Jason Spiess interviews former North Dakota governor and current Continental Resources board member Ed Schafer about how important technology is in the Bakken oil boom. His answer prompted us to ask other industry experts whether the Bakken was a tech boom.
Schafer said the current technology is only getting about 5% of the oil out of the ground, and as the technology improves, more oil can be extracted from the ground.
Below is the raw, unedited transcript from our artificial intelligence translator.
Jason Spiess
Well, what are you doing these days? Let's, let's start with that where you're at course, former governor of North Dakota most known person for working with oil companies kind of bringing the oil companies to North Dakota. But since then what you've been doing
Ed Schafer
well, you know, it's, it's always busy times and there's so much to do, Jason, there is never have to worry about filling up the calendar. But I am such a fortunate recipient of North Dakota's wonder and natural resources. I get to work in the energy and agriculture fields and um, I travel around the world speaking on energy and agriculture policy, I'm serving on some corporate boards. I have a couple of environmental and preservation projects going on out in the east coast like
the Chesapeake Bay watershed cleanup project and uh, and things like that. Plus um now I'm getting involved with a governor's group on pursuing funding for the National Transportation Trust Fund, which seems to be run out of money like everything else. And um you know, the importance of infrastructure development in states is a big deal and we're engaging governors in that in that effort to bring funding to the highway trust fund
Jason Spiess
and you served as Ag Secretary for the United States under George Bush.
Ed Schafer
Yes, I was the Secretary of Agriculture, U. S. D. A. At the end of the, of the George W Bush administration.
Jason Spiess
The reason I bring that up as um, you're well known for ag as well and as you're becoming very known as for energy but the event down in south Dakota with the cattle. This is side
Ed Schafer
here, but
Jason Spiess
we are on in Belfast. We are on in Sundance Wyoming. Um, what point does that become a federal emergency? Because here in North Dakota we have flooding and we get federal emergency dollars all the time. That cattle situation seems like a pretty severe situation.
Ed Schafer
It is a severe situation and, and it's a tough one. We went through that in 1997, winter in North Dakota where we had many, many, many cattle die and it's just mass die off is a very difficult issue. Um, the process of getting the federal emergency declaration is an application for the state. There has to be a survey done and there's a percentage of damage to um, to um, I don't know what the measurement is.
There's a percentage of damage to the population or the county or, you know, the, the amount of economic activity or something, there's a threshold. And if you meet that threshold, um, uh, not something you want to do, you know, but if you meet that threshold by the amount of damage that takes place and you have to assess that damage in a certain way.
Um, then the federal government can declare the president apply to the president to declare, um, a federal emergency and the federal emergency, then allows you access to federal funds, uh, small business loans for recovery, uh, certain loans and grants for, for reclamation and things like
Jason Spiess
that. And so I apologize for the building. The bacon listeners just didn't want to let that opportunity escape. When we have the former Egg Secretary here on the program pad drilling, let's transition back into energy for a second pad drilling has really changed energy exploration Recently. I was reading, I believe it was continental decreased from $13.9, million dollars per drill pad.
That's incredible savings. And of course corporations when they allocate money to spend in the state, they're going to do that. So when we see those savings happening, of course, that's more money for the state and it helps for the economy. What do you
Ed Schafer
well, pad drilling is great continental resources calls them eco pads and they are eco pads. They're, you know, they're, you look at the, you know, ecology of extraction and the opportunity to shift now as we, as we shift in the bacon from the discovery phase into the operational phase now that the mental rights been secured, the borders have been outlined.
Uh, now you go in and say, how can we be more efficient? How can you do better? What can we do? And I, you know, the energy industry often gets a real bad rap on the environment and things. And, and uh, you know, I like to point out that the, uh, the Minneapolis fed board took all their people out to the bacon a few months ago and they were kind of like blown away at the attention to safety and environment that the oil companies do and those eco pads or the pad drilling, you know, allows you to
put a number of holes in some cases, you know, more than 10, uh, in the same spot. So you, you, you know, you reduce the truck traffic, you, you have less holes in the ground, I guess you have the same number of holes in the ground, but they're all in one spot. But, but you know, the, the in and out traffic, the opportunity to have one economic, one environmental impact on one pad versus spreading 10 wells out over the countryside.
You know, those kinds of things that made a huge difference. And it also, um, as you mentioned, allows the oil companies to reduce the cost of drilling. Uh, some of that reduction is coming from just now, as you get into the operational phase, things slow down a little bit. You start paying more attention to cost, to start, you know, pushing down on on things that you really care about or couldn't care about before because it was just the activity was so strong.
