With both the Bakken and Three Forks Formation drilling creeping eastward, the oil play impacts not only those holding mineral rights, but employs many workers who, in turn, need readily available housing, services, water and equipment. Businesses at Kenmare benefit by selling water, servicing more vehicles and by constructing rigs for use in the oil industry. As in much of western North Dakota, housing is largely unaffordable or unavailable in town.

“Truck traffic has increased due to not only our commodities, but for transportation of water,” Kenmare mayor Roger Ness said. “Although we are right on the edge, we see plenty of production in every direction. The energy industry surrounds us.”

As part of the Northwest Area Water Supply project, purchased water now flows through a pipeline from Minot to Kenmare. Eventually, a water intake and treatment facility built at Lake Sakakawea will draw Missouri River water into the system. Additionally, a new 1 million gallon steel water tank stands a mile east of Kenmare. With ample water for town use, Kenmare profits by selling bulk water to the oil industry for fracturing wells.

Overall, employment in the energy industry changes rapidly as technology expands exponentially. Interest in modern harvesting of power means more diverse employment opportunities than ever before. From discovery, drilling, pumping and transportation of underground oil to capturing wind power, North Dakota workers face a range of choices today.

Capitalizing on the oil opportunity, locally-owned MW Industries, Inc,. manufactures oilfield equipment, such as service rigs, parts and components. A key employer for area welders, mechanics and machinists, the company paces with growth and development in oil business.

A projected wind farm south of Kenmare equates not only to job opportunities for construction of wind turbines and transmission lines, but could mean a steady flow of income to landowners for the future. Conversational negotiation with landowners brings Denali Energy, a subsidiary of Denali Companies, steps closer to the construction of an indescribably large wind farm.

“Hartland Farms will be the largest wind farm development in the United States, due in part to the massive site area,” said Curt Johnson, Denali Companies principal owner. “Wind is a massive resource to North Dakota. Not only does the wind blow during the day, it blows frequently and with strength. Using wind as an energy resource is not new in farming. Old days farming included wind powered generators; this is simply an advance of that technology.”

Further, Johnson said farmers having a couple of turbines in their fields will allow their farms a chance to harvest the resource, by powering their farms and offering a deserved hedge of protection.

“To the north, there is a potential for tremendous potash drilling,” said Ralph Hoversten, Kenmare Community Development Corporation executive director. “Like oil, potash is underground and will require drilling to mine the product. Should this come to pass, the potash would be used primarily for fertilizer production.”

In addition to fertile croplands and energy related work providing much of the backbone to Kenmare’s workforce, the town is steady in growth.

“We have a good diversified business sector,” Ness said. “With two grocery stores, Kenmare News, restaurants, automobile sales, medical facilities, as well as a new fire hall and an updated high school, we are fairly balanced. Our two implement dealers (John Deere and Farmers Union Oil) employ several workers and continue to be good for the economic stability of the town.”

“We draw birders, hunters and tourism from Des Lacs Lake,” Hoversten said. “As a part of the National Wildlife Refuge, the lake is protected.” He said the refuge is home to snow geese at the peak of migration. Each fall, area teams rally to celebrate Goosefest by providing differing social activities or events for a weeklong festival.

New families are also attracted to the area. Ness said upgraded national security means the addition of customs agents and border patrol workers. “As many as 10 families have moved to town for securities work,” he said.

New families need housing, and like much of western North Dakota, Kenmare doesn’t hold a lot of vacancies. With available homes already remodeled or resold, the market is tight. “We do see inquiries for housing,” Hoversten said. “It’s my goal to get new housing underway, whether we’re looking at rentals or single family homes. We want to see Kenmare grow and progress and move in the right direction.” He said Kenmare has promise of a good future, strong in both renewable and nonrenewable energies.

Harvest Operations Corp. has met with Idaho officials about shipping 40 to 60 mammoth truckloads of equipment to the oil sands in Alberta, Canada, starting in June.

Harvest Operations, formerly Harvest Energy, is owned by Korea National Oil Corp., South Korea’s state oil company.

Idaho Transportation Department spokesman Adam Rush said the agency met with company officials last month to discuss moving equipment on U.S. Highway 12.

“The transportation department and Harvest discussed load dimensions, bridges on U.S. 12, clearances, traffic control plans and the weight of shipments,” Rush told the Missoulian. “The department meets routinely with haulers who have questions about permits.”

Exxon Mobil Canada wants permission to ship 207 mega-loads of refinery equipment through the two states to the Kearl Oil Sands in Alberta, Canada.

ConocoPhillips wants to use the route to move four coke drums – huge pressure vessels that refineries use to make gasoline and coke – to its operations in Billings, Mont.

