Amid the coronavirus pandemic, many midstream companies have announced delays to planned gas gathering and gas processing facilities. A notable exception to that has been the B. Sanderson Gas plant gong up west of Williston.
It has continued to move ahead despite the downturn, and is around 80 percent complete, according to a September status report filed with the North Dakota Public Service Commission. The state’s top oil and gas regulator says there is a particular reason the plant has been able to keep going despite the downturn.
North Dakota Department of Mineral Resources Director Lynn Helms told Industrial Commission members during a recent meeting that the regulatory change it made firming up so-called “firm contracts” has been bearing positive fruit, and he mentioned the B. Sanderson plant as among examples of this.
“In fact, on the basis of those firm contracts, they are continuing construction while other midstreams have delayed things to next year,” Helms said, adding that it was a “big step in the right direction” in terms of getting oil and gas companies to build capacity to not just what’s being flared in the short run, but to consider commitments over the next 20 years plus a margin of 10 percent.
Helms said he will watch how the new policy plays out, and determine if it needs any tweaking, but in the meantime, he believes the new policy will prove crucial to hanging onto the 91 percent capture rate the NDIC has set, which goes into effect in November.
XTO decided last year to develop its Hofflund and Grinnell units in the area, but it needed more gas processing and takeaway capacity to do that.
The financing for Outrigger to build the capacity XTO wanted, meanwhile, required firm commitments by both parties as to how much gas would be produced and how much processing capacity would be available.
With the regulatory change that spells out that firm contracts are both legal and encouraged, both parties were able to provide that certainty without fearing a disruptive discrimination suit down the line.
Helms said he believes trends are in place that make the state’s firm contract changes the right idea at the right time.
“Lots of early Bakken contracts are starting to expire now,” he said, indicating that the next five to seven years will see a number of expirations.
“I think both sides will seek more certainty in terms of gas volume and contract terms,” Helms said.
Meanwhile, the state still needs $18 billion or so in investments over the next 18 years to realize production of the estimated resource in the Bakken formation.
“Having a tool like this to move that along and keep it going kind of regardless of commodity prices is really great,” Helms said.
Not only is the certainty such contracts provide a big incentive however, Helms added.
“It also made it easier to tighten up the gas capture policy,” Helms said, referring to new measures that restrict the number of days flaring is allowed for new wells and make it more difficult to obtain variances for flaring.