Continental Resources said that it plans to ship 65% of its Bakken oil production by rail in November.

Continental’s Bakken production was 62,453 barrels of oil equivalent per day (boe/d) for the third quarter of 2012, an 81% increase over the third quarter of 2011 and 17% higher than the second quarter of 2012.

Continental is the No. 1 leaseholder in the Bakken, with almost 1 million net acres. The company currently has 19 operated drilling rigs in the Bakken, including 15 operated rigs in North Dakota and four in Montana.

The company posted record production of 102,964 boe/d in the third quarter, 55% above production for the corresponding quarter in 2011 and 9% above second quarter 2012 production. September 2012 production was 105,874 boe/d.

“We’ve recently seen a significant improvement in Bakken oil price differentials, reflecting higher volumes being shipped by rail to the coasts and the anticipation of increased pipeline capacity,” said Rick Bott, president and chief operating officer.

“In mid-October, Continental was railing 21,000 b/d of operated production to the West Coast, a similar volume by rail to the Gulf coast, and 8,000 b/d to the East Coast,” he added.

This rail delivery volumes are for both Bakken and South Oklahoma output. Continental now has excess transportation capacity in both pipe and rail, and, with additional infrastructure projects in the planning and construction stages, capacity should remain ahead of Bakken production growth, Bott said.

The company’s primary focus is identifying the highest-value opportunities to market its oil to the refinery end-customer.

Third-quarter production and EBITDAX growth was driven by continued production increases in the Bakken play and the South Central Oklahoma Oil Province (SCOOP), the oil- and condensate-rich resource play unveiled at Continental’s 2012 Investors Day on Oct. 9.

Bakken production increased 81% compared with the third quarter of 2011, while SCOOP production was 327% higher than the third quarter last year.

On Oct. 8, Continental unveiled a new five-year growth plan to triple production and proved reserves by year-end 2017.

According to its strategic growth plan, Continental plans to generate average production of 300,000 boe/d in 2017. Seventy percent of the company’s third quarter 2012 production was oil, with the balance being natural gas and natural gas liquids. “We expect to achieve 2012 production growth guidance of 57% to 59%,” said Harold Hamm, chairman and chief executive officer. “Other positive trends we expect to continue are reduced drilling and completion cycle times and low production costs,” he said. Continental expects 30% to 35% production growth next year, the first year in its new five-year plan aimed at tripling production and proved reserves.

Continental reported net income of $44.1 million, or $0.24 per diluted share, for the third quarter of 2012. Adjusted earnings were $0.87 per diluted share for the quarter, excluding the combined effects of an unrealized loss on derivatives, property impairment charges and relocation expenses.

After-tax adjustments that reduced net income included a net non-cash unrealized loss on derivatives of $97.1 million, property impairment charges of $16.9 million, and $1.4 million in costs related to the company’s headquarters relocation to Oklahoma City.

For the third quarter of 2011, the company reported net income of $439.1 million, or $2.44 per diluted share. Last year’s third quarter net income, on an after-tax basis, was increased by a $332.5 million net non-cash unrealized gain on mark-to-market derivative instruments and reduced by a net charge of $16.3 million for property impairments.

Adjusted earnings for the third quarter of 2011 were $0.69 per diluted share, excluding the unrealized gain on derivatives and the property impairments.

Consequently, third quarter 2012 adjusted net income of $0.87 per share was  26% above adjusted net income for the third quarter of 2011 and a similar increase over adjusted net income for the second quarter of 2012.

–Edgar Ang, eang@opisnet.com  |  www.opisnet.com

Rangeland Energy LLC said that it has entered into a definitive agreement to sell the company to Inergy Midstream LP for $425 million. Rangeland is the owner and operator of the COLT system, the largest open-access crude oil distribution hub in North Dakota.

This could represent Inergy Midstream’s first move into the lucrative crude logistics business segment. Inergy is primarily involved in natural gas liquids and natural gas storage and transportation, according to the company’s website.

The COLT system includes a large crude oil rail loading terminal in Williams County, N.D., and related storage and pipeline assets. The transaction is expected to close in early December.

Founded in 2009, Rangeland is a midstream energy company led by a management team and backed by private equity commitments from EnCap Flatrock Midstream of  San Antonio. Rangeland’s management team will retain the company name and continue to pursue midstream development opportunities across North America.

The COLT system is located in the heart of the Bakken and Three Forks shale oil producing region. The system’s components include the COLT Hub, the COLT Connector and the Dry Fork Terminal.  The COLT Hub serves as a point of liquidity for the distribution of Bakken crude oil throughout North American markets by providing customers with crude oil storage and connectivity to BNSF Railway Company and various inbound and outbound pipeline systems.