The ethanol industry has maintained that there is sufficient evidence to show that a 15 percent ethanol blend in motor fuel will not harm engine performance. They say increased consumption of the renewable fuel creates new jobs and replaces imported oil.

Story by DEB DRAGSETH

Organic rich sediment, layers of earth, pressure, heat and a few million years is the recipe for making oil. Extracting that oil has been a preoccupation of man since the first known oil wells were drilled in China around 3000 B.C. using strings of bamboo rods much like modern cable tools. The oil was then distributed through bamboo pipes.

The potential of drilling for oil in North America became clear in 1858 when a man named James Williams of Ontario, Canada, was drilling a well for drinking water and found free oil at a depth of 66 feet. This was followed in 1859 by the Drake well in Titus, Pa., the first modern well drilled to produce oil. The earliest North Dakota oil exploration began before 1910 but was hampered by primitive technology — cable tools that could not drill deep enough. Former North Dakota State geologist John Bluemle, who worked for the North Dakota Geological Survey from 1962 until his retirement in 2004, told Business Watch that in 1938, one of the first modern rotary rigs used in North Dakota drilled a test hole of over 10,000 feet near Tioga, but missed hitting oil by about a mile.
Today, advances in drilling techniques in combination with high oil prices have brought North Dakota a 21st century oil boom focused on the vast Bakken and Three Forks formations. Although oil was first discovered in the Bakken formation in 1953, there was no way to economically extract the crude residing nearly two miles below the surface. Bluemle said the Geological Survey had long studied the Bakken, wishing there was a cost-effective technology to bring out the oil. Today multi-stage hydraulic fracturing and the extended reach of horizontal drilling have changed all that. Engineers believe it will continue to become less expensive to recover North Dakota oil as engineering techniques advance.

Bluemle said, “The first horizontal well was drilled in 2004. Horizontal drilling allows us to ‘reach out’ and access oil nearly anywhere, so there is far less chance of failure. Prior to that innovation, there was a significant risk of drilling down and not hitting the target.”

The last big oil boom in North Dakota began on Christmas Day in 1976 with a discovery well in Little Knife and ended in 1986 when the world oil market collapsed. Technology and world markets have clearly evolved, and we thought it would be interesting to look at other similarities and differences between the oil boom of a generation ago and the oil boom that western North Dakota is experiencing today.

Working the wells

Currently it requires around 150 people to service a well, a number that has not changed significantly since the 1980s. Today, as then, there is a dramatic difference in the number of workers needed for the construction and drilling phases (estimated at 8,000 for the state) and the number of workers that will be required during the oil production phase. Lynn Helms, director of the Department of Mineral Resources Oil and Gas Division, said, “The numbers that we typically cite are that one out of five people will stay and continue working in the state once the drilling phase ends.”
Pay for an oil-field worker has always been good, and that has not changed from the boom of the 1980s. Truck drivers in the industry today earn around $80,000 a year, and wages of $130,000 a year are not unheard of for other jobs in the oil field. Wages are high because of the risks, the hours and the challenging working conditions inherent in the jobs. Vicky Steiner, executive director of the North Dakota Association of Oil and Gas Producing Counties and the North Dakota Coal Conversion Counties Association, noted, “The people working out here are different from those in the ’80s — they are more serious, more professional. Safety is pushed continually by the companies in the oil field. An oil rig is a dangerous place, especially when setting up or tearing down rigs. There are a lot of moving parts, heavy equipment, bad weather, chance of fire, and volatile chemicals to be concerned about.”

A sure(r) bet

“The three big risks for oil companies are dry holes, uneconomic wells and low oil price,” said Lynn Helms. “Today, two out of the three of those risks have been taken off the table. The economic risk today is only around 15 percent, meaning that 85 to 90 wells out of 100 will make a profit for investors. In the 1980s, the success rate was only one out of four. It cost $1-1.5 million at that time to drill a hole, and if three of those holes were dry, that was a significant risk.”
Assistant director of the Department of Mineral Resources Oil and Gas Division, Bruce Hicks, concurred, “In the 1980s, only 15 percent of wildcat wells (those drilled more than a mile from existing known oil fields) were economic. In the Bakken and Three Forks, we know the oil is there, and we know there will be economically viable production.” In fact, today tanks and pipelines are commonly put into place ahead of the drilling because companies are confident that the well will be profitable.
Technology continues to develop, according to Hicks: “We’re seeing many changes and advances just in the last year that I expect will allow exploration of more reserve and provide more profit. Hydraulic fracturing has been around for nearly 60 years, but needed to be refined for the area. What worked in eastern Montana did not work well in North Dakota. Many of the processes used in Texas are the same as we are using here, but they are being refined for the portion of the Basin where the wells are drilled.”
The Bakken is the largest unconventional oil play in North America. Oil prices are expected to remain volatile but within a range that makes Bakken drilling economic. This is a play that is expected to produce for at least 30-40 years and possibly longer as new techniques for recovering oil develop. A confidence in North Dakota’s business climate and a conservative state legislature are two elements that have worked together to attract investors from all over the world.

