The welding crew bustled alongside the green steel cylinder, first warming then welding the joints of what would be a 10-mile natural gas liquids pipeline just outside of Douglas.
A little ways away, David Smith slowly tipped his black Chevy Silverado down an incline and into a mud hole, driving along the pipeline’s route, where a bending crew was working ahead of the welders.
“I don’t know how deep it is,” he said looking through his splattered windshield and cursing himself for not bringing along his buggy.
Smith had been working on this and two other pipeline projects since September, one of the hundreds of pipeliners out in the Powder River Basin this spring, laying down the network of line necessary to carry Wyoming crude and natural gas to market. As the price of crude fell, they worked through the bitter Wyoming winter and are now trudging through a wet spring to finish projects.
Across the state, citizen lawmakers are concerning themselves with how to regulate the industry while watching the low price of oil. The governor’s office is still trying to figure out how to address the multimillion dollar gap in Wyoming’s school funding from the oil and coal bust of a few years back.
But in the oil field, talk is of the boom to come, the increase in traffic and the pipe going in the ground. The only thing holding back the Powder is the price of crude. That, and maybe the amount of pipe in the ground.
Tad True’s phone started ringing about two years ago with companies wanting new pipelines in the Powder.
The price of crude was rising, the political climate for oil was favorable and the Powder — an oil play that was the next big thing before the price soured in 2015, was getting attention again. True is the vice president of the Belle Fourche and Bridger pipelines, part of his family’s large oil and gas presence in Wyoming and the West.
The price of crude has fallen a bit in the past six months, leveling out near $50 a barrel. But the existing pipelines are nearing capacity, if they haven’t already reached it, he said.
From True’s perspective, the growing opportunities in the Powder River Basin may hinge on the speed of infrastructure being laid to take Wyoming oil to market.
Drilling has changed significantly in recent years. Wells being drilled in the Powder are producing higher volumes than they used to. A good well in the past may have had an initial production rate of 200 barrels a day. A well pad in the PRB today might produce 1,500 barrels of oil a day.
“It’s pretty phenomenal how quickly some of the new technology can develop the resources: so quickly that it can just overwhelm the infrastructure,” True said.
And the effect is cumulative as drilling continues in the basin. As soon as one well is finished and brought online, another is nearing completion just over the hill. And then another.
Two years ago, 120 wells were spudded in Converse County. In 2018, operators spudded another 184.
There are 30,000 applications for permits to drill wells awaiting review in the state of Wyoming. Most are permit requests for horizontal wells in the Powder. Though not all of the wells will be drilled, the number represents a record level of interest, revealing companies’ desire to control drilling in the basin.
“We’ve had to completely rethink how we operate systems,” True said.
The Casper oilman said lack of pipe to move crude out of Wyoming could be a problem in the near term, and it could dampen the basin’s development, which has otherwise seen modest-to-steady growth in the last 18 months.
Lack of takeaway can slap an unfavorable discount on the value of a barrel of oil and cut into a driller’s opportunity to make money off of his investment, True said.
“When a boom comes and you have nowhere to put your product ... you get significant price discounts,” he said.
Bottlenecks and discounts
It’s not unusual for pipeline issues to push prices up or send them plummeting.
Just this October, Wyoming gas prices were affected by what started with a leak in a Canadian pipeline. The leak hit one of the two big diameter pipes feeding into the Pacific Northwest from British Columbia, said Brian Jeffries, recently retired director of the Wyoming Pipeline Authority.
Though it was a quick fix, just a matter of days, regulators required the pipeline to operate at lower capacity. That significantly cut the amount of gas flowing into the U.S. just as a cold spell hit. Suddenly, large demand centers such as Portland and Seattle needed more gas than they could get. Gas lines coming up from Wyoming’s Opal hub, on the western side of the state, were at full capacity. The price shot up to eight times what was seen on the east side of Wyoming at the Cheyenne hub.
Pipeline constraints can have the opposite effect too, driving down the value of a product.
The Permian is experiencing low gas prices right now because it doesn’t have enough takeaway capacity. The U.S. side has pipelines that were built to take the booming Permian gas — a residual from all the oil being produced there — into Mexico. But the Mexico side hasn’t caught up. Gas on the west side of Texas was valued at negative 80 cents Thursday afternoon. Meanwhile, Canadian transportation constraints on Alberta’s oil sector drove the price down to single digits over the winter.
There are three potential constraints on moving oil, True said: getting the barrel of oil from the well head, piping or trucking it to the closest market — in Wyoming’s case, Guernsey — and then moving it out of the state.