The terminal was placed in service in early May 2012. The COLT Hub serves crude oil refiners, marketers and producers and has contracted aggregate volume commitments of approximately 150,000 b/d of crude.

The COLT Connector is a 21-mile bidirectional pipeline that connects the COLT Hub to the Enbridge and Tesoro pipelines at Rangeland’s terminal at Dry Fork near the Beaver Lodge/Ramberg junction, the Banner gathering system and a planned connection to the Bear Tracker Energy gathering system.

Construction of the COLT Hub began in May 2011. With six 120,000-bbl storage tanks and two 8,700-foot rail loops, the COLT Hub accommodates large 120-car unit trains.

Under terms of the agreement, all of the Rangeland employees working in North Dakota will be invited to work for Inergy.

–Edgar Ang, eang@opisnet.com  |  www.opisnet.com

TransCanada Corp. remains confident that the amended plans for the northern portion of its Keystone XL oil pipeline project will obtain the approvals it needs from both Nebraska and the White House, the company said Wednesday.

The public comment phase of Nebraska’s consideration of the pipeline re-routing that avoids an environmentally sensitive region will conclude soon and the Canadian pipeline company expects it will be able to complete its reapplication for a Presidential Permit later by the end of the year.

“The outcome of the U.S. election doesn’t change our opinion that Keystone XL will be approved” and built by the end of 2014 or early 2015, said Alex Pourbaix, president of Energy and Oil Pipelines at an Investor Day event in Toronto. It was just about a year ago that the U.S. State Department delayed a decision on the project and then, in January, President Obama rejected the permit application.

The project has encountered significant opposition from environmentalists, politicians and others concerned that the carbon emissions of oilsands crude production and consumption would worsen global warming and that the pipeline put a major aquifer at risk of contamination from an oil spill.

Pourbaix’s comments came before Obama, in his first press conference since winning reelection, spoke of the need to address climate change. “I am a firm believer that climate change is real and impacted by human behavior and carbon emissions,” he said. “I think we have an obligation to do something about it.”

Obama went on to say he wasn’t aware of what Democrats or Republicans were prepared to do, but that taking on climate change in a serious way “would involve some tough political choices.”

For TransCanada, the need for the full Keystone pipeline system (stretching from Hardisty, Alberta to Houston and Port Arthur, Texas) grows stronger the longer it is delayed. At 1.4 million b/d and capable of exporting one third of all projected Canadian oil production, the completed Keystone system will provide crude oil delivery volume that can’t be matched by rail or truck, Pourbaix said.

In the last year, shippers previously committed to long-term contracts on Keystone XL have remained so and enough volume has been added to make the line fully committed for 20 years, said Russ Girling, TransCanada’s president and CEO. Nervousness about long-term commitments has given way to worries that oil production will outstrip takeaway capacity which, even with Keystone XL in place could occur by 2017.

TransCanada executives also discussed the progress of the proposed Eastern Mainline. Studies of both  economic and technical feasibility are well underway for the project that would involve the conversion of natural gas pipeline that runs east to Montreal and Toronto and the construction of new pipeline to connect the converted pipeline to the Hardisty hub. Capacity projections range between 500,000 to 1 million b/d, depending on where interest lies.

Executives reported that eastern Canada’s highest-in-the-country fuel prices, familiarity with crude oil movement (unlike British Columbia where pipeline construction is encountering significant opposition) and refiners’ desire to obtain crude cheaper than waterborne imports have stakeholders looking favorably on the project.

Allowing “a couple of years in permitting and a couple more in construction” makes 2017 a probable startup date if the Eastern Mainline Oil Pipeline were to go ahead, company executives said.

–Beth Heinsohn, bheinsohn@opisnet.com   |  www.opisnet.com

Eco-Trade Corp., an independent oil and gas exploration company, said on Monday that it has signed a Letter of Intent to purchase the South Bakken Prospect in Montana in an area that has the potential to produce between 80 and 120 million of barrels of oil recoverable.

Eco-Trade will have the rights to the exploration, drilling and production rights on a property in Lewis & Clark County in Montana, near Great Falls, totaling over 5,800 acres called the South Bakken Prospect.

The property is located in the southern part of the Alberta Bakken Fairway, which is at least 175 miles long (north-south) and 50 miles wide (east-west), and which extends from Alberta southwards through Montana’s Glacier, Toole, Pondera, Teton and Lewis & Clark counties.