Infrastructure challenges

Housing, roads and water are critical concerns today as they were in the 1980s. Temporary housing facilities known in the industry as “man camps” are coming into the state. In Williston, people are resorting to camping in the Walmart parking lot due to lack of housing. In the earlier boom, according to Steiner, housing shortages were limited to the immediate Williston area. Today, communities including Stanley, Parshall, Killdeer and Dickinson are challenged by rising prices and housing shortages.
The number and weight of trucks in the oil and agriculture industries are much greater today than in the 1980s, causing damage to roads that were not designed for the stress they are now bearing. However, because 95 percent of wells drilled today use horizontal drilling techniques, it’s now possible to have six different wells emanating from one well pad. What this means is that only one road to and from the well pad is impacted and there is a smaller footprint on the land.
In April of 2010, North Dakota State University completed a study of oil-impacted roads and other needs in the 17 oil- and gas-producing counties in the state and estimated a biennium total of $113.2 million in improvements that should occur to support oil activity.
In the 1980s, wells were vertical and didn’t use as much sand and water as today’s horizontal wells, which use new fracturing techniques. Today, on average, two million gallons of water and four million pounds of sand are needed per well. Thus, although today’s wells leave less of an environmental footprint on the surface, they require sand that must be shipped in by rail and a vast amount of water. A long-range solution for the water needs may be the Missouri River, although the details are still being worked out between the state and the Corps of Engineers. Advocates for the impacted counties, including Steiner, believe that because the oil play will likely be here for 30-50 years, Highway 85 should be made into a four-lane road. She said, “Tourists and farmers don’t use the roads every day; however, oil companies run heavy trucks in all kinds of weather, and the roads are suffering for it.”

Flowing tax revenues

According to The Bismarck Tribune, revenue from oil extraction and production taxes will exceed $530 million this year and may reach $1 billion after next year. That number is ten times more than in 1981, when the extraction tax was added to the existing production tax on oil and gas. Oil money makes its way to every corner of North Dakota, whether it’s an oil-producing county or not, funding numerous programs throughout the state including water projects, education and health care.

A new 169-mile pipeline system running north into Canada has been recommended as the preferred means of transporting crude oil from west-central North Dakota to one of two TransCanada/Keystone transmission pipelines.

The recommendation is contained in a feasibility study, commissioned by the North Dakota Pipeline Authority, and presented in April to the State Industrial Commission. The proposed 12-inch pipeline would take approximately three years to complete, cost an estimated $199 million with annual operation costs of $3.7 million to $4.7 million.

It could transport 55,000 barrels of oil per day with possible future expansion of up to 95,000 barrels per day.

Conducted by Kadrmas Lee & Jackson (KLJ) and Rooney Engineering, the study looked at three alternative routes. “We now have specific information for investors and interested companies to review and analyze,” said Justin Kringstad, pipeline authority director.

“We anticipate a very high level of interest from industry.”

Coal drying plant

State regulators said an environmental group’s complaint against a coal-drying plant in southwestern North Dakota could go ahead after a second company dropped its plans to develop a coal mine nearby.

The state Public Service Commission voted in June to allow the Dakota Resource Council and a group of six landowners who live near the proposed plant to amend their complaint and add new information to it. GTL Energy USA Ltd. is building the plant near South Heart in rural Stark County, about 13 miles west of Dickinson.

Using a method called beneficiation, the plant would remove some of the coal’s water and impurities, thus boosting its energy value and allowing it to burn more cleanly.

Another company, Great Northern Project Development, applied to open a small coal mine near the plant. Landowners and the Dakota Resource Council argued that the drying plant needed a coal mining permit because GTL Energy would process coal from Great Northern’s mine. However, Great Northern withdrew its mining permit last March.

The Public Service Commission’s decision in June means the process may begin again, with the proposed mine no longer a factor in the argument, Cramer said.

Railroad expansion

HURON, S.D. – The Beadle County Rail Authority, which was formed 10 years ago but has been inactive, is being revived at the request of Advance Biofuels, a Huron ethanol plant. Advance Biofuels wants to expand its railroad siding by a total of about 1 mile of track to accommodate rail car storage.

The expansion would cost $1.8 million. The state has more than $2 million available for such projects, but it has to be funneled through a local rail authority.