But, but the, but the echo pads are, you know, reduced cost better for the environment and really better production for the company. So, you know, it's really a good way to go
Jason Spiess
extraction tax. Let's talk about that for a second. Um, you, uh, led a campaign a number of years ago, um, educating the public about the extraction tax in North Dakota, it went to a vote I believed with the legislature or didn't make it through the session. That's what it was.
It's coming up again. And I want to ask you something because I had a conversation with uh, an executive for an oil company and he brought something to my attention that if the price of oil drops to a certain dollar, the taxes are on a tiered system. Can you comment on that?
Ed Schafer
Sure in North Dakota, because our extraction costs are high, the oil is deep. Um, and you know, we recognize that that the cost of getting that oil out of the ground are more than other states. We have, we have a trigger mechanism when the price of oil drops the to a certain level, uh, the extraction tax will also drop to try to keep, you know, to keep that activity moving to keep to keep things um, uh, you know, keep that oil pumping because at a certain price point, oil companies say,
hey, you know, it's not, it's not economically viable to produce these this oil in North Dakota. So they, you know, they cap the wells and they quit quit drilling and you know, then we're sitting there with a huge resource that we can tap into
Jason Spiess
because they hold it underground. What better place to start on the ground.
Ed Schafer
And once you once you discover a, well you put that asset you you know what you call prove the well and it's an I. R. S. Term but you proved, well you put the asset on the on your balance sheet and you can borrow against that money. I mean you borrow, you borrow against that asset and then you go drilling next. Well you know, so it's a it's a, especially with the independent folks.
Um you know it's a way that you capitalize the way you raise the funds to be able to explore and produce the oil that's in the ground. So that tax elements important in North Dakota does have a trigger mechanism that lowers the tax when the oil gets below a certain price.
Jason Spiess
Um If the price of oil were to go down and that trigger point were to happen, say in the next year just throw this out there for hypothetical, um what would happen with the State's Treasury? Because there's a lot of dollars committed to a lot of towns, L. B. It Fargo bismarck Dickinson Williston. Um I don't know if these conversations are being had, I don't know if people are running away from this conversation, but when the one I
had with the oil executive was real and it got me thinking that You know Dickinson's $100 million 43 million from the state. What would happen if those, you know you see what I
Ed Schafer
Mean? Well I do see what I mean. I, I think, I think, you know, when you, when you look at that, the production situation in North Dakota, we're a little, we're in better shape than when this happened to us in the 70s. You know, in 1979, the price of oil peaked in the production of North Dakota virtually stopped. And, and when that happened, a lot of communities um got caught with infrastructure that they developed and now couldn't pay for and, and it was a very, you know, property
taxes for 10 years in Williston went backwards to pay for investments they already made instead of going forward to invest in your community to grow. You know, it was a very difficult situation. Um, we are a little tempered with that this time around because now as we push a million barrels of production per day, if the costs go down. Um, or excuse me, if the price goes down, um, you may not see the drilling activity, but it's unlikely that the production activity will slow.
So, you know, they're not going to go in and kappa well, um, in the seventies, they went and capped wells because the price was so bad. Um, you know, $10 a barrel. Um, and unless in some cases, so, um, you know, you just couldn't afford to take it out. So they can't, but now we have the, we have the capacity and the volumes in North Dakota to where it's, it's unlikely unless, you know, unless you get back down to $10 a barrel oil, which you always can. But
Jason Spiess
we were there five years ago,
Ed Schafer
we were there less than five years ago.
Jason Spiess
I mean, think about that five years ago, nobody was predicting $100 oil, $100 oil came and that allowed a lot of this activity to happen
Ed Schafer
In 2009. You know, the commodity prices of oil were just in the tank and you know, and it's a volatile industry. It's a, it's a law of supply and demand. It goes up and down. And that's kind of what you do. You worry about getting trapped with. And
Jason Spiess
that's why we're having this conversation.
Ed Schafer
And one of my concerns is that we have built such a dependence on revenue, Um, from the oil industry. Um, you know, 35% of our budget. Our state budget comes from oil revenues, um, and not only not only oil revenues, but the oil activity produces sales tax, vehicle tax and license fees, you know, all these kinds of things and huge amounts of dollars are coming into our budgets and should that oil activity slow
Jason Spiess
or
Ed Schafer
stop. Um, we have a problem, we did it, we, we've overbuilt our government in 19 in the 19 seventies. We got hit in the eighties, both with agriculture and energy, uh, on a down cycle of the economy and hurt our state for 10 years to be able to, you know, kind of get out of the mess here and, and, and get the budget back in shape and get the, get the state moving.
