Danger zone Oil patch could begin unraveling at around $80, say oilfield service firms

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1 BAKKEN page 6 Kodiak setting another record; jumps from 2,618 bpd to 17,000-18,000 bpd Vol. 1, No. 8 A semi-monthly newspaper for industry and government August 5, 2012 PNB special report inside SECTION B FINANCE & ECONOMY Danger zone Oil patch could begin unraveling at around $80, say oilfield service firms SPECIAL REPORT BAKKEN Moving N.D. Oil & Gas By RAY TYSON Just how close is the U.S. price of oil from entering the danger zone, or the low point at which nerves unravel and the rig count plummets? Well, if price estimates by two of America s largest oilfield service companies are to be believed, there s no reason for producers to panic just yet, but plenty of reason to be on the watch. Baker Hughes places the danger zone at a sustained price under $80 per barrel, depending on the company and quality of the property. That equates to roughly $65-$70 per barrel for Bakken oil when accounting for the huge price differential separating North Dakota Sweet and West Texas Intermediate (WTI), the U.S. crude benchmark. Moreover, higher costs associated with developing technology-driven shale plays tend to make unconventional formations such as the Bakken petroleum system even more price-sensitive. Producers okay with $85/bbl Probably as long as it s 85-plus we re fine, Martin S. Craighead, Baker Hughes chief executive officer, told investors during a conference call. I think if it gets close to 80, people start getting a see DANGER ZONE page 3 FINANCE & ECONOMY Staying out of hot water With an eye on turbulent oil prices, Whiting aims for more double-digit growth Top and bottom photos courtesy Vern Whitten Photography. Inset photos courtesy Enbridge. Week of Aug. 5, 2012 Relief from TC for Bakken logjam TransCanada is regaining a lead role in developing new outlets for crude from the Bakken and Alberta oil sands, while rival Enbridge is becoming bogged down in a series of pipeline spills compounded by yet another incident in the United States. TransCanada has received final approval for its US$2.3 billion Gulf Coast pipeline project from Cushing, Okla., to Port Arthur and Houston and plans to start construction in coming weeks on the first leg of Keystone XL. It is also attracting a lot of interest from major shippers in the proposed partial conversion of its underutilized natural gas Mainline to Central Canada to deliver 400, ,000 barrels per day of crude to Eastern Canadian refineries and see CRUDE OUTLETS page 12 CLR hitting on all cylinders, tops 100,000 bpd, cutting costs While focused in cutting costs, Continental Resources Inc. s daily oil production surpassed 100,000 barrels a day for the first time in June, the company said July 26. We passed the 100,000 barrels of oil equivalent per day milestone in June, said Harold Hamm, chairman and chief executive officer, in a prepared statement. We re hitting on all cylinders, with drilling cycle times continuing to be very favorable. On Aug. 8, the Oklahoma City-based company expects to report record total production of 94,852 bpd of oil equivalent per day for the second quarter, which ended June 30, reflecting a 76 percent increase over production of 53,984 bpd of oil see CONTINENTAL page 10 By RAY TYSON Denver-based Whiting Petroleum Co. says that should U.S. oil prices tumble another $10 to $15 per barrel, the company will still have the wherewithal to maintain a strong growth profile without becoming overly dependent on capital markets and other outside financial options available to finance projects. It s doable largely because of cost savings built into the organization through drilling and other operational efficiencies, which the company said have allowed Whiting to remain flexible and to pay for projects with the help of its own discretionary JAMES VOLKER cash flow. We think that s the right thing to be doing so that we don t face what I would call the fiscal cliff that is out there, James Volker, Whiting s chairman and chief executive officer, said in a July 26 conference call on Whiting s 2012 second-quarter earnings. And as a result of the efficiencies that our drilling department and our operations department have been able to execute for us, we really see the ability to grow without having to take too many, what I would say, capital markets or sale or joint venture moves. see WHITING page 9 E&P REGION Duvernay boosts operators Alberta formation delivers promising early results; industry urges more cooperation By GARY PARK For Touted from the beginning, as hundreds of millions of dollars were being invested in land rights, as the next Bakken or a match for the Eagle Ford of Texas, the Duvernay formation of central and northern Alberta is quietly measuring up to original hype. But the more encouraged they are by their early exploration results, the more operators are hammering home the point that the play is still in its early stages of development. And the more interest builds, the more observers are calling for greater information-sharing and upstream cooperation, especially among junior companies. BMO assessment upbeat The Duvernay was the source rock that launched Canada s petroleum industry 65 years ago and, like the Bakken, is now poised for a rebirth as a vast source of natural gas and natural gas liquids. If any numbers were needed to reinforce optimism they have been provided by BMO Capital Markets which has done an assessment of the Duvernay shale basin, which covers 50,000 square miles in central Alberta, with an estimated 7,500 square miles within the thermally mature or wet gas window. BMO estimates the liquids-rich gas window could hold as much as 750 trillion cubic feet of gas, while preliminary reports indicate 75 to 115 barrels of liquids for every 1 million cubic feet of gas. see DUVERNAY page 11

2 photos courtesy Enbridge. B AKK E N 2 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 contents ON THE COVER Danger zone Oil patch could begin unraveling at around $80, say oilfield service firms Staying out of hot water With an eye on turbulent oil prices, Whiting aims for more double-digit growth Duvernay boosts operators Alberta formation delivers promising early results; industry urges more cooperation Relief from TC for Bakken logjam CLR hitting on all cylinders, tops 100,000 bpd, cutting costsnd oil output continues to rise COMMUNITY ISSUES 4 N.D. truck enforcement effort yields fines 4 Williston getting second truck bypass FINANCE & ECONOMY 3 Hess faith in Bakken paying off Production jumps from 25,000 bpd of oil equivalent to 55,000; well costs falling; spending up from $2 billion to $3 billion 4 Newfield achieves new oil high in Williston After calling time out to reduce costs and improve execution in the field, company on pace to grow production by 35% in Voyager output jumps 40%, closes Emerald 6 Kodiak on pace to set another output record 6 Williston deals boost Magnum s reserves GOVERNMENT 5 Helms: Gas producing faster than oil Gas, oil, wells, rig count hit all-time highs in May; utilization of rigs capable of drilling 20,000 feet remained more than 95% 7 Canada tightens pipeline decisions MOVING HYDROCARBONS 5 Bakken makes Kirby barge debut 7 Bakken crude lifts rail traffic IN OTHER NEWS SPECIAL REPORT Moving N.D. Oil & Gas 2 North Dakota Governor s Pipeline Summit 2 Congressional delegation greets summit 2 Kringstad sets stage for summit 3 Minnesota lawmaker wants FERC action 4 Gas study: Watch for it in the next issue 4 NuStar to build second St. James rail facility 5 Pipelines versus tanker trucks 6 Enbridge movin in the Bakken 7 Plains finding niches in the Bakken 8 Smaller player with big prospects 9 Oneok a major Bakken investor 10 Safely transporting Bakken crude 11 Alliance making serious commitments 12 Nearly 100 years in North Dakota 13 Gene Veeder: a different perspective 14 Doing it right, start to finish 8 Eagle Ford compares favorably with Bakken 8 More oil company takeovers coming, says columnist 8 Rail industry commits to hiring 5,000 veterans in Financial Post: Will tight oil change the world? Moving N.D. Oil & Gas Top and bottom photos courtesy Vern Whitten Photography. Inset SPECIAL REPORT SECTION B Week of Aug. 5, 2012

3 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, F I N A N C E & E C O N O M Y Hess faith in Bakken paying off Production jumps from 25,000 bpd of oil equivalent to 55,000; well costs falling; spending up from $2 billion to $3 billion By KAY CASHMAN Hess Corp. is increasing spending on drilling and infrastructure projects in North Dakota s Bakken play this year despite the recent fall in world crude prices. The New York-based company bumped its 2012 capital budget from $2 billion to $3 billion, stepping up drilling in areas where Hess has a high working interest in wells, said Greg Hill, president of worldwide exploration and production, during the company s second quarter earnings conference call on July 25. Thanks to better than expected production from its Bakken properties, Hess second quarter output rose to an average of 55,000 barrels of oil equivalent a day, up from 25,000 boe a day last year. Our higher second quarter production reflects working off our completion backlog and the drilling of higher working interest wells, Hill said. We expect 2012 net production to average between 54,000 and 58,000 barrels of oil equivalent per day, which implies net production will average between 60,000 and 68,000 barrels of oil equivalent per day in the second half of Hess profit in the quarter fell almost 10 percent to $549 million, mainly due to a drop in the price of oil. Bakken well costs coming down Hess reduced its average Bakken well cost to $11.6 million in the second quarter, down from $13.4 million per well in the first quarter, he said. The company previously expected to spend an average of $8.5 million per well, but a white sand shortage earlier this year forced Hess to use more expensive ceramic proppants in well operations. We are continuing our transition in the Bakken during 2012, from higher cost 38-stage hybrid completions in HBP drilling to lower cost 34-stage sliding sleeve in-fill drilling. In the first quarter, nearly 70 percent of our wells were hybrid wells with an overall average drilling completion cost of $13.4 million per well, Hill said. During second quarter, only 40 percent of our wells were hybrids with an overall average drill and