National rig counts

The number of rigs actively exploring for oil and natural gas in the United States rose by 18 in the last week of June to 917, the second consecutive week for an uptick after months of declines. Of the rigs running nationwide, 687 were exploring for natural gas and 219 for oil, Houston-based Baker Hughes Inc. reported Friday.

Eleven were listed as miscellaneous. A year ago, the rig count stood at 1,913. The number of active rigs has increased by 41 in the past couple of weeks, but the U.S. count is still down 55 percent since the end of August as weak energy demand has hampered oilfi eld activity.

Oil prices peaked at almost $150 a barrel in July 2008 before plunging. Benchmark crude for August delivery lost $1.14 cents to $69.09 a barrel on the New York Mercantile Exchange. Of the major oil- and gasproducing states, Texas added eight rigs, Oklahoma and Alaska each added two and New Mexico and North Dakota each added one.

California and Louisiana each lost two, Colorado and Wyoming each lost one and Arkansas was unchanged. Baker Hughes has tracked rig counts since 1944. The tally peaked at 4,530 in 1981, during the height of the oil boom. The industry posted several record lows in 1999, bottoming out at 488.

Sioux Falls using electric utility car

SIOUX FALLS, S.D. (AP) — The city of Sioux Falls has begun using its fi rst electric utility vehicle. The car is being used by city water staff. It’s powered by six 12-volt batteries, and made by Fargo-based GEM, a division of Chrysler.

Sioux Falls’ other utility vehicles are powered by diesel fuel. Offi cials estimate the GEM car will save the city $4,700 in its first year and $14,000 over its lifetime.

Lynn Helms, director of the North Dakota Industrial Commission Department of Mineral Resources, explained that oil from North Dakota gets less money per barrel than oil from some other states. This is known as a discount, and it means that North Dakota oil producers make less of a profit than their counterparts in other states.

“We get a discount per barrel in North Dakota because our refinery and pipeline capacity is less than our production,” Helms said.

Helms said transportation costs are high because the major markets for crude oil are relatively far away. That cost is increased when pipelines are full and trucks and trains are used to haul the oil instead.

The extra transportation costs account for about a 10 percent discount on the oil per barrel, Helms said. Getting oil into pipelines that are already full could take another 10 percent deduct.

While government incentives and programs can help, energy businesses are taking the initiative to deal with the problem directly.

“We just need more pipeline capacity,” said Jeff Herman, regional land manager at Petro-Hunt, a Texasbased company that trades oil from both North Dakota and Texas.

Ron Ness, president of the North Dakota Petroleum Council said that the industry is starting to see a growing amount of movement toward building new pipelines to ease the current and future oil transportation bottlenecks.

Both the Bridger Pipeline and Belle Fourche Pipeline continue to expand in North Dakota, said Tad True, vice president of Bridger/Belle Fourche Pipelines.

True said the Parshall Gathering System in Mountrail County allows oil from the northwest part of North Dakota to connect to the Enbridge pipeline and flow east to a major market in Clearbrook, Minn. There are already 100 miles of pipeline in operation at the system, with another 100 miles to be finished within the next nine months.

“It’s a huge project and I think one of the issues it’s going to solve besides an economic form of transportation is the ability to get production off the lease,” True said, explaining that there haven’t been enough available trucks to haul oil that wouldn’t fit into the pipelines during the past six months.

Bridger Pipeline recently finished an expansion of its partially-owned Butte pipeline, as well. Capacity increased from 92,000 bpd in August to 115,000 bpd in January and provides surplus capacity to the Williston Basin. True said the pipeline currently has space for an additional 20,000- 22,000 bpd.

“That’s helped out quite a bit,” he said. “It’s taken the pipeline capacity out of the discount formula” for that portion of the state, which he said positively affects oil prices across the state.

Belle Fourche Pipeline has expanded to Alexander, North Dakota. A 16-mile pipeline that connects the Belle Fourche gathering system with the Bridger gathering system has also been completed. True said these two expansions allow oil from the southwest corner of North Dakota to flow both east and west to major markets rather than mostly to the east as it has in the past.

Larry Springer, a spokesperson for the Enbridge pipeline, said expansions are happening there, as well. The company is finishing phase six of a North Dakota expansion that he said should be in operation by early 2010. “That will add 51,000 barrels per day of capacity,” he said. The expansion is on schedule and should increase the total capacity of the pipeline up to 161,000 bpd.

Rumors flow about what could happen when phase six is finished. Among them is the idea that part of an Enbridge pipeline that currently isn’t being used could be reversed, taking North Dakota oil north into Canada. Springer emphasized that the company is looking at all options.

“Nothing has been decided,” he said. “It’s all in discussion right now.”

One thing being discussed among all the industry players is whether or not the pipeline expansions are helping to ease the discounts on North Dakota oil.