Um, we could do that again. I mean, we have to be very careful not to get so far out here on oil revenues that when they do the, uh, always cyclical nature of the business when they get into those down cycles, you know, we don't want to have to shut down our government.
Jason Spiess
Jack Ekstrom, are you familiar with
Ed Schafer
that name? Jack?
Jason Spiess
Uh, Jack Ekstrom was part of a panel at the North Dakota Gas and oil and gas producing counties. Annual meeting in Dickinson, um, with a number of oil executives. And, uh, jim, our third from, uh, M. B. I moderated it. And from that meeting, there was a story that came out of there incorrectly about how Jack Ekstrom said he wanted the extraction tax cut in half where they were going to leave and go to colorado.
Are you, were you familiar with that story? Okay. I was at that meeting. That was the furthest from the truth. Uh, Jack was talking about how North Dakota has one of the higher extraction taxes of the United States, true or false. And what he said was from what I heard if the public doesn't see the investment being done in the infrastructure.
They're going to get upset. And also we know you have some wiggle room. whereas Colorado is starting to look more appealing every day. What do you make of my, my analysis on that meeting in comparison to Whiting VP wants oil extract, oil extraction tax cut in
Ed Schafer
half. Well, there, there are a number of elements in that question that need to be addressed. First of all, the infrastructure, you know, in the western counties are in oil impact counties, you know, is tremendous. The state Legislature put to two point 5,000,000,002 2.0.5 billion dollars into infrastructure development in western north Dakota.
That's more money than they can spend. You can't get the equipment and the, and the workers and the, and the inputs and the gravel and asphalt and you know, to do the things that they need to do. So they have more money than they're able to do. The reality is we're playing a catch up game, We were behind the curve as the, as the production accelerated so rapidly.
And one of the things we have to remember now is as we move out of the discovery phase into the operational phase, things calmed down the activity level, lessons pipes go in. So you, you lessen the truck traffic. Um, you know, all the potholes and the bypasses and all that kind of stuff. You get put back in place because you can't, you know, we're starting to catch up on that and I think one of the problems that we have is the western counties are kind of not seeing that bell curve of
activity right now, they're thinking that the activity is gonna straight line going up and they'll never, they'll never get caught up. So they're panicking and saying, we don't have enough money. The reality is, you know, the citizens of North Dakota through the legislative process has supported those counties hugely in infrastructure development and now the, now the communities get a chance to catch up and it's kind of like, well, we have to hold our breath until we get
there, but we're gonna get there. And so, so, you know, that's an important message that western North Dakota's and really our whole state needs to understand that we're not letting those counties dangle out there. They're not just being, you know, thrown to the wolves and let let production of oil go and be damned. Um, you know, this is important investment and it's happening.
Jason Spiess
So in your opinion, the amount of investment with the tax dollars being put into building of infrastructure is, is pretty good. I mean, you feel okay with
Ed Schafer
that, well, you never have enough money, right? You know, nobody has, you enter, especially when you're dealing with government revenues, you always want more, right? But if you look at part of the extraction tax goes directly back to the county's, another part of it goes into the state coffers and is allocated by the legislature back to the impacted counties. Um, you know, so, uh, and uh, they have their own revenue sources. So, you know, there, there are, uh, again, the local
control over the amount of money being spent and the priorities on which they're spending it now is an important issue. And the priorities right now should be infrastructure impact things. You know, I kind of wonder Williston is building this huge, huge civic center and you know, is that, is that a priority versus, you know, fixing the roads and bridges or you know, what, what,
Jason Spiess
$70 million?