completion cost of $11.6 million, a reduction of 13 percent. Looking forward to the second half, our HBP drilling will be substantially completed by year-end, and 100 percent of our wells will be sliding sleeve wells by the fourth quarter, leading to an estimated drilling completion cost of under $10 million, he said. That amount does not apply to non-operated wells in Hess portfolio. When asked in the Q&A session that followed the conference call to provide more details about Bakken production and drilling, Hill said, So current rates in the Bakken are just shy of 60,000 right now as we speak. The plus stage wells that we drill, the average IPs are 900 barrels a day, and we re particularly pleased, when you look at the NDIC data, that passes drilled seven of the top 25 wells in the play in the first four months of Transportation costs are also coming down. In April, Hess commenced operation of its Bakken crude oil rail loading facility and shipped an average of 29,000 barrels per day during second quarter to higher value markets. Infrastructure spending on slow downward curve When asked by Paul Y. Cheng of Barclays Capital to put a number to this year s infrastructure costs in the Bakken, John P. Rielly, senior vice president and chief financial officer, said infrastructure cost, not just major, including the gathering systems we re forecasting $760 million. To which Cheng responded: You say the Bakken infrastructure costs will come down after this year. So should we assume, going forward $200 million or $300 million a year? You have to ultimately get to a recurring number to get to that type of level, Rielly responded. So we still do have to finish the Tioga Gas plant. So that will still be going on next year. And then it just depends on where the drilling is and getting further gathering systems and pipelines in there, but we will. We expect a reduction next year in the facilities, and then you can see maybe a slow trend, depending on the development program. $8.9 million per well in Eagle Ford When asked about Hess cost of drilling and completing a well in the Eagle Ford, Hill said in 2011 the average cost was $10.3 million. We ve already got those costs down to $8.9 million and there s more improvement under way as we speak. So that s the average cost. Recent wells have actually been cheaper than that in the Eagle Ford. Capital spending in 2012 for the Eagle Ford, which includes some land costs, will be about $380 million, Rielly said. Early days in Bakken development In closing, Hill said, it s important to note that we re still relatively early in the overall development of the Bakken. We are building a long-term business from a large high-quality acreage position and competitively advantaged infrastructure. As we move forward, we expect significantly lower capital cost through further well cost reductions, through the completion of the major infrastructure projects, including the Tioga Gas plant in 2013, and through improved capital efficiency as we complete the transition from HBP to pad drilling. Contact Kay Cashman at publisher@petroleumnews.com continued from page 1 DANGER ZONE bit nervous. And if it goes below 80, you could start to see for a sustained time you could start to see some rigs coming off. Paal Kibsgaard, chief executive office for service company powerhouse Schlumberger, also told investors during a conference call that continued macro or global economic uncertainty coupled with price volatility could make customers more cautious in terms of future activity plans. In North America, liquids-based activity continues to grow, offsetting the drop in natural gas activity and keeping the overall U.S. land rig count more or less flat so far this year, Kibsgaard noted. However, a WTI oil price in the low 80s with continued market uncertainty could impact the rate of growth in liquids activity in the second half of the year, although we have not seen any signs of this so far. Oil prices fell because new supplies came online just as a slowdown in the global economy reduced demand, according to market observers. Moreover, U.S. production is the highest since At the same time, the financial crisis in Europe and weaker economic growth in the United States and China helped reduce demand for oil as drivers, shippers and travelers used less gasoline, diesel and jet fuel. EIA projecting $88/bbl The U.S. Energy Information Administration (EIA) projects WTI crude oil spot price will average about $88 per barrel over the second half of That s a half-dozen steps or so from the danger zone, but is hardly in the comfort zone, either, given the volatility of oil prices during the first six months of the year. WTI crude began the year with an average January price of $ per barrel, increasing to $ in February and to $ in March, before sliding to an average $ in April, to $94.72 in May, and to a scary $82.41 in June. Prices overall began to improve in July, with a posting of $88.06 on the final day of the month, or about the same average price EIA projects for the balance of the year. Baker Hughes expects the average annual rig count in North America to grow about 3 percent year-over-year from an average of 2,296 rigs in 2011 to an average of 2,371 rigs in The company also expects to exit this year with 488 natural gas rigs in the United States, which is a decline of 321 rigs compared to last year. For oil, however, the company sees industry ending the year with 1,430 rigs in the United States, which is an increase of 300 rigs compared to last year. Rig count leveling off Meanwhile, North Dakota s rig count appears to have leveled off in the low 200s, after reaching a record high of just under 220 rigs in late May. But hardly anyone is blaming oil prices for the decline. State officials said fluctuations in the rig count were to be expected and that, overall, the count should continue to rise. What we expect is a bit of a saw-tooth pattern in our rig count as new-built rigs are brought in. Once they re up and operating then older, inefficient rigs will be moved out. It s not going to be a steady build, Lynn Helms, director of the state department of Mineral Resources, told Reuters. Rather, Helms said the pause in the number of working rigs is actually a good thing, telling Associated Press that this will allow infrastructure and various other things to catch up. And despite volatility of oil prices over the past six months, production continues to rise in North Dakota, with companies producing a record average of almost 640,000 barrels a day in May, as the number of producing wells grew to around 7,000. Whiting, MDU, Hess, Occidental However, lower oil prices during the second quarter took a big bite out of company profits, but thus far no major reductions in capital spending have been announced. Instead, many producers answered the bell with substantially increased production, which helped offset the slide in prices, and plans to boost spending. For example, Whiting Petroleum Co., a major player in he Bakken, saw its adjusted net income dive 28 percent to $86.8 million from $120.3 million in last year s second quarter. But the company managed to boost second-quarter liquids output by a hefty 26 percent to an average 80,700 barrels of oil equivalent per day from 60,120 barrels per day for the same period last year. Whiting also increased its capital spending from $1.8 billion to $1.9 billion, and was able to maintain comfortable discretionary cash flow of $310.5 million. MDU Resources Group, another major Bakken operator, saw its exploration and production income drop 15 percent to $18 million in the second quarter compared to $21.3 million in last year s second quarter. But during the same period, oil production increase 32 percent compared to the year-ago quarter and 13 percent from this year s first quarter, with three-fourths of the growth coming from the company s Bakken acreage. We have moved up the low end of our projected oil production growth (for 2012) and now expect a 25 percent to 30 percent increase over 2011, Terry Hildestad, MDU s chief executive officer, said, acknowledging that lower oil prices and continuing low natural gas impacted earnings, along with a shift away from natural gas production until prices increase. Hess Corp. s income fell from $607 million in the second quarter of 2011 to $549 million in the second quarter of 2011, while the companies oil and gas production increased to 429,000 barrels of oil equivalent per day in the 2012 second quarter, up from 372,000 barrels in last year s second quarter. Production from the Bakken alone increased to 55,000 barrels of oil equivalent per day, up from 25,000 in the second quarter of The company recently said it was increasing capital spending in the Bakken by $1 billion in 2012, to a total of $3 billion. Occidental Petroleum Corp., the largest onshore crude producer in the continental United States, said secondquarter profit fell 27 percent to $1.33 billion as new output in California and Texas failed to make up for declining oil prices. Still, the company plans to boost its U.S. capital spending 27 percent to $5.5 billion in 2012 by developing oil and gas prospects, and by raising domestic output as much as 7 percent. Contact Ray Tyson at raymondtyson@msn.com