Pipeliners in Wyoming are advancing a proposal that would carry crude out of Guernsey and down to the Gulf Coast. Yet another proposal providing potential relief to the Powder oil takeaway challenge would refashion an existing large gas pipeline that runs from the Bakken in North Dakota to the Midwest into an oil line.
Following the terrain
Jonny Brekke approached the Chevy Silverado where David Smith sat smoking a Marlboro light.
“Jonny B,” Smith called out the window to the younger man.
Brekke wanted to know if he could bring his 4-wheeler out or if only buggies could be used to get through the mud and the muck. Smith promised he’d check with Ricky Dawes, the construction manager on the pipeline project, and the man who had given Smith his role as chief inspector — a bump in authority that Smith was deeply proud of after decades in the pipeline business.
To the south, cars blazed by on Interstate 25. Up ahead, the bending crew was putting another pipe in the machine that would curve it millimeter by millimeter to match the rolling terrain.
“These boys work hard in all kinds of weather,” Smith said watching the half dozen guys laughing in the mud. “They work their a—— off for their money.”
Meritage Midstream CEO Steve Huckaby is more comfortable with existing infrastructure than the oil-focused firms operating in the basin. Meritage is primarily a natural gas pipeline firm.
“I honestly believe we have capacity,” Huckaby said.
Not that long ago, an industry that is nearly dead today was booming — coal-bed methane. The result was a network of low-pressure gas lines in the northern basin to gather coal-bed methane, and then higher quality lines to take compressed volumes of that gas to market.
There are also large gas lines running through the Powder River Basin, carrying Bakken gas to the Midwest.
“Generally for the Power River Basin, you’ve got a lot of pipelines in the ground available to do different things for you,” said Jeffries, formerly of the Wyoming Pipeline Authority. “You don’t have a lot of greenfield infrastructure over long distances that you might have to support and justify, in order to develop the PRB.”
But even though there is pipe out there, it’s not all in the right place as new drilling explores the breadth of the Powder’s best areas.
“The Powder River is an expansive basin. There is a lot of pipe that needs to get laid to gather production,” Huckaby said. “We’ve identified a couple of hot spots ... but everybody is looking to see how large those can be. It’s a little spread out at times.”
The distance of some new wells from existing infrastructure has caused an increase in flaring in the Powder River Basin, the practice of burning off gas.
State regulators have heard an increasing number of requests for flaring, as operators try to prove that infrastructure investment is worth the cost. The increase in flaring has caught the attention of environmental advocates, who are loath to see more and more gas released into the eastern Wyoming air.
When does the basin boom?
It likely won’t be lack of pipe that holds back the Powder, Huckaby said. If anything, it would be the lack of awareness that the basin is a solid investment.
Because of its stacked plays — a layer of rock that is economical to produce — the Powder is similar to some of the most successful plays in the country.
There’s such good rock layered beneath the soil, he said, that it’s unlikely you’ll end up with a dry hole — the term for a well that doesn’t yield oil or gas.
But with rig counts in Wyoming adding up to just over 30 compared to hundreds of rigs operating in places like the Permian, the Powder doesn’t yet get the attention from investors that it deserves, he said.
“Right now, the biggest challenge is inside the investment community’s head,” he said. “If we really want the Powder River to take off, the number of rigs needs to come up. Investors need to start seeing that and building their own confidence that this basin is real.”
The Pipeline Authority’s Jeffries said the Powder’s direction is hidden in the plans of large publicly traded firms, as reported every quarter in earnings calls. When the Powder is central and receives investment, the basin will boom, he said.
“You are trying to listen and read between the lines to try and get a sense of ‘Where does the PRB stand in their spending and capital queue?’” he said. “That can change and it can change with the price.”
For True, the Powder is ready to boom. The resource is good and world-class operators are improving the basin’s economics, well by well.
“I think the Powder River Basin is going to be a big success story,” he said.
More of this
On a steep hill outside Douglas, Seth Dawson, a pipeliner from Rome, Georgia, stood watching his crew dig a trench.
Dawson has been in the pipeline business for six years, travelling from town to town for work. He said he’d heard that pipeline development heralds an uptick.
Elk City, a community he worked in once in rural Oklahoma, had been nothing but a town you pass through, he said. Then the pipeliners — itinerant workers that are on the road more than not — came and the place boomed.
At least that’s what he was told.
“There’s about to be a lot more of this going on,” he said motioning towards the turned-up dirt that carved a path into hollows and over hill tops, headed out across the Powder River Basin.