The Alberta Bakken Fairway is time-equivalent to the Bakken Petroleum System of the Williston Basin, and is considered a proven play with production and DST hydrocarbon recoveries from the Bakken, and Exshaw Formation in Canada. While management believes that the letter of intent and subsequent agreement may conclude successfully, the company cannot warranty or guarantee success.

In October, Eco-Trade said it had begun an internal review of its business model and is exploring options in new businesses ventures and industries. The company is also studying its options for raising capital and is in discussions with various groups in that regard. This was quickly followed by a company announcement on Nov. 1 to enter the petroleum industry in Montana Bakken.

–Edgar Ang, eang@opisnet.com  |  www.opisnet.com

By Lynn Helms – NDIC Department of Mineral Resources

Jul Oil 20,963,713 barrels = 676,249 barrels/day
Aug Oil 21,735,166 barrels = 701,134 barrels/day (preliminary)(NEW all-time high)

Jul Gas 22,295,369 MCF = 719,205 MCF/day
Aug Gas 23,616,598 MCF = 761,826 MCF/day (preliminary)(NEW all-time high)

Jul Producing Wells = 7,467
Aug Producing Wells = 7,701 (preliminary)(NEW all-time high)

Jul Permitting: 183 drilling and 0 seismic
Aug Permitting: 261 drilling and 1 seismic
Sep Permitting: 273 drilling and 0 seismic (NEW all-time high)

Jul Sweet Crude Price = $71.13/barrel
Aug Sweet Crude Price = $80.65/barrel
Sep Sweet Crude Price = $84.98/barrel
Today Sweet Crude Price = $89.50/barrel ND (all-time high was $136.29 July 3, 2008)

Jul rig count 211
Aug rig count 198
Sep rig count 190
Today’s rig count is 186 (all-time high was 218 on May 29, 2012)

Comments:
August weather was great for drilling and hydraulic fracturing resulting in a 3.7% oil production increase from July to August. A combination of several factors has led to lower stable drilling activity, but continued rapid production growth. Rig count has stabilized at around 190 as operators transition to higher efficiency rigs and implement cost cutting measures. The idle well count decreased significantly indicating an estimated 300 wells (a 25% decrease) waiting on fracturing services. Rapidly escalating well costs that consumed capital spending budgets faster than many companies anticipated and uncertainty surrounding future federal policies on hydraulic fracturing are impacting capital investment decisions. Over 95% of drilling still targets the Bakken and Three Forks formations.

Crude oil take away via pipeline is now 43% of daily production, but transportation by rail at 46% and truck at 2% plus Tesoro refining 9% are adequate to keep up with near term production projections.

Rig count in the Williston basin is stable. Utilization rate for rigs capable of +20,000 feet is stable at about 90%, but for shallow well rigs that drill to 7,000 feet or less utilization remains about 60%.
Drilling permit activity has increased to accommodate more multi-well pads and the need to build locations before winter weather comes.

The number of rigs actively drilling on federal surface in the Dakota Prairie Grasslands is up to 7.

The number of rigs drilling on the Fort Berthold Reservation has dropped to 27 with 0 on fee lands and 27 on trust lands.
There are now 706 wells (101 on trust lands & 605 on fee lands)
Producing 119,644 barrels of oil per day (7,309 from trust lands & 112,925 from fee lands)
139 wells are waiting on completion
259 approved drilling permits (244 on trust lands & 15 on fee lands)
1,566 additional potential future wells (1,426 on trust lands & 140 on fee lands)

Seismic remains busy with 7 surveys active/recording, 1 remediating, 0 suspended, and 6 permitted.

North Dakota leasing activity is much slower, mostly renewals and top leases in the Bakken – Three Forks area.

Daily natural gas production is increasing slightly faster than oil production. This indicates that gas oil ratios may be increasing and more gathering and processing capacity will be needed. Construction of processing plants and gathering systems is in full swing due to the dry summer weather. US natural gas storage has dropped to 8% above the five-year average but this still indicates low prices for the foreseeable future. North Dakota shallow gas exploration is not economic at near term gas prices.

Natural gas delivered to Northern Border at Watford City is up to $2.96/MCF. This results in a current oil to gas price ratio of 30 to 1, but the high liquids content makes gathering and processing of Bakken gas economic. Additions to gathering and processing capacity are helping and the percentage of gas flared dropped to 29%. The historical high was 36% in September 2011.
Draft BLM regulations for hydraulic fracturing on federal lands were published in the Federal Register. The comment period closed at 5pm EDT on September 10, 2012. BLM has given no indication of when a final rule will be published.

Draft EPA Guidance for permitting hydraulic fracturing using diesel fuel has been published. The comment period closed at 5pm EDT on August 23, 2012. There is no indication from EPA of when a final guidance document will be published.