4 4 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 COMMUNITY ISSUES N.D. truck enforcement effort yields fines North Dakota Highway Patrol troopers pulled more than 50 trucks off the road and issued more than $8,000 in fines during a recent enforcement effort in the western oil patch. Sgt. Mitch Rumple said the 12-person inspection team found nearly 500 violations during the effort late in the week of July 22. Rumple says he was surprised by the number of truck drivers who weren t aware they needed a higher-class license. And about two dozen trucks were overweight. NOTICE TO READERS Kay Cashman Ray Tyson Gary Park Eric Lidji Alan Bailey Rose Ragsdale Allen Baker Mike Ellerd Mary Mack Clint Lasley Susan Crane Bonnie Yonker Steven Merritt Marti Reeve Tom Kearney Heather Yates John Lasley Amy Spittler Shane Lasley Julie Bembry Dee Cashman BAKKEN PUBLISHER & EXECUTIVE EDITOR EDITOR CONTRIBUTING WRITER (CANADA) CONTRIBUTING COLUMNIST STAFF WRITER CONTRIBUTING COLUMNIST CONTRIBUTING WRITER CONTRIBUTING WRITER CHIEF FINANCIAL OFFICER GM & CIRCULATION DIRECTOR ADVERTISING DIRECTOR AK / NATL ADVERTISING SPECIALIST PRODUCTION DIRECTOR SPECIAL PUBLICATIONS DIRECTOR ADVERTISING DESIGN MANAGER BOOKKEEPER DRILLING CONSULTANT MARKETING CONSULTANT IT CHIEF CIRCULATION SALES EXECUTIVE CIRCULATION REPRESENTATIVE THE ASSOCIATED PRESS Williston getting second truck bypass State officials are planning a second truck bypass around Williston to ease traffic congestion within the city in the heart of North Dakota s booming oil industry. Gov. Jack Dalrymple and Transportation Director Francis Ziegler say the temporary east-side bypass will complement a nearly completed temporary bypass that will route truck traffic around the west side of Williston. The $10 million west-side project should be done by the end of August. Officials will advertise for bids sometime in the next three days for the east-side project. It is to be completed by the end of the year. The $10 million west-side project should be done by the end of August. Officials will advertise for bids sometime in the next three days for the east-side project. It is to be completed by the end of the year. Dalrymple says state officials will continue to work with local officials and residents on a route for a permanent bypass. THE ASSOCIATED PRESS Part 2 of Buzz Skretteberg: Voice of experience will appear in the next issue of, dated Aug. 19. looking for writers Prefer experienced reporters, but oil industry knowledge also valued. Contact Kay Cashman at publisher@petroleumnews or ADDRESS P.O. Box Anchorage, AK NEWS RAY TYSON rtyson@petroleumnews.com CIRCULATION circulation@petroleumnews.com ADVERTISING Susan Crane scrane@petroleumnews.com Bonnie Yonker byonker@petroleumnews.com FAX NUMBERS SOUTH DAKOTA ALASKA Several of the individuals listed above are independent contractors PETROLEUM NEWS BAKKEN is currently a semi-monthly supplement of Petroleum News, a weekly newspaper that covers Alaska and northern and western Canada. In January 2013 is scheduled to go weekly. To subscribe to clasley@petroleumnews.com; or call Clint Lasley at ; or sign up online at A subscriber to Petroleum News also receives, and vice versa. Print and/or online subscriptions are available. F I N A N C E & E C O N O M Y Newfield achieves new oil high in Williston After calling time out to reduce costs and improve execution in the field, company on pace to grow production by 35% in 2012 By RAY TYSON For Newfield Exploration s net production from North Dakota s Williston basin achieved a new high of more than 10,000 barrels of oil equivalent per day and is on pace in 2012 to grow by 35 percent over 2011 levels, the company said in its mid-year 2012 operations report. The increase reflects strong production rates from six second-quarter 2012 well completions, Newfield said, noting that recent wells had average initial gross production rates of about 2,650 boepd and average lateral lengths of more than 11,000 feet. The increase reflects strong production rates from six secondquarter 2012 well completions, Newfield said The strong performance actually came after Newfield purposely curtailed activities in the fourth quarter of 2011, to get a handle on well costs and the company s overall execution in the field, said Lee K. Boothby, Newfield s chairman, president and chief executive officer. Our team s execution in 2012 has been superb and we now have a high rateof-return development inventory that will drive profitable oil growth over the next several years, he added. Newfield said a recent notable well completion was the Moberg Federal H, which had initial gross production of about 3,500 boepd and averaged 1,380 boepd over its first 30 days of production. Drilled and completed for about $10 million gross, the well was drilled on a twowell pad and had a lateral length of roughly 11,000 feet. Newfield holds a 72 percent working interest in the Moberg well. Increased laterals made a difference Over the last two years, increased lateral lengths have helped to lower finding and development costs, increase recoveries of oil in place and improve returns and minimize the surface impact of operations, Newfield said. The company recently drilled an SXL well with a lateral length of Additional resource potential exists in deeper benches within the (Williston) basin and infill drilling and field studies are currently under way, Newfield said. 11,500 feet in 20 days, compared to average days-to-depth of 45 days in 2010 and 35 days in Newfield was running three operated rigs in the Williston basin where it has about 100,000 net acres and an inventory of more than 300 ready-to-drill locations in the Bakken and Three Forks formations. Additional resource potential exists in deeper benches within the basin and infill drilling and field studies are currently under way, Newfield said. Good results elsewhere Meanwhile, Newfield reported strong mid-year results in other U.S. plays where the E&P independent operates, including the Uinta basin of Utah, the Cana Woodford of Oklahoma and the Eagle Ford of Texas. Newfield said it recorded its highest initial production gross rate to date in the Southern Cana Woodford play at 1,900 boepd, and that early production results from Cana Woodford affirm growing development inventory. The Uteland Butte and Wasatch assessment programs in the Uinta basin yielded high-rate oil wells, Newfield said, with the company setting a record production rate of about 36,000 boepd gross, 25,000 boepd net in the Uinta. Year-to-date, Newfield had drilled three successful Eagle Ford SXL test wells with lateral lengths of about 7,500 feet in Dimmit County. The three wells had average initial gross production rates ranging from 750-to-1,020 boepd gross. Two of the wells had been online for at least 90 days with average production per well of 600 boepd gross for the period. Newfield has a 100 percent working interest in these wells. Contact Ray Tyson at raymondtyson@msn.com GET THE LATEST BAKKEN NEWS. SUBSCRIBE TODAY! PETROLEUMNEWSBAKKEN.COM

5 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, G O V E R N M E N T Helms: Gas producing faster than oil Gas, oil, wells, rig count hit all-time highs in May; utilization of rigs capable of drilling 20,000 feet remained more than 95% By RAY TYSON For Preliminary tallies for North Dakota oil and natural gas production show output for both rose to new all-time highs in May, with natural gas increasing slightly faster than oil, indicating the oilgas ratio may be increasing and more gathering and processing capacity will be needed to handle the load. However, construction of processing plants and gathering systems is accelerating with warmer weather, Lynn Helms, director of the North LYNN HELMS DAVE HARBOUR...the period for public comments on the Bureau of Land Management s draft regulations for hydraulic fracturing on federal lands was extended to Sept. 10. And the period for public comments on the Environmental Production Agency s guidance for permitting hydraulic fracturing using diesel fuel was extended to Aug. 23. Dakota Department of Minerals Resources, also noted in his Director s Cut column of July 18. Oil production climbed to 639,277 barrels per day in May, a 4.88 percent increase over April oil production of 609,503 barrels per day. Natural gas output in May rose to 687,755 million cubic feet per day, up 5.67 percent from April s 650,838 million cubic feet per day. May s numbers are preliminary and could change as more production information is gathered. Along with the continuing mild weather in May came an increase in hydraulic fracturing activity and therefore the increase in production. The idle well count stayed almost the same, leaving an estimated 336 wells waiting on fracturing services. This is expected to lead to significant production increases through the summer as additional fracturing crews are added. At 7,188, the number of producing wells also reached an all-time high in May, compared to 7,036 wells in April. The rig count reached a record high of 218 on May 29, with 95 percent of drilling still targeting the Bakken and Three Forks formations. The count averaged 209 rigs in April, 211 in May and 213 in June. The count at the publishing of this report was 208. Utilization of rigs capable of drilling 20,000 feet remained more than 95 percent. Many of the new rigs being built are scheduled to replace older, less efficient ones. For shallow well rigs that drill to 7,000 feet or less utilization remained about 50 percent. Drilling permits increased from 167 in April to 180 in May, but remained well below the record of 245 in November As winter approaches more permits will be needed to ensure locations can be built before the weather window closes, according to Helms. The number of wells drilling on federal surface in the Dakota Prairie Grasslands rose to three, while the number of wells drilling on the Fort Berthold Reservation remained at 32 with four located on fee lands and 28 on trust lands. Seismic activity was busy with four surveys active-recording, two remediating, one suspended, and eight permitted. North Dakota leasing activity was largely renewals and top leases in the Bakken- Three Forks area. U.S. natural gas storage dropped to 20 percent above the five-year average but still indicates low prices for the foreseeable future. North Dakota shallow gas exploration is not economic at near term gas prices, Helms said. Natural gas delivered to Northern Border at Watford City was down to $2.05 per Mcf, resulting in current oil to gas price ratio of 35 to 1. However, the high liquids content makes gathering and processing of Bakken gas economic. And additions to the processing capacity are starting to show results as the percentage of gas flared was down significantly to 31.5 percent. The historical high was 36 percent in September Unfortunately, the North Dakota Sweet posted price to NYMEX-WTI discount had increased again to a negative 16 percent and NYMEX-WTI to Brent discount another negative 16 percent. The price of North Dakota Sweet on July 18 was $72.25/bbl compared to the May average of $79.44/bbl and the April average of $78.17/bbl. The all-time was $136.29/bbl on July 3, This is forcing an increasing amount of North Dakota crude oil onto rail transportation so it can reach destinations that pay Brent price, Helms said in the mid- July of the eroding price of North Dakota Sweet at the time, adding that crude oil take away via pipeline was almost 35 percent below production. But he said rail and truck transportation are adequate to keep up with near-term production projections. Meanwhile, the period for public comments on the Bureau of Land Management s draft