Ed Schafer
Well, it's, you know, it's the biggest one in the state, but
Jason Spiess
I mean, realistically, that's $70 million dollars going into a community and it's going into one building. Is that,
Ed Schafer
that's a fair question. And I think the point is, if you, if you look at, you're never gonna have enough money, you're never gonna have all the money in the world. Um, so you've got money coming in. What are your priorities? You know, what, what are the priorities of the community? If you can't have it all, let's do the most important things first instead of trying to do it all and then saying, we don't have enough money, you know, and I think that those are the important movements that
we're gonna see in Western North Dakota now and local officials, mayors and county commissioners and city commissioners are gonna have to start saying, we have set priorities here. We have to figure out how to pay for them. And certainly, you know, we're bonding all this stuff we have to, we have to remember in a cyclical
industry that we can't get caught with the downturn in the economy in our community and then not be able to pay for the bonding and the things that we're doing right now. So let's
Jason Spiess
talk about the downturn for just a second. Are we setting up small business owners in North Dakota right now with the investment, we're putting, what I mean is N. D. S. U. Has a catering department and they compete with local catering companies. Dickinson's talking about selling more water to oil companies last year on my program, I had a officer on from the reclamation department and they were talking about selling water from Patterson Lake to the oil companies.
How much of government's gonna compete with small business, I guess I'll be very blunt with you about that because, you know, you mentioned $70 million infrastructure in Williston, they got to keep that going after they build it. So are we setting up small businesses
Ed Schafer
here? Well, unfortunately when you have a whole lot of money, Jason people sit around and try to figure out how to spend it. You know, you take care of the needs and then you say, okay, well we have some left over. How can we spend it and legislatures efforts are to solve problems. I mean, they, you know, they've got a problem in the community. They worry about it.
They say we have some, some tax dollars here. How, how can we use those to solve problems as you have too much money in a bag. Often legislators and governors, you know, will say, well, let's solve the problem with tax money. And sometimes that problem should be solved with the private sector. But instead of encouraging the private sector, we put tax dollars in.
And one of the perfect examples where I think the state of North Dakota is making a mistake and competing with the private sector is in what you just mentioned, the water delivery. You know, we've allowed the setup of the western area of water supply project, which is clearly in competition with the private sector and you allow people to have, you know, grants no taxes, low interest loans, uh, not people, but communities that can, that can build a water supply project for what a
third of the price that the private sector can do it and then go in and compete with them. Well, that just isn't right. Our country, our state, you know, were built on private sector investments with government encouragement. Um, if we start getting into, let's have government run the businesses, let's have government compete. I think that sets us up for a big problem in the future. Final
Jason Spiess
question for you here. I appreciate the time today. A former governor, Ed Schafer of North Dakota, currently a Continental Resource Board member. is that the correct way to phrase it?
Ed Schafer
I sit on the board of directors of continental resources
Jason Spiess
and uh, Tyler, let's talk about the Tyler to two questions. Sorry. First one is state's rights and the role of an E. P. In this energy boom. And then the Tyler, if there's any update on continental in the Tyler
Ed Schafer
should also get back to the tax, the
Jason Spiess
tax too because
Ed Schafer
we maybe skip that
Jason Spiess
you have time. Well, it's um okay. Yeah, I just wanted to make sure we're about um let's continue with the tax then and then we'll get out of that. So,
Ed Schafer
well, you, you know, you mentioned the impact of what our extraction taxes and oil company representatives are saying our taxes are high, as you know, the highest in the, in the lower 48 states. Um I think the important thing to look at there is how we started this play in North Dakota. Um in in the mid 19 nineties, you could see the bacon start to develop and all of the drilling, all of the activity was in Saskatchewan, not in North Dakota.
We had one rig drilling in North Dakota because it was more expensive to operate here. Not that the tax level is right at this. And when you started looking at where do you develop, it was more expensive here. So we, in looking at that, lowered the extraction tax. The legislators, Governor being me, you know pursued the lowering of extraction taxes in north Dakota for the new technology of horizontal drilling and horizontal drilling, what was, what is, what unlocked the
potential of the natural resources in the bacon play. And so we, we proved that lowering the taxes at the time cause the shift of activity to move into north Dakota that was across our borders previously. So if you look at that and say okay that the cost of extracting that oil is an important factor in where people drill, then you have to recognize that you know, now our technology that we've developed in north
Dakota which was marrying the hydraulic fracturing with horizontal drilling is being used in texas and Oklahoma and colorado and Wyoming some places in California and
Jason Spiess
foreign countries to
Ed Schafer
foreign countries to, they're they're really not going to be competitive with us though however, on a tax basis. So but but Colorado is Wyoming is and if you own the mineral rights and you've got a 25 year stream on those and you don't have to drill a well, there. why would you, if it costs you more. Now in the beginning in the discovery phase you do because you want to get, you have to get that well drilled, you have to secure the mineral rights but once they're secured, you have no need
to drill for that oil in that middle right patch. So instead of drilling the 2nd, 3rd and 5th well on that same area, in that same pressure field, Um, you drill it in Montana or you drill it in Wyoming and then 15 years later you can come back and get it out of North Dakota. So you're gonna, I mean the capitalistic system, you know, the law of supply and demand, you're gonna say, I'm gonna drill where I have the least cost.