“I think it has in the respect that the discounts we were seeing two and three years ago we haven’t seen since that time.” True said.

Justin Kringstad of the North Dakota Pipeline Authority said the issue of getting oil to market and reducing discounts has been taken up by the industrial commission. They recently asked for a study concerning whether or not it would be feasible to send North Dakota oil through the Keystone and Keystone XL pipelines, jointly owned by TransCanada and ConocoPhillips. The Keystone pipeline will run south through the eastern side of North Dakota.

The Keystone XL will pass near the southwest corner of the state. Both will carry crude oil to major U.S. markets.

Kringstad said that among other things, the study looked at costs for construction, operation, and maintenance of connecting pipelines as well as the return on investment and how long the payback period would be.

Bids for the study opened up in December of last year. The project was awarded jointly to Kadrmas, Lee and Jackson and Rooney Engineering. The findings were scheduled to be presented to the industrial commission on April 21.

Three possible routes running west, east and north were studied. According to the executive summary, a 12-inch diameter pipeline running north to the Keystone pipeline in Canada was the most economically feasible and had the most potential for future expansion. The northern option would also have the ability to connect to Enbridge pipelines in Canada.

Kringstad said once the results of the study were made public, companies could begin looking at whether or not constructing a connecting pipeline would be a good business investment for their company. All three options would take about three years to construct.

“I would say there are at least a handful of people who are interested in the results,” Kringstad said. It’s something to look at. Helms said oil from North Dakota, particularly from the Bakken area is the crude oil of choice.

It’s also a great export product. Investing in pipelines that could help reduce the discounts on North Dakota oil seems to make a lot of sense.

“Anytime we can move crude oil on a pipeline is the most economic route,” Kringstad said. “It would most definitely decrease our discounts.”

Story by GWEN BRISTOL

At best, there has been a regulatory concern over air pollution in America for just over half a century. The first federal air pollution legislation passed in 1955. Since then, the country has become increasingly aware of how human actions affect the atmosphere—and how controlling emissions can impact an energy company’s pocketbook

Although a Clean Air Act passed in 1963 and an Air Quality Act passed in 1967, the 1970 version of the Clean Air Act was the start of clean coal technology in North Dakota, folks at Basin Electric say. It led to the development of emission control equipment like scrubbers—a technology used to remove criteria pollutants like sulphur dioxide, fly ash and nitrogen oxide from the exhaust in energy facilities.

Floyd Robb, vice president of communications and marketing support at Basin Electric said the use of coal in the country has more than doubled since 1970, but the emissions of criteria pollutants have dropped more than 50 percent.

“Now we have almost 90 percent removal of sulphur dioxide, nitrogen oxide and particulate matters,” Robb said. “As a matter of fact, Basin is one of the leaders in the development of what they call dry scrubber technology that removes sulphur dioxide.”

Along with the reduced emissions (and perhaps less risk of having to buy carbon credits in the future), scrubber technologies are resulting in valuable byproducts for energy companies.

Lyndon Anderson, North Dakota communications director with Great River Energy, said the mixture coming out of a wet scrubber (which uses limestone and water to capture emissions) can be used to manufacture a synthetic gypsum for use in products like drywall.

At Basin Electric’s gasification plant, which has its own scrubber system, the process of removing emissions produces the fertilizer ammonium sulphate.

Three separate companies in the state are currently installing scrubbers at three separate power plants, Anderson said. They include Basin Electric’s Leland Olds power plant, the first unit of Minnkota Power Cooperative’s Milton R. Young power station, and the first unit of Great River Energy’s Stanton power plant.

“We are in the process of making some very significant investments right now,” said David Loer, Minnkota President and CEO. Loer said that the company is currently putting around $360 million into electrical upgrades and emission controls.

Installing the emission control technology carries a hefty price tag. In the ongoing debate concerning pollution and climate change, how new technology will impact energy businesses remains to be seen.

Oil and gas update meetings on the Fort Berthold Indian Reservation planned for February have been postponed until March.

Three Affiliated Tribes chairman Marcus Levings said this postponement is the result of the death of Crow Nation tribal chairman Carl Venne.

The new meeting dates are as follows: March 17, Parshall Memorial Hall; March 18, 4 Bears Casino meeting rooms; March 19, Twin Buttes Community Building; and March 20, White Shield Senior Center. All meetings are from 6p.m. to 9 p.m. This is the second round of updates by Levings and the business council.

Pipeline work to pick up in summer

Work on the TransCanada Keystone oil pipeline in southeast South Dakota is expected to begin in mid- May with several hundred workers using Yankton as construction headquarters for much of the year.

Spokesman Jeff Rauh says they’ll start in Hutchinson County and work their way south about 130 miles into Nebraska.

