February 2022, Vol. 249, No. 2


Bakken Buildup: Williston Basin Outlook Brightens Through Year of Midstream Expansion

By Jeff Awalt, Executive Editor   

As North Dakota’s largest processor of natural gas, ONEOK often serves as an industry bellwether for Williston Basin midstream activity, and with demand surging in 2021, the natural gas liquids (NGL) major was bent on growth.  

(Source: U.S. Geological Service)
(Source: U.S. Geological Service)

In mid-November, it dusted off its plans for two previously announced natural gas and NGL infrastructure projects, including the Demicks Lake III natural gas processing facility in the Williston Basin and new MB-5 fractionator to handle higher volumes at its Mont Belvieu, Texas, complex.  

The projects extend a multi-year expansion for Tulsa-based ONEOK that included the December 2019 completion of its 900-mile, 20-inch Elk Creek pipeline to transport 240,000 bpd of unfractionated NGLs from the Williston Basin, supporting increased gas production in the Bakken and boosting its processing capacity there to 1.9 Bcf/d.  

“Increasing producer activity and improving demand for natural gas and NGLs drove the decision” to restart construction of Demicks Lake III, ONEOK President and CEO Pierce Norton II said, adding that the plant “will support producer development plans in the core of the Williston Basin while continuing our commitment to help customers reduce natural gas flaring.”  

The November announcement came as no surprise to Elizabeth Stapleton, a senior commodity analyst at Denver’s East Daley Capital, who closely tracks the Bakken and the companies that operate there. In an earlier report, she had dubbed 2021 as “The Year of the Expansion” for midstream infrastructure in the Williston Basin, and it lived up to her expectations.  

Reflecting on the year, she ticks off a list of key midstream projects and industry accomplishments that set the stage for an upbeat 2022. Among them:  

Bear Creek Plant – ONEOK’s $400 million Bear Creek natural gas processing facility expansion and related infrastructure in Dunn County, North Dakota, increased the company’s Williston Basin gas processing capacity to more than 1.6 Bcf/d. The expansion was expected to produce 25,000 bpd of NGLs in ethane rejection, resulting in 225,000 bpd of raw feed contracted since announcing its Elk Creek Pipeline construction.   

  • Demicks Lake III – ONEOK’s projected $140 million, 200-MMcf/d Demicks Lake III natural gas processing plant in McKenzie County, North Dakota, is scheduled for completion in the first quarter of 2023. The new plant will increase the company’s Williston Basin natural gas processing capacity to approximately 1.9 Bcf/d.  
  • Tioga Plant – Hess Midstream Partners expanded the natural gas processing capacity of its Tioga Gas Plant by 150 MMcf/d), adding residue and y-grade liquids processing capacity to the full fractionation and ethane extraction capability of the plant. The $150 million expansion of the Tioga plant and earlier upgrades to the Little Missouri 4 plant have increased Hess Midstream’s net processing capacity in the Bakken to 500 MMcf/d.   
  • North Bakken Pipeline – The $220 million WBI Energy expansion added 80 miles of mostly 20-inch natural gas pipeline to connect the company’s Tioga Compressor Station with Northern Border Pipeline Company’s mainline at a new interconnection point south of Watford City, North Dakota. It also included construction of the Elkhorn Compressor Station, additional compression horsepower at the Tioga station and other pipeline and measurement facilities.   
  • Dakota Access Pipeline – Energy Transfer in August announced completion of a phased expansion of DAPL that boosted its capacity to 750,000 bpd from 570,000 bpd. The added capacity is supported by minimum volume commitments from long-term customers.  
  • Bill Sanderson Plant – Outrigger Energy II finished a midstream facilities expansion that included construction of an 80-mile, 450 MMcfd rich gas gathering system originating in eastern Williams County, North Dakota and terminating at the new 250 MMcfd Bill Sanderson Gas Processing Plant near Williston. The plant features ethane recovery and rejection with direct market access to the Northern Border Pipeline system for residue gas and the ONEOK NGL pipeline system for gas liquids.   
Hess Midstream’s Tioga Gas Plant, prior to expansion. (photo: Hess)
Hess Midstream’s Tioga Gas Plant, prior to expansion. (photo: Hess)

Like ONEOK’s Demicks Lake III, WBI also highlighted reduced flaring of associated gas as a goal of its expansion project. Those efforts and others have helped North Dakota achieve historically low flaring volumes in 2021, despite higher production.  

“North Dakota has put in place new regulations on flaring over the last few years with a goal of flaring only nine percent of their gas, and more recently, producers have only been flaring about six percent,” Stapleton told P&GJ.   

Still, the Bakken lags other major basins, and those percentages partially reflect higher gas-to-oil ratios (GOR). Flaring in the Bakken was still around 164 cubic feet per barrel in September, according to Rystad Energy.  

Current Trends  

There were 27 drilling rigs working in the Williston at the start of 2022 compared with 11 at the start of 2021. Growing capacities in the Williston’s midstream infrastructure not only supported higher volumes from increased drilling, but also helped enable some notable shifts in producer strategies during the year.   

For example, Continental Resources – the biggest producer in the Bakken and a leading indicator of upstream trends – made a decided shift in focus by reallocating capital from oil- toward natural gas-weighted projects throughout the year. As a result, Continental’s Bakken natural gas production increased 29% and oil production declined 5% in the third quarter of 2021 – its most recent reporting period at press time – compared with the same three-month period of 2020.  

