delineate its
acreage and flesh out the details of a
drilling plan, it makes a lot of sense to
work with a partner that will put gathering pipes in the ground to take away product on a regular basis. That pipeline
needs as much connectivity as possible:
optionality to get the product to consumer
markets.
Optimizing Net Backs
Maximizing the value of production
over time means connecting with the right

markets to achieve optimal net backs. Optionality to choose the best path to market-and the potential to change these connections over time-will produce the most
attractive pricing and cost structures for
midstream services.
Efficient midstream operations (for example, having one service provider that
can handle oil, water and gas) enable better cost structures for the producer. Finding the best downstream pricing is the
main driver for net backs.
A producer may develop downstream
relationships that involve committed deliveries to a long-term customer that
buys a fixed amount, or a more opportunistic approach of marketing commodities for the best prices available, or
a mix of both. Regardless, the producer
needs a midstream provider with the expertise to see through the whole value
chain, view downstream relationships, and
find the best paths to market.
Producers of crude oil, for example,
change downstream markets from time to
time. Smaller producers may ship to one
refinery for a substantial period, until
something happens to disrupt the relationship. Larger producers are more likely to
connect month-to-month, bidding their
barrels for the best price. That can mean
going down one pipeline one month,
crude-by-rail in another period, or even
going into storage to wait out an interruption.
From one month to the next, a producer can clear the market in different directions: East Coast, West Coast, Gulf Coast,
or end-user next door. The more option-

140 THE AMERICAN OIL & GAS REPORTER

The Bakken region exemplifies the
midstream needs of producers in a rapidly growing but remote play. Operators
there must sell their crude oil to end-users
that mostly are in distant, more populated areas of the country. With this in
mind, tremendous amounts of midstream
and transportation infrastructure and associated logistics are required to give producers in the Bakken a "connection" to the
markets of their choice.
Take, for example, one midstream
operation that comprises more than 450
miles of oil, gas and water pipelines
serving 150,000 dedicated acres in the
core of the Bakken/Three Forks play in
Dunn and McKenzie counties, N.D. The
gathering system is being expanded to
transport 125,000 barrels of oil, 100 million cubic feet of rich natural gas, and
40,000 barrels of produced water a day.
As production grows from new wells, the
gathering system will be ready to accommodate increased volumes.
The system provides efficient and
scalable transport to a large central delivery point, with fully automated truck loading facilities, crude oil storage, and multiple pipeline take-away outlets. Trucking
is a key part of midstream operations in
the Bakken. Accordingly, in addition to
pipeline gathering systems, truck takeaway capacity for both crude oil and water is expanding to serve producers strategically around key midstream assets.
From the central delivery point, the
system holds firm transport and has direct
connectivity to three third-party pipelines
and to a hub rail facility at Epping, N.D.
The rail hub provides crude-by-rail connections to distant markets, and has loading capacity of 160,000 bbl/d and 1.2 million barrels of segregated working storage. If needed, the system operator's
own unit train rail cars can be deployed
for delivering directly to refiners.
For additional take-away options, a
connector pipeline ties into a major terminal at the intersection of four major
pipelines, where prices vary among the
different end-use markets. With this net-

American Oil and Gas Reporter - June 2014

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