The initial work will be locating and marking buried utilities. Other crews will remove topsoil, bury and weld the pipe, and inspect it.

Some pipe has already been laid in northeast South Dakota.

The pipeline will run from Canada through the eastern Dakotas and Nebraska. It will carry about 400,000 barrels of crude oil a day by early next year to refineries in Kansas, Illinois and Oklahoma.

USGS denies oil study

Sen. Byron Dorgan says the U.S. Geological Survey has denied his request to study a potentially rich oil reservoir below the Bakken shale formation in western North Dakota.

Dorgan asked the agency in December for a review of the Three Forks-Sanish formation to find out how much crude can be recovered from it.

Government scientists have said a study of the formation is premature. Dorgan says the agency informed him that it needs more information about oil production from the formation before it could perform an accurate assessment.

Colorado company wants to mine salt, store wind

A Colorado company with backers in Britain has leased more than 5,000 acres in northwestern North Dakota to mine salt and store wind.

Denver-based Dakota Salts LLC says it wants to use voids created by mining in Burke County to store compressed air to be sold to wind farms to generate electricity. The mining caverns also could store carbon dioxide from North Dakota’s coal-burning power plants or natural gas from the state’s oil fields, the company said.

Walter Doyle, the Londonbased chairman of Dakota Salts, said the rich salt and untapped potash deposits in the northwestern part of the state, along with huge wind farms planned in the area, made the project attractive. The newly formed company intends to use idled drill rigs from the state’s oil patch to bore for salt and potash, a form of salt used for fertilizer, he said.

Oil industry doubled in two years

North Dakota’s oil industry doubled in size dollar-wise between 2005 and 2007, a new North Dakota State University study says.

The study puts the value of oil production, exploration, refining and other activity at a total of $8.2 billion in 2007, up from $4.1 billion in 2005.

Exploration increased by more than 230 percent between 2005 and 2007, and it was “the primary reason for the magnitude of the increase in the overall gross business volume for the entire industry,” the study said.

Larry Leistriz, a professor in NDSU’s agribusiness and applied economics department, and research scientist Dean Bangsund, wrote the study. The North Dakota Petroleum Council and the North Dakota Oil and Gas Research Council funded it.

Ron Ness, president of the North Dakota Petroleum Council, said the study cost about $30,000.
-Updates complied by staff and Associated Press

It’s called the Oil Transfer System, and it’s a machine that’s doing more than providing Mickelson with super clean oil for his car–it’s earning him international attention and awards for its effective, energy- saving qualities.

“New oil is not very clean; the handling process adds contamination, as do trucks, pipelines and holding tanks,” Mickelson said.

“This one machine will clean any and all oils, new and used, with no cross contamination.” Ultimately, the machine is designed to purify both hydraulic and crankcase oils, which in turn helps reduce wear and tear on the machinery powered by those fuels.

The invention has proven a successful one for Mickelson, a self-proclaimed curious guy. Most recently, the Oil Transfer System earned the Energy Conservation Award at the Marketplace for Entrepreneurs Inventors Congress held in Bismarck in January. Mickelson won the same award, which comes with $500 in prize money, at last year’s event in Grand Forks.

Mickelson says it was during his years as a tool shop owner that he identifi ed a need for the machine.

“Nobody made a scrubber and recycle cart for oil, so I designed this system from scratch, found an investor, hand-made 10 crude machines and sold nine of them to my customers,” Mickelson said.

Since those early prototypes, Mickelson has had the system patented, and estimates he’s sold more than a thousand units since its market debut in 2001.

One of those sales was to the City of West Fargo, where the Oil Transfer System has been in use at the Public Works Department for several years recycling hydraulic oil. Fleet and Facility Manager Eric Hanson said after Mickelson came to talk with him about the Oil Transfer System a few years ago, he was sold on the potential benefi ts for his department.

“I’m always looking for new, innovative ways to make our work easier and to save money,” Hanson said. “This looked like a pretty fair means of doing that.”

For Hanson, the proof is in the numbers. Recent LaserNet Fines ISO testing, used to determine the level of contaminants in oil by measuring the diameter of particles, showed a marked improvement in the quality and durability of oil used in the city’s vehicles and equipment.

And that translates into more time between oil changes and less oil required to keep the fl eet up and running, all thanks to Mickelson’s system.

“We’re seeing the benefi t of using it and ultimately, that’s what we want,” Hanson said. And Hanson isn‘t alone; Mickelson’s website, www. oiltransfer.com/”www.oiltransfer. com, includes testimonials from customers in half a dozen states and Canada, and Mickelson says he’s aware of one system being used in Iraq.