regulations for hydraulic fracturing on federal lands was extended to Sept. 10. And the period for public comments on the Environmental Production Agency s guidance for permitting hydraulic fracturing using diesel fuel was extended to Aug. 23. Contact Ray Tyson at raymondtyson@msn.com MOVING HYDROCARBONS Bakken makes Kirby barge debut Kirby Corporation, owner of the largest fleet of barges in the United States, has delivered its first cargo of Bakken crude on the Mississippi River to refineries near Baton Rouge, Louisiana. However, company executives said in a conference call with analysts that the alternative means of transport is being hampered by the region s worst drought in 50 years which has lowered water levels in Mississippi, Illinois and Ohio, reducing cargo capacity by as much as 10 percent. Kirby s initial shipment was carried by train to St. Louis before being loaded on the barge. Company chief executive officer Joseph Pyne said shipping and oil producers have yet to overcome the problem of delivering rising Bakken volumes to the U.S. Northeast. How the East Coast gets its crude oil is still something of a mystery, he said. There s talk of Bakken crude coming into Albany (New York) by train. Kirby uses both inland and coastal barges to deliver crude along the Intracoastal Waterway to Texas refineries, but the steady expansion of gathering pipelines is likely to cap the demand for barges at some point, Pyne said. He said vessels serving the East Coast will likely be able to carry up to 340,000 barrels compared with capacity of 185,000 barrels on Kirby s largest barges, he said. Pyne said crude oil and condensate being delivered from the Eagle Ford play to refineries is better suited to barges in the range of 10, ,000 barrels. The Energy Information Administration reported July 26 that rail shipments of petroleum rose 38 percent in the first half of 2012 to 241,000 rail tanker cars, or a total of about 16 million barrels. Jack Atkins, an analyst with Stephens, said investors in barge operations want to know how long the use of barges can reasonably be expected to last: They don t see it as something that s going to last forever, he said, although the demand could extend beyond 18 months. Kirby president Greg Binion said his company operated 800 inland tank barges with combined capacity of 16.4 million barrels, including petroleum, petrochemical and agricultural products. At the end of 2011 it owned 28 percent of U.S. inland tank barges and 21 percent of coastal barges. Binion said Kirby boosted its inland tank barge capacity by 180,000 barrels per day in the first half of 2012 and has contracts for 56 new barges with 1.2 million barrels of net capacity. Three are scheduled for delivery this fall and the rest in GARY PARK Managing Regulatory & Legal Issues in Shale Plays September 12-13, 2012 Houston, TX Shale plays is a rapidly growing form of unconventional gas which has brought about many legal and environmental concerns, therefore organizations involved in shale plays need to ensure that they are in compliance with regulations and have robust contracts in place to protect their business from future liabilities and investigations. Key Topics: Review recent regulations affecting the shale industry with Talisman Energy Discuss legal issues surrounding ownership of mineral gas rights by ConocoPhillips Examine recent regulations implemented by the state of Texas on hydraulic fracturing with the Texas Railroad Commission Assess recent litigation trends in shale with Baker Hostetler Analyze the legal environmental concerns involving water waste management and air emissions by Newfield Exploration Speaker Include: John Marziotti, General Counsel & Secretary, Newfield Exploration Company Eric S. Eissenstat, Sr. VP, General Counsel and Secretary, Continental Resources, Inc. Adam P. Haynes, Director of Government Relations / Corporate Development, Chesapeake Energy Judith Robertson, Senior Counsel, E&P, ConocoPhillips Company For More Information Click here: For More Information, Please Contact: Kara Drapala T: ext 6491 E: karad@marcusevansch.com

6 6 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 F I N A N C E & E C O N O M Y Voyager output jumps 40%, closes Emerald PETROLEUM NEWS BAKKEN Voyager Oil & Gas Inc., a rapidly growing Williston basin player, estimates that its 2012 second-quarter production jumped 40 percent to average around 900 barrels of oil equivalent per day, compared to 625 barrels per day during the previous quarter. Meanwhile, Billings, Montana-based Voyager said it closed a deal to acquire Emerald Oil Inc., a move that should bring even more growth to the company. The merged company will be renamed Emerald Oil, and be based in Denver. Voyager said its second-quarter production was inline with company projections and accelerated as the quarter progressed. As of July 17, when Voyager released its latest operations update, the company had 6.44 net (150 gross) Williston basin wells producing from the Bakken and Three Forks at the end of June. The company said it added 1.41 net (32 gross) Bakken-Three Forks wells to production during the second quarter. An additional 1.22 net (31 gross) wells were being drilled or awaiting completion as of June 30, and were expected to be additive to production during the second half of this year. Current level of drilling to continue Voyager said it expects the current level of drilling activity to continue, and that much of its acreage will be developed and converted into producing wells. About 34 percent of Voyager s current acreage is held by production, either by producing wells or wells that are in the process of being drilled or awaiting completion. The combination of Voyager and Emerald Oil, a subsidiary of Emerald Oil & Gas NL, will create an oil company with operating capabilities that has the ability to effectively manage a multi-rig drilling program in the Rocky Mountains and extract maximum value from both of its operated and non-operated drilling programs, Voyager said. Focus on converting to operated Voyager said the focus of the new company would be to convert its non-operated acreage into operated acreage and add to Emerald Oil s existing 6,900 net operated acres for development in 2013 and beyond. Voyager already has about 6,800 of its 33,000 net acres that may represent a controlling interest in 1,280- acre spacing units, which represent over 10 drilling spacing units for the combined company. Emerald Oil has already begun the permitting process and plans to spud its first operated well in Dunn County, North Dakota in early 2013 and follow this with a continuous single-rig drilling program in 2013, Voyager said. Voyager said it intends to file its second-quarter report on Form 10-Q, including its complete financial and operational results for the quarter ended June 30, along with issuing a related press release during the second week of August. F I N A N C E & E C O N O M Y Kodiak on pace to set another output record PETROLEUM NEWS BAKKEN Denver-based Kodiak Oil & Gas Corp. is on track to set yet another production record in the current third quarter, reporting average output of 17,000-18,000 barrels of oil equivalent per day during the first two weeks of July. That performance comes on the heels of reported second-quarter production of 12,696 barrels per day, a 20 percent increase over first-quarter sales of 10,578 barrels per day and a whopping 385 percent jump compared to 2,618 barrels per day in last year s second quarter. The second quarter marks a reporting period where our team both drilled and completed the greatest amount of wells in our history, said Lynn Peterson, Kodiak s chairman and chief executive officer. Our entire team worked effectively to accommodate the heightened activity levels and their efforts were instrumental in our ability to achieve record results for the second quarter. Kodiak completed 14 gross (12.65 net) operated wells during the first quarter and 26 gross (20.7 net) operated wells during the second quarter. The company s primary assets are in the Williston basin of North Dakota. Our record second quarter sales volumes benefited from well completions in our core leasehold areas, in combination with the high working interests in the wells, Peterson said, noting that during May, completion work gained momentum and The second quarter continued into June. marks a reporting period where our Crude oil accounted for 90 percent of Kodiak s second quarter and completed the team both drilled sales volumes. However, the company said it expects continued greatest amount of wells in our history. Lynn Peterson improvement in gas sales as a result of additional third-party midstream infrastructure. Nine total rigs, two non-operated Meanwhile, Kodiak continued its drilling and completion schedule into the third quarter, with seven operated rigs and two non-operated rigs. Two drilling rigs are operating in each of the Polar project area in southern Williams County, the Smokey project area in McKenzie County and in Dunn County. The seventh operated rig is operating in the Koala project area. The two non-operated rigs are working in Dunn County. Kodiak said drilling operations are benefiting from improved efficiencies resulting in decreased spud-to-rigrelease drilling times. The company expects to complete 14 gross (11 net) operated wells during the third quarter. Costs coming down We have seen a reduction in some cost items and as we continue to evolve toward development drilling, we anticipate a lower-trending cost structure, Peterson said, see OUTPUT RECORD page 8 F I N A N C E & E C O N O M Y Williston deals boost Magnum s reserves PETROLEUM NEWS BAKKEN Williston basin acquisitions made up nearly half of Magnum Hunter Resources hefty 51 percent increase in proved reserves gained during a six months period ending June 30, according to information reported by the company on July 16. Total proved reserves increased by 22.8 million barrels of oil equivalent to 67.7 million barrels as of June 30, 2012, as compared to 44.9 million barrels at December 31, And while 14.7 million barrels of the increase came by way Arctic Catering, Inc. Serving the Oilfield and Construction Industries since 1974 Contact us at: sales@arcticcatering.com The Difference Is Our People! of organic growth and extensions, 10.9 million barrels came via two Williston basin deals. Magnum Hunter picked up 8.7 million barrels of oil equivalent proved reserves when it acquired