Also in 2021, Oasis Petroleum made the decision to sell all its Permian Basin assets to operate as a pure play in the Williston Basin, then spun off its midstream business to Crestwood Equity Partners for $1.8 billion. Oasis CEO Danny Brown said the Permian divestiture “allows us to focus our attention on driving significant value from our world-class Williston acreage position, where we see great upside opportunity and long-term running room.”  

The industry will be watching closely in 2022 for indications of whether Oasis’s decision to go all-in on the Williston may result in additional drilling there, or if Crestwood may seek to expand its newly acquired midstream operations.   

Although conditions are improving, Bakken oil production continued to lag pre-pandemic levels through 2021, resulting in lower pipeline utilizations and tariff rates. Ryan Saxton, head of oil data at consultancy Wood Mackenzie, told Reuters in December that Dakota Access Pipeline was operating at about 77% of utilization, compared with nearly full utilization before the pandemic.  

Saxton added, however, that DAPL’s uncommitted tariff rate was $6.64 per barrel, above the $6.28-per-barrel rate before the pandemic. That compares with considerably lower rates on crude oil pipelines out of the overpiped Permian, where some uncommitted tariffs have been in the range of $3-$4 a barrel.  

The Demicks Lake I and II natural gas processing plants in McKenzie County, North Dakota. (photo: ONEOK).
The Demicks Lake I and II natural gas processing plants in McKenzie County, North Dakota. (photo: ONEOK).

Overall U.S. pipeline capacity utilization was around 50%, according to Wood Mackenzie.  

With new and expanded pipelines adding capacity beyond post-pandemic production levels, Stapleton projects there will be little need for new pipelines out of the Williston during East Daley’s forecast through 2025, although there may be more system expansions within the basin.  

Shifting Ratios  

In December, the U.S. Geological Survey (Figure 1) announced the completion of an updated oil and gas estimate for the Bakken and Three Forks formations in the Williston Basin, revising its 2013 estimate downward after a period of increased drilling and production, which has provided better insights into the basin.   

The USGS estimated that there may be 4.3 billion barrels of undiscovered, technically recoverable oil in the Bakken (the mean estimate of a 1.3 billion to 7.3 billion barrels range) and 4.9 trillion cubic feet of unconventional natural gas. About 4 billion barrels of oil have already been produced from the Bakken and Three Forks, the agency said.  

The Williston Basin’s gas-to-oil production ratio (GOR) is already on the rise. Ongoing depletion, along with more focused drilling in the Bakken, could impact the Williston’s GOR over time. And that, in turn, could dictate future midstream needs.   

While the Williston Basin is primarily a black oil play, it also produces a significant amount of associated gas, and the GOR increases as drilling moves from outer production areas to the more central and deeper Bakken formation. If production moves closer to the center, the GOR is expected to increase.  

Reservoir depletion also plays a role, making the USGS reports findings important to the strategies of upstream, midstream and service companies alike. As a reservoir is depleted, its pressure declines. If it falls below “bubble-point” pressure – that is, the level of pressure that produces the first bubble of gas at a given temperature – free gas starts to form in the reservoir.  

“If that happens, you’re going to see gas coming out of solution more quickly, and see GORs rising,” Stapleton explained. “So, how quickly they rise and where companies choose to drill is going to be a major dictator of what those overall trends of DORs look like coming out of the basin.”  

The Bakken produces about 3 Bcf of natural gas, a figure that should rise as the play matures.  

DAPL Battles  

Dakota Access Pipeline’s regulatory and legal issues continued unabated into 2022, with the long-term future of the Bakken crude oil line still in question.  

Its latest legal hurdle arose last month, when an Illinois appellate court vacated the Illinois Commerce Commission’s (ICC) approval of a permit to add pumping stations to DAPL, expanding its capacity to 1.1 MMbpd from its recently increased 750,000 bpd.   

The January reversal of the ICC’s permit came after pipeline opponents, the Sierra Club and National Resources Defense Council, appealed its approval. The appellate court returned the case to the ICC for further consideration. It said the commission had wrongly interpreted the public to mean the world, not the United States, and that it abused its discretion when it found evidence of safety and environmental violations by operator Sunoco to be irrelevant.  

The 1,200-mile DAPL has been challenged unceasingly since before its completion in 2017. The pipeline lost its federal permits in 2020, when a federal judge ruled the U.S. Army Corps of Engineers made a mistake by completing a shorter Environmental Assessment instead of the more comprehensive Environmental Impact Statement (EIS).  

That judge ordered DAPL to be shut down and emptied of oil, but an appeals court last May allowed it to continue operating while the Corps completes the environmental review. The appeals court held that the judge who ordered its shutdown had not adequately examined the economic impact of the order, among other reasons.  

DAPL has warned of “immediate economic shock” if the line is shut down. Before the appellate court ruled that it could continue operating, industry sources told S&P Global Platts that the impact of a temporary shutdown might be less severe than warned, partly due to lower volumes during the period of pandemic recovery.   

North Dakota Department of Mineral Resources Director Lynn Helms, however, said that a temporary shutdown of DAPL would at least cause shut-ins while producers sought alternate transportation. The full impact of a permanent DAPL shutdown on Bakken midstream operations is less certain, but the severity of its impact will only increase as the economy recovers and Bakken production continues to grow.   

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