With a price tag of $5,150, Mickelson says the machine more than pays for itself in money it saves on purchasing new oil and the extended life it can give machinery that run on scrubbed or recycled oil.

Mickelson says one of the most exciting aspects of the system is the impact it has on US oil consumption. Oil that’s been scrubbed or recycled has had millions of particles of sand and other contaminants removed, making it cleaner and longer lasting; Mickelson says because of that, energy conservation naturally follows.

“All the companies in the country are talking ‘green’ and this machine is definitely green,” Mickelson said.

Ever the innovator, Mickelson says he’s working on a few more inventions that expand the use of scrubbing and recycling technologies to substances like antifreeze and cooking oils.

“I want to develop more things in the future,” Mickelson said. “It’s hard for people to understand, but inventions are almost like another child–I want them to be successful and I have so much pride in them that it’s hard to describe.

Mickelson says one of the most exciting aspects of the system is the impact it has on US oil consumption.

“How many stories are you going to write?” asked Lynn Helms after an early morning discussion about marketing the state’s oil.

A lot. The story of adding value to the state’s oil is as dynamic as the market itself. This is the first in an ongoing series of what state and regional leaders are doing to market one of the nation’s most valuable commodities: crude. In this article, Business Watch talked with North Dakota’s key industry experts, including Helms, the director of the state’s Oil and Gas Division. The next article in the March/April issue will examine the companies, pipeline builders, mineral rights owners and oil producers who are building the infrastructure that could one day bridge the gap in the price of North Dakota oil. 

North Dakota recently jumped to the fifth largest oil-producer in the nation, with production in 2008 expected to come in at about 53.6 million barrels; in fact, production recently hit a record 204,000 barrels a day. 

But to keep production profitable, particularly during the recent downward swing of prices, those producers and marketers must have more options for their product: as recently as December, North Dakota sweet crude was trading for $11 less than the NYMEX West Texas Intermediate Crude. When oil is dropping to below $40 a barrel, that price difference is crucial. The goal, experts say, is to stay at 90 percent of the NYMEX price.

“The big thing you can do to add value is to give a crude oil producer two to three options to market their crude,” Helms said. “Then they can maximize the value of their product.”

That means looking at infrastructure, transportation and finding markets for the product, or determining whether refining the product in-state versus sending it out of state maximizes oil’s value.

“Distance to market is always a factor, and the ability to deliver,” said Shane Goettle, commissioner of the North Dakota Department of Commerce. “If you can address those two topics then you can be more competitive.”

North Dakota obviously can’t change its location, so the challenge is, and has been, getting the product out.

✧ ✧ ✧

Innovating transportation
In Bowman County, True Companies developed the Belle Fourche pipeline, allowing crude to flow either south or east and connecting it to Enbridge, which resulted in significant increase in the value of the crude and erased any additional discount of product.

Production in the Williston Basin and the Bakken Shale Formation continues to exceed pipeline capacity, so state leaders and developers continue to work on innovative ways to get the product out.

There’s a capacity of 280,000 barrels a day in the pipelines heading to refineries, serving Montana, North Dakota and a small section of South Dakota; those pipelines include the Enbridge Pipeline, the Butte system and the pipeline into the Mandan Tesoro refinery.

That wasn’t enough. As the state began producing more, bottlenecks slowed delivery.

In August 2008, crude began being loaded by rail at four locations: Dore, Stampede, Ryder and Minot.

That allowed 55,000 more barrels a day to crude export, but rail movement is more expensive and means higher discounts on the product, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Enbridge Pipeline is currently undergoing an expansion to be completed by 2010, which will increase its capacity from 110,000 bpd to more than 160,000 bpd, Kringstad said.

A new study, however, could determine the feasibility of connecting to either TransCanada’s Keystone pipeline or the Keystone XL pipelines; the former transports crude from Hardisty, Alberta to Midwest markets, including Wood River and Patoka, Ill. and Cushing, Okla. XL would extend the pipeline from Oklahoma into Gulf Coast markets.

“We would be connecting to the biggest market in the world,” said Helms.

The Pipeline Authority is looking at the proposals for the feasibility study, which is scheduled to be completed by the end of March. If it’s determined to be feasible, that option could still be years away, and the Enbridge expansion won’t be completed for another year.

“The biggest thing is having capacity,” Kringstad said. “Right now, until that 2010 expansion, right now we’re having to use those rail facilities.”

Refining Options
Shortly after the state’s first oil boom in the 1950s, the Mandan refinery was conceptualized and built to capitalize on North Dakota’s newfound oil wealth.

It was constructed specifically to refine the light, sweet crude being pumped out of the ground in the Bakken Shale Formation, which could hold up to 4.3 billion barrels of oil spanning North Dakota, Montana and Saskatchewan, according to a recent government survey.