Bakken-Three Forks Sanish mineral acres in North Dakota from Baytex Energy USA Ltd. for $311 million. The transaction, closed in May, expanded Magnum Hunter s total Williston basin position to over 125,000 net acres. The company collected 2.2 million barrels in April when the company s wholly owned subsidiary, Williston Hunter ND, LLC, closed on properties owned by Eagle Operating Inc. for about $48.5 million in cash plus stock. The acquisition included all of Eagle s operated working interest ownership in oil and gas mineral leases and 191 existing wells on about 15,500 gross mineral acres located within four North Dakota counties. Magnum Hunter s Williston basin division, due to the recent acquisitions and continued drilling success, now represents 40 percent of the company s total proved reserves. Moreover, crude oil has increased to 64 percent of the company s total proved reserve commodity mix. The value of Magnum Hunter s 67.7 million barrels in proved reserves at June 30 increased by $341 million, or 55 percent to $957.9 million from $616.9 million at year-end 2011, the company said. Shale unrisked net resource potential up 23% The company s internal engineering team also evaluated the resource potential of Magnum Hunter s existing undeveloped mineral lease acreage position in the company s four unconventional shale plays. Based on this new evaluation, unrisked net resource potential increased 23 percent from 493 million barrels of oil equivalent to 601 million barrels, when compared to last year s resource potential evaluation. We are pleased to report another substantial increase in our proved reserves over just a six month time period. Management is marching forward in achieving our near term goal of 100 million barrels of total proven reserves for the benefit of our shareholders, said Gary C. Evans, Magnum Hunter s chairman and chief executive officer. see MAGNUM RESERVES page 8

7 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, G O V E R N M E N T Canada tightens pipeline decisions By GARY PARK For Canada s National Energy Board has set new time limits for handling pipeline applications, starting with Enbridge s planned reversal of its Line 9 in central Canada that is designed to offer an alternative outlet for Bakken crude if it can overcome a growing storm of opposition. The regulator, in response to federal budget legislation imposing startto-finish timelines of 18 months for most NEB applications, set an Oct. 4 deadline for a decision on Phase 1 of Line 9 covering 120 miles from Sarnia to Westover in southwestern Ontario. The project, to carry crude from the Bakken and Alberta s oil sands, proposes initial flow rates of 152,000 barrels per day and design capacity of 169,000 bpd, expandable to 250,000 bpd to come on stream in mid An extension of the Line 9 reversal from Westover to Montreal is tentatively targeted for early The NEB said it will continue to conduct its proceedings in an open, fair and impartial manner. The oral portion of the Line 9 hearing is expected to start at an unspecified date this fall, when aboriginal groups, environmentalists and pipeline landowners will have a chance to express their view. Their concerns have been stirred by harsh criticism from the U.S. National Transportation Safety Board of Enbridge s handling of its mid-2010 oil spill in Michigan. Critics are also concerned the NEB is being forced to rush decisions without allowing sufficient time for a review. Trailbreaker question They are arguing that restoration of Line 9 to its original west-to-east configuration is part of Enbridge s strategy to resurrect its 240,000 bpd Trailbreaker pipeline from Montreal to Portland, Maine, to open markets for oil sands crude outside North America. The NEB also announced a review of its regulations for assessing oil and natural gas export and import licenses. Under interim guidance, the NEB will eliminate mandatory public hearings of those applications, issue export licenses provided the volumes involved do not exceed the surplus oil and gas reserves remaining in Canada and no longer require applicants to file information on the environmental impacts of their proposed exports. In addition, the guidance prevents the NEB from attaching conditions affecting environmental protection and restoration to export licenses. Guidelines out for new financial penalties The regulator also issued general outlines of new financial penalties of up to C$100,000 on corporations and C$25,000 on individuals for breaches of regulatory requirements. Each day a violation continues will be considered a separate incident and subject to additional penalties. But the NEB emphasized its primary goal is voluntary compliance rather than focusing on ways to punish or seek retribution for wrongful activity. The board expects the majority of its work to continue to be focused on facilitating compliance through voluntary measures, the regulator said. More than 4,000 opinions The NEB announcements coincided with a report by the conservative Fraser Institute, which urged deadlines for regulatory decisions and restrictions on the number of interveners allowed to participate in public hearings to ensure Alberta crude can reach Asian markets, noting that more than 4,000 organizations and individuals have registered to appear at Enbridge s Northern Gateway hearings. It said non-market obstacles are inhibiting the development of pipelines and tanker terminals on the British Columbia coast, putting at risk an initial investment of C$10.5 billion. The institute called for revisions to the National Energy Board Act to confine the board s mandate to construction, operating standards and efficiency, property rights and claims and environmental impacts. The Canadian Council of Chief Executives added its voice to the case for streamlining regulatory processes and removing one of the key impediments to building greater energy self-sufficiency in North America. It said the problem of overlapping responsibilities among a myriad of federal departments also applies within several provinces. By simplifying and clarifying their own approval processes, provinces and territories can help to realize the long-stated goal of one project, one review, the study said, noting the federal government appears willing to move in that direction. For its part, industry should work with governments to ensure regulatory processes related to major energy developments can engage affected stakeholders in an MOVING HYDROCARBONS appropriate and effective manner, while also making the overall process more timely and predictable. Contact Gary Park through publisher@petroleumnews.com Bakken crude lifts rail traffic Crude market analysts estimate that close to 500,000 barrels per day of crude is now being moved by rail, powered by a rapid expansion of facilities in the Bakken region. And the use of rail is being credited by traders for narrowing the gap between depressed prices for Bakken crude and West Texas Intermediate. Over the past five months the Bakken Blend differential has fallen to about $10 per barrel from $28. Musket, a privately-owned commodity supply, trading and logistics company, said it has just acquired increased capacity at its rail terminal in Dore, N.D., boosting its outbound volumes to 60,000 bpd from 10,000 bpd. Savage Securities also is on the verge of delivering crude to tanks at its new rail terminal in Trenton, N.D., while Rangeland recently introduced its 120,000 bpd Colt hub in Epping, N.D. The advantage of rail for junior producers has seen Calgary-based Southern Pacific Resources estimate it can trim 33 percent off its costs of diluent used to facilitate pipeline transportation of crude bitumen from Alberta to the U.S. Gulf Coast. The costs of shipping bitumen by rail over the same route is about $10-$14 per barrel, market sources say. Meanwhile, United Refining reported that its 70,000 bpd refinery in Warren, Pa., is looking at its ability to use rail to ship 3,000 bpd of Bakken crude on a test basis. Robert Kraemmerer, a vice-president of finance, said the crude is sent by rail to Buffalo, N.Y., then trucked to United Refining s West Seneca terminal, where it is pipelined to Warren. He said the cost of using rail is fairly expensive but it s an alternative opportunity. On a cost comparison basis, pipelines win hands down, he said, adding that United is still weighing the financials of Bakken versus other crude supplies. Kraemmerer said the experiment with rail was partly intended to satisfy Bakken bullishness among bondholders. Chief executive officer John Catsimatidis told a conference call that United Refining would look at more options for delivering Bakken crude. GARY PARK

8 8 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 I N O T H E R N E W S Eagle Ford compares favorably with Bakken More oil company takeovers coming, says WSJ s Spano, singling out Continental and Whiting as potential takeover targets By STEVEN MERRITT For The Eagle Ford shale play in South Texas is shaping up to be a contender for the best tight oil play in the U.S., according to IHS analysis, which points to an ongoing, highly-competitive merger and acquisition market for acreage as an indicator of its strength. The IHS report, titled the Herold Eagle Ford Regional Play Assessment, says typical well performance as well as peak-month production of the play s best wells exceed wells drilled in the Bakken petroleum system, which IHS labels as often considered the tight oil standard. According to the report, The most frequent well result of the Eagle Ford is around 300 barrels per day to 600 barrels per day for a peak month production average, said Andrew Byrne, director of equity research at IHS and author of the study. That compared with 150 barrels per day to 300 barrels per day for the Bakken. The best wells in the Bakken have an average peak-month production rate of 1,000 barrels per day or more, while the Eagle Ford central area s top wells are even better on a barrels-of-oil-equivalent (BOE) -perday basis. IHS pegs the central area of the play (encompassing counties Gonzalez, western Lavaca, DeWitt, Wilson, Karnes, Bee, Live Oak, Atascosa, Dimmit and eastern Mullen) as the highest performer and the focus of most of the drilling to date. According to the analysis, the play can be divided into three categories: the oil window, the liquids-rich gas window, and the dry-gas window, with the liquids-rich area seeing the highest maximum average 30-day production