| NEW YORK
NEW YORK Nov 11 The North American energy
industry's reputation for ironclad secrecy is starting to crack
as producers discover a little transparency can help save
millions of dollars.
That is what is motivating Continental Resources Inc
, the biggest player in North Dakota's prolific Bakken
shale field, to take the unusual step of sharing its long-term
drilling plans with pipeline companies.
The company, led by the legendary wildcatter Harold Hamm,
hopes the disclosures will speed up the routing of new pipelines
that connect to its fields and ultimately reduce the
controversial practice known as flaring - the wasteful burning
of extracted natural gas that can't be delivered to processing
Flaring has increased over the last five years as hydraulic
fracturing, the process known as fracking, and other
technologies revolutionize the U.S. energy industry - with new
oil and gas wells popping up beyond the reach of pipeline
While producers can pour crude oil into a tank immediately
after it comes out of the ground, they must pipe natural gas to
a facility for compression and cooling. If there are no pipes,
it must be flared.
For instance, energy companies are spending millions of
dollars on new oil and natural gas wells in Montana, Wyoming and
North Dakota, yet those states lack adequate pipeline networks.
The historically low price of natural gas also
discourages some companies from building out pipe networks.
Consequently, natural gas worth more than $100 million is
lost - or flared - each month just in North Dakota, where so
many wells are topped by what look like burning torches they can
be seen at night from space.
Continental, with more than 1.1 million acres of Bakken
land, gives Oneok Partners LP, privately held Hiland
Partners LP and other pipeline companies its drilling plans
three to five years in advance under strict confidentiality
"It's our goal to have a pipeline waiting for us when we're
done a well," said Jeff Hume, Continental's vice chairman. The
plans are updated monthly to account for changes in geology and
By being more transparent in a secretive industry,
Continental has reduced its flaring to only 10.2 percent of the
gas it produces, below the North Dakota average of 29 percent.
Texas and Alaska, which have a well-developed energy
industries, flare less than 1 percent of natural gas extracted.
Still, the strategy saves Continental more than $2 million
per quarter, and others are taking notice.
Whiting Petroleum Corp, which jostles with
Continental for the spot as the top Bakken producer, and EOG
Resources Inc, another large player, also say they are
cooperating with pipeline companies, though analysts say
Continental is the most forthcoming.
For years, energy companies have been coy to share even the
most basic data with one another or Wall Street, fearing that
could cause a development rush that would boost costs and
endanger their development.
A case in point is Sun Oil Co, now known as Sunoco and
controlled by Energy Transfer Partners LP. It discovered
in the late 1980s that horizontal drilling could enable it to
extract much more oil from Texan wells than previously thought
possible. Executives quickly ordered field workers to live in
trailers at well sites, fearing they would gab in local bars and
drive up land prices.
Under the veil of secrecy, Sun Oil eventually bought up more
than 200,000 acres in east Texas for around $40 an acre, a
dirt-cheap price. When Sun Oil announced its production spike to
Wall Street thanks to the new technology, investors were
Continental, which jealously guards certain data on
production and well performance, said it decided transparency on
future well sites was worth the risk in order to cut flaring and
North Dakota's flaring releases fewer greenhouse gases than
direct emission of natural gas. But it is burning a product that
could be sold at a profit if there were more pipelines or
Continental's advanced notice gives pipeline companies time
to map out new lines to serve areas with the highest demand,
negotiate with landowners for right-of-way access and build more
processing plants to convert gas into a form that can be shipped
over long distances.
"We're allocating a lot of capital to North Dakota," said
Derek Gipson, chief financial officer of Hiland, which last year
installed more than 630 miles of gathering pipeline, typically a
12-inch polyethylene pipe. "Having advanced information on wells
gives us more time to put the system together so the gas doesn't
have to be flared."
Oneok Partners connected 759 wells to pipelines last year,
and aims to connect 1,000 this year.
"Upfront planning is crucial," said Justin Kringstad, head
of the North Dakota Pipeline Authority, a state agency. "The
further out companies are able to share their plans with the
midstream (pipeline) companies, it's going to help that much
more to get the right people and tools at the right place."
NOT A PERFECT SOLUTION
Transparency alone won't solve the flaring problem, industry
officials admit, as other factors must be addressed.
Companies have an incentive to transport oil first because
it is worth much more. Also, some landowners have become wary of
more pipelines crossing their land and stories of pipeline crews
dumping trash and leaving cattle gates open are common.
In September, a Tesoro Logistics LP pipeline
spilled 20,000 barrels of crude oil into a wheat field,
highlighting what some believe is lax oversight of pipelines and
North Dakota's energy industry in general.
"If they're going to continue to lay pipe in North Dakota,
they've got to be more positive to landowners, entice them
more," said Randy Decker, who arranges contracts for Contract
Land Staff, a provider of right-of-way land acquisition
Whiting believes transparency is only one issue that can
"It would be easy to say, 'This is where we're hoping to be
in five years,'" said Jack Ekstrom, Whiting's vice president of
government relations. "But flaring is an extremely complex
process that doesn't lend itself to easy solutions."
Continental could drive down the percentage of its North
Dakota production it flares to about 3 percent from 10.2 percent
currently if there were enough processing plants. Hess
and Oneok, among others, are building new plants.
By flaring 10.2 percent of its produced natural gas and
natural gas liquids, Continental lost out on $1.3 million in
potential third-quarter profit, according to quarterly results
announced on Nov. 6.
By comparison, if it flared at the industry average of 29
percent, it would have lost out on $3.5 million. The company's
openness helped save roughly $2.2 million in the third quarter.
"By being transparent, we've allowed pipeline companies to
get ahead of the game," said Hume, the Continental vice
(Editing by Ed Tobin, Terry Wade, Frank McGurty and Grant