The capacity of that refinery was initially set at 30,000 barrels a day. Now, that capacity stands at 60,000 barrels a day with the potential for expanding its production of other fuels in the future. But, even with that expansion, North Dakota crude needs to find more places to go.

“Now, they have more oil than they can use,” said Leif Peterson of the exploration in the Williston Basin and the Bakken Shale Formation. Increased refining capacity, either by current expansion or new construction, is an idea that’s been receiving serious consideration over the past couple of years.

Northwest Refining, Inc. recently completed a feasibility study for a refinery in Williston and Three Affiliated Tribes is working on permitting and jurisdiction for the location of their proposed jet fuel refinery. That refinery is smaller and would refine 15,000 bpd of jet fuel, with the potential market of Minot Air Force base.

The Northwest refining study looked at the possibility of a 100,000 bpd refinery, estimating the cost at $1.5 billion, including pipeline expansion. The authors suggested that the refinery be designed to maximize diesel and jet fuel, as the demand for those fuels may be greater than the demand for gasoline.

Mel Falcon, chief executive officer for Northwest Refining, has said it’s better to process the state’s oil production within its borders than exporting.

But the economics of refining crude in-state shift daily, said Helms. When crude was at $140 a barrel in July, building a refinery made sense. Right now, the economics may be working against it.

“The problem is, seven to 10 years from now is when that first gallon of refined product hits the market,” Helms said.

Building a refinery is betting on future markets, determining if the supply of crude will still be available and if the transportation of refined product to bigger markets is feasible. It requires study after study, looking at the design process, the markets, the location.

“I think the first thing is to recognize that there’s still more work to be done,” Goettle said. “The phase one study was really just a preliminary look at the conditions. It’s not as in-depth as it needs to be. It probably gives you just enough information to justify moving ahead with a phase two.”

-Story by Crystal Reid

“They told me ‘If you love geology, you should look at the geological engineering program at the University of North Dakota,’” he said.

So, Kringstad did just that and transferred to UND where he focused his studies on the oil industry. Of course, when he graduated in 2007, Kringstad didn’t find himself with a baseball field full of visitors from the great beyond, but what he did walk away with is proving its immense and ever-increasing value – a career in North Dakota’s booming energy industry.

In August, Kringstad took over as director of the North Dakota Pipeline Authority, an organization created by the state legislature in 2007 to study and develop energyrelated pipeline facilities in the state. For the Bismarck native, the position seems a perfect fit, but there was a time Kringstad didn’t think living and working in the state was in his future.

“I was pretty worried going to college that there wouldn’t be a position for me in North Dakota,” he said. “When I started in geological engineering, we weren’t experiencing the boom in the Bakken like we are now and I thought I might have to go to Denver or Houston to find a job.”

But the oil boom the state is experiencing of late, like that in the Bakken Formation in western North Dakota, means Kringstad – and many others – have plenty of work to do right here at home. It is, however, work that requires some long-range vision. “These pipeline projects take several years to get in the ground and operational,” Kringstad said. “The big challenge is to determine where North Dakota production is going to go in the next two, five, 10 years down the road.”

Lynn Helms, director of Oil & Gas Division for the North Dakota Industrial Commission, works closely with Kringstad on Pipeline Authority projects and agrees with Kringstad’s assessment. “Infrastructure has always and will always lag production, so you don’t build transmission lines in anticipation of energy production, you build them in response to it,” Helms said. “The goal of the authority is to shorten that lag time and really help the people that are going to invest the capital to put those plans together more quickly.”

North Dakota Petroleum Council President Ron Ness is involved with management of the Pipeline Authority and says Kringstad’s most important task in shortening that lag is to better define the role the organization serves in the industry. And he says the new director is proving himself ready and able to take on the challenge.

“He’s a hard worker and he’s tackling something that’s somewhat new to him,” Ness said.

In addition to helping identify ways for North Dakota to capitalize on its energy potential, Kringstad is working to develop the Pipeline Authority’s identity in the eyes of state residents. To that end, he’s created a quarterly newsletter to keep interested parties informed about what the group is working on, and is also helping revamp the organization’s website to make it more informative and user-friendly (www.pipeline.nd.gov). In addition to his Pipeline Authority duties, Kringstad also owns a business called Terra Utilities Company and will welcome his first child with his wife, Katie, in February.

While it might not be the stuff of a Hollywood blockbuster, Kringstad hopes his work with the Pipeline Authority will help the state cash in on its oil and natural gas potential. “The energy industry is my future and I want to do my best to position North Dakota as one of the nation’s top energy producing states,” Kringstad said. “It’s challenging but it’s exciting. I’m loving it.”

-Story by Carolyn Moore