rates on a barrels of oil equivalent basis. On the mergers and acquisitions front, IHS points to favorable drilling results which have implied deal values averaging $14,000 per acre for Eagle Ford acreage in 2011 and top prices approaching $25,000 per acre. Read the full story here: More oil company takeovers coming, says WSJ Market Watch columnist EXPECT MORE OIL COMPANY TAKEOVERS continued from page 6 MAGNUM RESERVES Evans noted that the resource potential of Magnum Hunter s leasehold mineral acreage position is now almost ten times the company s proven reserves. As we continue to develop the company s four shale plays, the ability to book this significant potential upside resource as new proven reserves will accelerate, he added. Magnum Hunter said it would release financial and operational results for the 2012 second quarter on Aug. 9. In Other News soon, and pay particular attention to big Bakken players Continental and Whiting, according to a Wall Street Journal Market Watch columnist. Writer Kirk Spano pointed to late July s Cnooc bid for Nexen as an example of how important oil is and how important it will be in the coming decades. Right now, Exxon, Chevron and Conoco are sitting on a combined cash of $30 billion and annual free cash flow of $30 billion, Spano wrote July 24. They not only have the money to scoop up companies sitting on desirable reserves, they have the money to buy big companies. Spano singled out Continental and Whiting as potential takeover targets, citing Continental s feverish well-drilling pace and acreage position as well as Whiting s Bakken push into Montana and its diversity throughout North America. Continental, led by Harold Hamm, is currently pouring revenue into drilling more wells. When the number of drilled wells exceeds the number of wells being drilled by a large enough number in a few years Continental will begin throwing off a huge amount of free cash flow, Spano wrote. At a market cap of about $13 billion however, Continental is easy enough to digest that an aggressive large suitor is likely to emerge. Whiting is a highly efficient company trading at a market cap of about $5 billion and is off of it s 52- week high by nearly a third. The company s acreage in the Bakken is significant and highly desirable, according to Spano. Read full colum here: Rail industry commits to hiring 5,000 veterans in 2012 SOME 5,000 MILITARY VETERANS are expected to be hired by the U.S. rail industry in 2012 as part of an ongoing national initiative launched last year. According to a Progressive Railroading piece, the 2012 hiring commitment follows the rail freight industry s hiring of 5,000 veterans in 2011, which equated to about one in four new railroad employees hired last year. Hiring former military personnel is not a new commitment for the rail industry, Association of continued from page 6 OUTPUT RECORD noting that the company has had success with cemented liner completions and intends to continue the method. By employing zipper fracks on multi-well pad locations, we can more rapidly complete the wells and capture the cash flow in a timely manner, he said. Kodiak was scheduled to release its secondquarter operational and financial results after the close of trading on Aug. 2. GET THE LATEST BAKKEN NEWS. SUBSCRIBE TODAY! PETROLEUMNEWSBAKKEN.COM Spano singled out Continental and Whiting as potential takeover targets, citing Continental s feverish well-drilling pace and acreage position as well as Whiting s Bakken push into Montana and its diversity throughout North America. American Railroads, or AAR, President and Chief Executive Officer Ed Hamberger told the industry media outlet. It is born of two centuries of experience and partnership between this industry and the armed services. The Joining Forces initiative, launched in 2011 by First Lady Michelle Obama and Dr. Jill Biden, wife of Vice President Joe Biden, encourages businesses and industries throughout the U.S. to commit to hiring U.S. military veterans or their spouses. Since the initiative was launched, more than 1,600 companies have hired 90,000 veterans or their spouses, according to Progressive Railroading. Read full story here: Financial Post: Will tight oil change the world? THE METEORIC RISE OF TIGHT OIL in the U.S. and Canada is being branded as the energy equivalent of the fall of the Berlin Wall in some circles, but a columnist for the Financial Post takes a broader look and what it all means in a July piece. In a column titled Will tight oil change the world? Claudia Cattaneo contrasts talk of North American energy independence and the foreign policy implications that will come with it with the skeptics who question the new resource s staying power and whether the North American experience can be easily translated elsewhere. So far, according to Cattaneo, tight oil has added about 700,000 barrels per day of production in the U.S. In Canada, it s making up for declining conventional production. It wouldn t be the first time that aggressive forecasts turn to disappointment. Remember coalbed methane? How about Russia s energy promise? Cattaneo wrote. We are still waiting for the next big thing from Canada s East coast offshore, and energy from the Canadian Beaufort Sea remain a mirage. On the supportive side, Cattaneo cites a recently released study by the Belfer Center at the Harvard Kennedy School that reflects a bullish view of tight oil. According to the column, author Leonardo Maugeri estimates tight oil fields in the U.S. could push out 3.5 million barrels a day by 2020, raising overall U.S. production to 11.6 million barrels a day, which would put it second to Saudi Arabia as a top world producer. She quotes Maugeri s assertion that with most tight oil plays profitable at oil prices in the US$50 to US$60 per-barrel range, they are resilient to a significant downturn in oil prices. As technology develops, costs will come down, turning today s expensive oil into tomorrow s cheap oil. On the let s not jump to conclusions front, Cattaneo points to research by the BlackRock Investment Institute that argues the U.S. shale boom is unlikely to spill to other countries or affect world energy supply in the near future, and that boosters are overlooking that there is little knowledge about tight oil outside North America and it takes a long time to figure out the geology and how to produce it. People forget that shale gas and shale oil were pioneered by Mitchell Energy, which got acquired by Devon Energy, in the 1980s, and people even knew about it in the 1970s, Ahmad Atwan, a senior member of BlackRock s global private equity team, told Cattaneo. So even in the U.S. it took us 30 years to get to where we are. And we can assume that it can be more rapid in other places, because people can learn from what happened in the U.S. and Canada, but it s not going to be a three or four-year learning curve. Tight oil, while significant, will help make up for declines from conventional fields, rather than result in a boom in world oil production, Atwan told Cattaneo. Read full column here:

9 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, continued from page 1 WHITING Like other producers during this year s second quarter, Whiting felt the pressure of declining oil prices. The company reported a realized price of $66.13 per barrel compared to $78.45 per barrel for the same three months period in 2011, a 16 percent drop on an oil equivalent basis. And with well over half of its business coming from the transportationstrapped Williston basin of North Dakota and Montana, Whiting production during the recent quarter also was subject to large price discounts, or differentials that plague the region. Moreover, while Whiting s revenue for the second quarter totaled $502.2 million versus $481.2 million, a modest 4 percent increase, adjusted net income plummeted 28 percent to $86.8 million from $120.3 million for last year s second quarter. Boosts liquids output by 26% to 80,700 boe Still, Whiting was able to boost second-quarter liquids output by a hefty 26 percent to an average 80,700 barrels of oil equivalent per day from 60,120 barrels per day for the same period last year, a move that helped offset low prices, while keeping the company s all-important discretionary cash flow at a comfortable $310.5 million. We think that we can stay at or very close to our discretionary cash flow for the next two years, continue to grow at somewhere like our growth rate this year and not have to use the capital markets or sell some assets other than perhaps consider some of the interest that s been shown in joint venturing on some of our properties, Volker said. That decision will, of course, be subject to what we see on oil price. So I think we ve got the ultimate flexibility here. Based on continued good results from its properties, including those outside the Williston, Whiting said it is increasing its 2012 production growth guidance to 20- to 23 percent from 17-to 22 percent and revising upward the company s capital budget to $1.9 billion from $1.8 billion. At current oil prices, cash flow, the recent WHZ Trust unit and Belfield gas processing plant sales will substantially pay for Whiting s $1.9 billion capital program this year, the company said. Outside Williston basin We continue to experience success in emerging development areas such as Big Tex (Pecos County, Texas) and build solid acreage positions in new exploration areas at attractive prices and attractive net revenue interests, Volker said. In addition to Big Tex, where the company holds 117,521 gross acres (87,017 net acres), Whiting development areas outside the Williston include the Redtail Niobrara prospect in Weld County, Colorado, where Whiting has 106,889 gross acres (79,256 net acres) under lease. Whiting said it plans to continue monitoring oil prices and has the flexibility to change its rig contracts, if necessary. Of its 29 contracted rigs, 13 have contracts that can be terminated without penalty by Dec. 31, 2012 and another seven have contracts that can be terminated without penalty by Dec. 31, Plan to drop 3 less efficient Williston rigs Current plans call for the release of three rigs one in Sanish in early September, one in Hidden Bench in late see WHITING page 11 VSON Ready to ship inventory of Magnalight portable lighting, explosion proof luminaires and power distribution systems. Rapid delivery of custom configurations also available with in-house CNC and fabrication capabilities. Industrial lighting and power distribution for hazardous areas and extreme environments At Larson Electronics Magnalight.com our business philosophy is very simple; provide high quality lighting products at good prices and get them to the customer fast. We support our customers before, during, and after the sale and maintain a wide inventory of parts and accessories allowing us to service the products we sell. Browse our collection of products and information here on Magnalight.com to learn more about us and how we can help you find solutions for all of your heavy duty and hazardous location lighting needs sales@magnalight.com MAGNALIGHT.COM

