Denver — As associated gas production in North Dakota's Bakken Shale continues to set records, which is leading to higher rates of flaring, Oneok has decided to add a second processing plant at a facility currently under construction, which would double its capacity.
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Sign Up Oneok announced plans to construct a 200 MMcf/d plant, dubbed Demicks Lake II in McKenzie County, a core region of the Bakken for $410 million.
Demicks Lake 1, also a 200 MMcf/d capacity facility, is already under construction. Oneok CEO Terry Spencer said it will reach capacity soon after its completion, prompting the need for the second facility.
"Additional natural gas gathering and processing capacity in the Williston Basin is critical to supporting record-setting crude oil and natural gas production in North Dakota and helping producers meet regional natural gas capture targets," Spencer said.
Demicks Lake II is the eighth new plant or plant expansion slated to come online within the next year-and-a-half, according to S&P Global Platts Analytics NGL Facilities Databank. Once completed, the facilities will add 1.2 Bcf/d of new processing capacity.
Demicks Lake I is slated for an in-service date during the fourth quarter next year with Demicks Lake II following suit during the first quarter of 2020. The plants will be located northeast of Watford City, North Dakota. They will give Oneok a total of 1.4 Bcf/d of processing capacity in the Williston Basin.
ASSOCIATED GAS GROWING
Although the wave of new processing plants will provide enough processing capacity through 2021, new plants or expansions will be required afterward in order to keep up with continued gas production growth, according to Justin Kringstad, director of the North Dakota Pipeline Authority.
In July, gas production struck a record high of 2.4 Bcf/d, according to the most recent data from the North Dakota Department of Mineral Resources. The high production came with a cost, though, as producers flared 436 MMcf/d, or 18%, of all gas produced, which was highest rate flared since September 2015.
It was also the third straight month producers failed to capture the state mandate of 15%. Producers can face fines from the state for failing to meet the requirements. And on November 1, the gas capture requirement increases to 88%.
The record gas production stemmed from oil production also setting a monthly high of 1.2 million b/d.
The increased drilling in the Bakken makes sense from a producer standpoint as internal rates of return per well in the play are the highest in the Lower 48 at 52.2%, according to Platts Analytics. It is more than 10% higher than returns on drilling in the prolific Permian Basin, as takeaway pipeline constraints in West Texas and New Mexico have dragged down regional prices and Permian returns per average well.
IRRs are based on half-cycle analysis which excludes the expenses associated with exploration and development (sunk costs) and federal income tax.
