It's no secret that oil production is booming in North Dakota. But there are indeed countless secrets—technical, strategic and otherwise—associated with many of the oil and natural gas wells in the Roughrider State.
North Dakota, like other oil-producing states, allows exploration and production companies to request so-called "tight hole" status for their wells. Once granted by regulators, that status limits the amount of information—such as production levels, geographical data and engineering specifications—that a state can publicly disseminate about those wells for a certain period of time.
But North Dakota is noteworthy because it approves all tight hole requests that operators file without requiring them to justify why their wells should get it. Under North Dakota law, a host of information about tight hole wells cannot be made public for six months after the projects are completed.
And to be sure, E&P companies operating in North Dakota's prolific Bakken and Three Forks shale formations are taking advantage of the state's confidentiality policy. There are currently 1,813 oil and gas wells on North Dakota's "Confidential Well List," or 22% of all the wells in the state.
The Confidential Well List also contains 30 saltwater disposal wells, which E&P firms use to dispose of the brackish waters and fracking fluids that typically flow out of the well bore during shale-drilling operations. These types of wells are controversial because some studies have found that they trigger earthquakes—a charge that the oil and gas industry vigorously denies.
Whiting Petroleum, a Denver-based E&P firm, is the second-largest oil producer in North Dakota, thanks primarily to the company's operations in the Bakken. Jack Ekstrom, Whiting's vice president of government affairs, had a simple answer when asked why his company requests confidential status for some of its wells:
"Because we can," he said.
Buddy Cotten, an oil and gas consultant based in Orange, Texas, had a more colorful response to the same question.
"It's like a fat kid being offered an ice cream cone; he's going to take it every time," Cotten said. "If you're going to offer it to me, I'm going to take it."
Started with 'wildcat' wells
The practice of allowing E&P companies to keep some well-related information under wraps is not new, nor is it usually controversial. It began decades ago with so-called "wildcat" drilling, in which companies explored in undeveloped areas where little or nothing was known about the subsurface geology.
Given those uncertainties, regulators began granting tight hole status to ensure E&P firms that the fruits of their labors -- whether good or bad -- would not immediately be disseminated for their competitors, shareholders and potential investors to observe and act upon. For example, a company that spent millions to drill in an unproven area might not want Wall Street to immediately know that it drilled a dry hole.
Granting confidentiality also gave risk-taking companies some time to perfect their title and other paperwork if they drilled a high-producing well. It also afforded firms an opportunity to buy up additional tracts of land around high-performing wells. The rationale was that a firm that makes a risky, expensive decision to drill in an unproven area should be rewarded by getting additional time to expand its operations there. If regulators did not suppress the news of a high-performing well, the company's competitors might swoop in and buy up all the adjacent leases.
"If you have a significant completion, and there is acreage available, you don't want that particular completion to be made public until you have leased as much acreage as you possibly can around it," said Whiting Petroleum's Ekstrom.
Ekstrom added that confidential status can be especially important for small producers whose stock price and market-capitalization value could be significantly impacted by the success or failure of just one well.
Texakota Oil Company, a small Houston-based E&P firm, currently has nine of its 29 North Dakota wells on the state's Confidential Well List. Bradford Schmalfuss, Texakota's vice president, said his firm requests tight hole status for "competitive reasons," such as keeping "cutting edge" technical information private for as long as possible.
But notably, some states are tougher than North Dakota when it comes to conveying confidential status on oil and gas wells. Just last month, for example, Wyoming began releasing production data, directional-drilling surveys and other information on more than 900 oil and gas wells that were previously classified as tight holes. The Wyoming Oil and Gas Conservation Commission, the state regulatory agency, said it released the data because the wells were located in developed areas, and thus did not meet the definition of "exploratory or wildcat" wells.
"The commission feels that many wells now being permitted are in or near areas and formations already proven to be productive," the agency said in a July 19 letter to Wyoming oil and gas operators. The agency said that going forward, operators who want confidential status would have to provide "adequate technical and other justification" to support their requests.
Neil Ray of the National Association of Royalty Owners, which helps landowners get their fair share of royalties from oil and gas companies that drill on their property, said that's the way it works in his home state of Colorado. Ray, who heads NARO's Rocky Mountain chapter, said E&P firms have to justify their requests for confidential status to the Colorado Oil and Gas Conservation Commission.
"The commission here in Colorado doesn't really grant that unless it's a wildcat well, meaning exploratory in an area that isn't developed," Ray said.
The law that underpins North Dakota's Confidential Well List dates back to the early 1980s, long before advances in horizontal drilling and hydraulic fracturing led to the drilling boom that's currently underway in the Bakken. Alison Ritter, a spokeswoman for the North Dakota Department of Mineral Resources, the state regulator, acknowledged that the Bakken is no longer the wildcat environment that it once was. But Ritter said North Dakota still needs a robust confidentiality policy to encourage development.
"Are there instances where it may still be useful? I think so," Ritter said. "Maybe not for the Bakken, but there are other plays that are developing in the state, so if we want to see those plays develop and give the operators a chance to go out and wildcat those other plays, this is very helpful for them."