10 10 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 ADVERTISER BAKKEN Oil Patch Bits Carlile truck drivers encourage sober driving As reported on the Edmonds Beacon website July 17, travelers on I-5 in Washington are going see a reminder to Choose Your Ride carefully. Carlile Transportation Systems, in cooperation with the Washington Trucking Associations and Washington Traffic Safety Commission, has wrapped a semi-truck with a graphic of a half taxi - half patrol car and the message, Choose Your Ride. Drivers for Carlile based in Tacoma, Wash. see the aftermath of drunk and drugged drivers and want to help stop impaired driving. They hope to remind partiers that nothing kills a good mood like a driving under the influence, or DUI, arrest. In Pierce, King and Snohomish counties, officers are out in force as part of Target Zero Teams. Full-time DUI squads are concentrating on impaired driving, the number one contributing factor to traffic deaths in Washington. Carlile and the Washington Trucking Associations are other great members on the Target Zero Team, said Darrin Grondel, director of the Washington Traffic Safety Commission. They realize it will take the entire community to get us to zero traffic deaths and serious injuries, which is the vision of Target Zero. For additional information about the Washington Traffic Safety Commission, visit Based in Anchorage, Alaska, Carlile has terminals and offices across North America. Its service includes the Williston basin. Larson Electronics Magnalight s explosion proof light Larson Electronics Magnalight.com said July 25 that it has released an affordable explosion proof LED light fixture designed specifically for use in wet and corrosive locations. Able to withstand the damaging effects of wet and corrosive environments, the HALP- 48-2L-LED explosion proof LED light provides high light output combined easy upgrading capability. Costing less than comparable LED lights with permanently integrated LEDs, these fixtures are ideal for cost conscious operators in the petrochemical and industrial marine industries who require durable and effective lighting solutions that can be easily serviced, the company says. The HALP- 48-2L-LED Class 1 Division 2 LED Light is an ideal lighting solution for those in the marine and petrochemical industries who need a Class 1 Division 2 lighting solution that can stand up to the corrosive affects of marine and wet environments, Larson says. Featuring non-corrosive materials including a glass fiber reinforced polyester housing, poured in cover gasket, stainless steel cover latches, and impact resistant acrylic diffuser, this light is specifically designed for areas where wetness and corrosive marine conditions are problems. For more information visit Magnalight.com. Companies involved in the Bakken, Three Forks and related plays PAGE AD APPEARS Alaska Textiles Arctic Catering...6 Arrow Truck Sales Atigun Inc. Beaver Creek Archaeology Carlile Transportation...B13 City of Grand Forks, ND ClearSpan Fabric Structures...B13 Cruz Energy Services LLC (A CIRI Co.)...B15 OFS Energy Fund Four Seasons Equipment Haws Integrated...7 Larson Electronics LLC...9 Lister Industries...B4 Lynden...12 MT Housing North Slope Telecom (NSTI)...12 Polyguard Products Precision Equipment SolstenXP Umiaq...2 Universal Steel continued from page 1 CONTINENTAL equivalent for the second quarter of 2011, and an 11 percent increase over production of 85,526 barrels in the first quarter of this year. Crude oil represented 68.8 percent of Continental s second quarter production, the company said. During the quarter production exceeded sales by 147,000 barrels of oil, as a result of Continental putting almost 150,000 barrels of oil in storage during the second quarter in anticipation of higher prices. Hamm has said he expects oil to settle at about $100 a barrel. In the second quarter, the company anticipates reporting an average realized oil price of $80.56 a barrel and an average realized natural gas price of $3.51 per thousand cubic feet, yielding an average realized price of $61.69 per barrel of oil equivalent oil price differential expected to be $11-13 Continental s oil price differential was $12.63 per barrel for the quarter. June s differential was $9.37 per barrel, versus April s differential of $18.36 per barrel. The company now expects its 2012 oil differential to be in a range of $11 to $13 per barrel for the year as a whole. The company s natural gas price differential for second quarter 2012 was a premium of $1.29 per mcf, reflecting the high liquids content of its natural gas. Guidance for the year is a premium ranging from $1 to $1.50 per mcf. Focus on cutting transportation, well costs Continental s focus, Hamm said, is to cut drilling, completion and transportation costs. Previous cost-cutting efforts have not met the company s expectations, so it is instituting a more in-depth program, which has included idling its least efficient rigs and completion crews to improve cost performance. We re clearly ahead of plan on production growth, Hamm said. Our focus now is on driving down drilling and completion costs and reducing oil transportation costs. Proved reserves increase to 610 million boe Continental said its proved reserves have increased 20 percent, from to 508 million barrels of oil equivalent at year-end 2011, to 610 million boe at the end of second quarter. The increase in the first half of 2012 resulted from extensive drilling activity in the Bakken play of North Dakota and Montana and the Anadarko Woodford play in Oklahoma, the company said. In terms of Continental-operated wells, the company completed 64 gross (43 net) wells in the Bakken in the second quarter of 2012, with 58 gross (38 net) wells in North Dakota and 6 gross (5 net) wells in Montana. Continental said it continues to realize strong initial per-well production rates in the Bakken, in line with expectations. Initial one-day test results for the company s top five wells in North Dakota in second quarter 2012 ranged from 2,521 gross bpd of oil equivalent to 1,402 barrels. Anadarko Woodford well results In terms of Continental-operated wells, the company completed 20 gross (17 net) wells in the Woodford play in the second quarter. Initial production rates for the company s top five Anadarko Woodford wells in the quarter ranged from 1,228 bpd of oil equivalent (21 percent oil) to 857 bpd of oil equivalent (13 percent oil), in line with expectations. During the second quarter, Continental also completed its second long-lateral Anadarko Woodford well, the Shorty s Place 1-2XH (75 percent WI) in Blaine County. The well flowed 678 bpd of oil equivalent (62 percent oil) in its initial one day test. Earnings, capital expenditures Continental said it expects to report a $7.1 million realized loss on derivatives and a $479 million unrealized mark-to-market gain on derivatives for the second quarter. The company expects to report capital expenditures, excluding acquisitions, of $827 million for the quarter. Continental said it is evaluating its capital expenditures budget for the second half of the year. Key considerations include improved drilling cycle times, higher oil prices since mid-june, and higher average working interests in operated and non-operated wells, as a result of acquisitions and accretion of tangential interests. Also leading presence in Red River Continental Resources is a top 10 petroleum liquids producer in the U.S. and the largest leaseholder in the Bakken play of North Dakota and Montana. The company also has a leading presence in the Anadarko Woodford Play of Oklahoma and the Red River units play of North Dakota, South Dakota and Montana. Founded in 1967, Continental s growth strategy has focused on crude oil since the 1980s. The company reported total revenues of $1.6 billion for 2011 and said it is ahead of plan to triple production and proved reserves from 2009 to PETROLEUM NEWS BAKKEN GET THE LATEST BAKKEN NEWS. SUBSCRIBE TODAY! PETROLEUMNEWSBAKKEN.COM

11 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, continued from page 1 DUVERNAY Executives from Talisman Energy, Celtic Exploration and Trilogy Energy were among those offering some of the first results at a TD Securities conference in Calgary earlier this month. Coinciding with the conference, a joint technical study done for the Alberta government by three organizations urged Duvernay players to co-operate wherever possible and take steps to lower development and operational costs and spur commercialization. BMO CAPITAL MARKETS One well, one location mindset prevails While some larger companies have embraced a number of shared efforts, many operators continue to explore based on a one well, one location mindset, said the report by Mike Dawson, president of the Canadian Society for Unconventional Resources, Peter Howard, president of the Canadian Energy Research Institute, and Mark Salkeld, president of the Petroleum Services Association of Canada. This approach does not enable cost savings to be achieved, the report said. Many junior companies, who may have a limited inventory of well prospects and a limited exploration budget, rely on acquiring their service providers in small windows of opportunity when the equipment becomes available from larger projects. That denies those companies the chance to realize the cost savings of a multi-well program, the report said. We all recognize there are some significant challenges in the oil and gas sector right now, particularly in the gas sector, Dawson said. We see it in terms of prices and we see it in terms of companies shifting their focus away from dry gas opportunities. The question, he said, is what can be done to help the industry over the next three or four years, until gas prices start to recover. He said the objective of the report is to encourage improved production rates, ultimate recoverable volumes and reduce finding and development costs. Ziff study adds recommendation A joint multi-client study by Ziff Energy Group and Gas Processing Management added its recommendation to lower capital and operating costs in the Duvernay and similar plays by calling for better utilization of gas processing capacity in northwestern Alberta. The study estimated C$2.7 billion could be saved in capital investment through Bill Armstrong, a GPM principal and study co-author, said major players have shown interest in the strategy, but the really hard work has yet to be done by the producers and processors. It s just hard to get the ball rolling. First hints of favorable results While these options are being explored, Duvernay operators are issuing the first hints of encouraging results. Talisman, which holds 360,000 net acres, expects to have six wells completed by year s end, said Ron Broen, vice-president of the shale division. We haven t released our results yet, but we re very pleased with what we re seeing in the industry and very encouraged, despite these being early days with this play, he said. Talisman chief executive officer John Manzoni had previously said that although evaluation work will take time, the liquidsrich content of the Duvernay could match the Eagle Ford. However, there will be lots of people who get all excited very quickly, but this is a long game, he said. The Duvernay has the potential to be Alberta s very own liquids-rich shale, which would be fantastic if it works. I think you ll find through the course of 2012 as industry drills a number of wells, there ll be some mixed results in the early stages, but nothing we see so far is discouraging. Celtic Exploration CEO David Wilson told the TD conference that the wet gas leg in his company s Kaybob Duvernay leases is indicating barrels per 1 million cubic feet of gas, with drilling potential ranging from 4 to 8 wells per section. He said Celtic was pretty aggressive in drilling its early wells and, on the basis of results, decided to increase its gross land holdings to 138,000 acres. Currently Celtic, as operator, has three production wells, with Trilogy and Yoho Resources as equal partners, is about bring a horizontal well on stream and is completing four more wells. Wilson said that so far the liquids content has averaged about 100 barrels per 1 million cubic feet of gas. Trilogy chief financial officer Michael Kohut, whose company has 128,000 net acres in the Duvernay, half of them in the gas/condensate window, said Trilogy has information-sharing agreements with most of the major companies drilling in the area. We re trying to find the best way to drill and complete wells, he said. It s an interesting play and it s got lots of potential, we think. But it s early days. Svarte says shale output could exceed 1M bpd Sveinung Svarte, chief executive officer of Athabasca Oil Corp., said after his company s annual meeting in May that the next Bakken could come from Alberta s tight and shale oil prospects in the Duvernay, Montney, Nordegg, Swan Hills and other areas. He said the province s just-emerging tight and geologically-complex shale plays are just starting to be developed and could eventually surpass 1 million barrels per day, from the current 50,000 bpd. Svarte said AOC s drilling results in the first quarter led to the discovery of a prolific Duvernay oil pill on its Kaybob property, where a well produced about 6,100 bpd of 44-degree API oil and tested at a final rate of 650 barrels of oil equivalent per day. Backed by those results, AOC, which holds about 2 million acres of petroleum and natural gas rights, is hopeful it will exit 2012 at the high end of its 10,000 bpd target. Editor s note: The Duvernay and Muskwa shales are the same formation, but named differently in different areas: the shale is called the Duvernay in central Alberta and called the Muskwa in northwest Alberta and northeast British Columbia. Contact Gary Park through publisher@petroleumnews.com continued from page 9 WHITING August and one in Pronghorn in late August. The Sanish field, with a net average of 31,530 barrels of oil equivalent per day during the second quarter, is by far Whiting s biggest producer in the Williston. These are generally less efficient rigs when compared to others we have under contract, Volker said. Due to the efficiency of the rigs we will retain under contract, we anticipate no reduction in the number of wells we intend to drill in Whiting s plan to drill 257 gross wells (160 net wells) throughout the company s core areas remains unchanged by highgrading its drilling fleet using pad drilling, white sand for fracking and sliding sleeve completions. With further drilling in our new development areas and our established core properties, we expect a strong second half in 2012, Volker said. We plan to efficiently reach our 2012 drilling goals. Whiting also added more than 10,500 net acres to its Williston basin acreage position in the second quarter and now holds more than 712,000 net acres in the basin. Whiting is among the largest operators in the region. Contact Ray Tyson at raymondtyson@msn.com

12 12 PETROLEUM NEWS BAKKEN WEEK OF AUGUST 5, 2012 continued from page 1 CRUDE OUTLETS possibly to Canada s Atlantic Coast. The Gulf Coast project, Keystone XL, if it, too, gets U.S. approval, and the Mainline conversion all offer hope of easing the bottleneck faced by Bakken producers. Alex Pourbaix, TransCanada energy and oil pipelines president, indicated that only three months after the Mainline conversion was first announced the possible carrying capacity had been raised from 300, ,000 bpd. Chief Executive Officer Russ Girling said the plan is being driven by forecasts of 2 million bpd of incremental production growth in the oil sands and 1 million bpd from the Bakken, creating the need for a lot of transportation to move the crude to new markets. B.C. export pipelines wouldn t impact conversion He said the conversion plan would not be affected even if regulators and governments approve 1.3 million bpd of new pipelines from the oil sands to the British Columbia coast for export to Asia or 700,000 bpd to fill Keystone XL. Meanwhile, the issuance of three key permits for the Gulf Coast project by the U.S. Army Corps of Engineers allows construction to start on that 485-mile system, which is expected to begin service in the second half of 2013, carrying 591,000 bpd to Port Arthur and 175,000 bpd on a lateral from Port Arthur to Houston some of those volumes flowing from the Bakken. The Enbridge-Enterprise Seaway pipeline is designed to raise its capacity from Cushing to the Texas refineries to 800,000 bpd by mid-2014 from the current 140,000 bpd. Combined with the Gulf Coast project, that will raise capacity out of Cushing to 1.68 million bpd by the end of Important underscored by WTI discount The importance of those connections is underscored by Gulf Coast traders who say the persistent West Texas Intermediate discount, which was over US$16 a barrel by late July, stretches to December 2018 because of the Cushing bottleneck. TransCanada also said it is continuing to work with the Nebraska Department of Environmental Quality to finalize an acceptable re-rerouting of Keystone XL through the state. A U.S. Department of State review of the latest XL application is expected to be completed in the first quarter of To soften some of its pipeline critics, TransCanada has voluntarily agreed to 57 additional safety procedures for the Gulf Coast pipeline, including more remotely controlled shutoff valves, increased pipeline inspections and burying the pipe deeper in the ground. It will also use horizontal drilling under river crossings, allowing it to bury the pipe deeper on both sides of river banks, offering protection from floods or high river levels. In addition, the pipe will be made of thicker steel as it crosses rivers, operate at lower pressure and be further protected by advanced non-abrasive coatings. Crude to Irving still under consideration The Mainline conversion plan stems partly from declining gas volumes from Western Canada which saw the pipeline post average deliveries of 4.4 billion cubic feet per day in the first half of 2012, down 1.5 billion cubic feet per day from a year earlier and about 2.6 billion cubic feet per day short of capacity. TransCanada operates five lines as part of its 8,400-mile Mainline network from Alberta to Quebec. It has already switched a six line to carry Canadian crude to Steele City, Nebraska, as the first phase of the Keystone system. The company is examining a related plan to build about 50 miles of new pipe to carry crude from the end of the Mainline in Quebec to the St. Lawrence Seaway, where it could be moved by barge to Irving Oil s 300,000 bpd refinery in Saint John, New Brunswick. Enbridge fighting to preserve image At the same time, Enbridge is working on a C$3.2 billion program to reverse its Line 9 in Central Canada to deliver oil sands and Bakken crude to Montreal and build new links to Eastern Canada and the U.S. But Enbridge, fighting to protect its claims to operate safe pipelines and reeling from the scathing report by the U.S. National Transportation Safety Board of its handling of a 2010 pipeline rupture in Michigan, has been rocked by another oil spill in the U.S. The U.S. Transportation Department s Pipeline and Hazardous Materials Safety Administration and the U.S. Environmental Protection Agency were called to the scene in Wisconsin July 28 after 1,200 barrels leaked from its 318,000 bpd Line 14 that carries light sweet crude from Canada to Chicago-area refineries. Two other pipelines 400,000 bpd Line 61 and 670,000 Line 64 were briefly shut as a result. Enbridge said the spill was contained in the field, most of which is in the pipeline s right of way. No one was hurt. Richard Adams, vice president of Enbridge s U.S. operations, said the Wisconsin incident was being treated as a top priority matter, with all necessary resources (being brought) to bear. But the U.S. and recent Alberta spills only provide further ammunition to the forces opposing its Northern Gateway project in British Columbia. GARY PARK Contact Gary Park through publisher@petroleumnews.com OILFIELD COMMUNICATIONS Telecom Engineering Project Management Two-way Radio Systems Microwave & Satellite Systems Fiber Optics & Network Cabling FCC Licensing Tower Construction & Inspection NSTI