And if you look at the drilling activity in the Eagle ford play in texas, we have twice as many rigs drilling down there than in North Dakota right now. You know, if you look at, if you look at the new activity that's going in, its going in central Oklahoma, it's going, you know, colorado is kind of peaked out a little bit, but you're starting to, you know, of course see Montana now, you know, pick up in the baking and in some areas in Wyoming. So I just think we just need to be careful there
because um, we have higher costs and we, and we must remain competitive. Not today. Not tomorrow. But, you know, in 2015 or 2016 or somewhere along that line. If we're not competitive, we'll start to see a lowering of activity. And we've had, uh, you know, previous comments here about how lowering of economic activity through the energy can really hurt North Dakota, our communities in our state,
Jason Spiess
I'm seeing signs right now, I went down to Belle fouche and, you know, I don't know if you've been down there, but they're right in the center of this whole energy boom because they've got I 90 and they've got highway 85 2 12. They got 9000 vehicles a day going through this little intersection because it's on the way to Cheyenne Wyoming or Gillette, sorry, Gillette and Gillette is like an energy, but I'm seeing Permian tanks, uh, set up shop there.
And now I'm starting to see tanks sitting outside at Fargo tanks, which didn't happen before. It's almost like they're setting up kind of that middle area in case of the colorado play. And these, these new pad drilling, uh, they're paid for in 18 months is my understanding and they can, they can take them down and set them up in four days.
That's how efficient the oil industry has gotten. So I do think there's some legitimacy right now and it's not a threat. As much as, uh, hey guys, listen to what we're saying. I don't know, that's, that's what I think is coming out of the, the oil companies. It's not a threat. Like it's being framed in the media.
Ed Schafer
No, it's, you know, maybe people are always threatened if you say, oh, you have to lower the big bad oil companies taxes because they're rich and they make all this kind of money in this. And the reality is they're going to extract our mineral resources where they can do it the most efficiently in the least cost manner. And we just have to be aware of that in North Dakota because, um, you know, oil companies were 35 years out, you know, there's security, mineral rights, they're
moving rigs, they're getting capital there, you know, They're planning on where they're gonna start punching holes. Not today, not tomorrow, three years from now, five years from now and in North Dakota. If we're not going to be competitive three and five years from now, um, why would you drill there?
Why would you, you don't have to, and, you know, the reality is, you have a declining reservoir, you drill a hole, 85% of that oil production disappears in the first three years. And then it settles down to, you know, to a manageable production level for the next 20. But
Jason Spiess
if
Ed Schafer
you don't keep drilling holes, you can't keep the production up because because of the declines. Well, if you don't keep drilling holes, we don't keep revenue in North Dakota, we can't feed the cost of our government through energy. And we just, you know, you know, I, I believe, you know, we ought to be aware of our extraction taxes, It worked in the 90s for us to lower that, to create activity, there will come a time in North Dakota where we're going to have to create activity by
lowering the cost of doing business in North Dakota, we recognize that already by having a trigger point. If the prices go down. But what we're not recognizing is the competitive aspect of other oil plays around our country and we just need to put that on the table.
Jason Spiess
You mentioned Canada and that there's a prime example. I was talking with, uh, target logistics and they get like subsidies in Canada that they're welcomed in with open arms for this, this type of crew camp housing. Whereas in North Dakota, they're kicking them out and there's regulations here. I mean, there, it was an example he gave of the two point of views when it comes to energy exploration and energy production and they wondered why the United States hasn't gotten on board
with that, if that makes sense Because because of the, the jolting the economy it can give. And if spent wisely you can really like, like what Dickinson has done with their, their infrastructure, They have five lane going out of town. It's, I mean, it's like a comfort cruise lane going out of there. Man. I mean, it's, I've never experienced anything like that before.
But um, what do you want people to remember about the extraction tax because when it first came about, I did think it was oil companies looking for more money and then I kind of did some research and, and of course I'm a writer as well. So it helps for me for research reasons, but I realized this is real, this is legit and they're not trying to be the big bad wolf.
They're trying to be the town crier, They're trying to be on a soapbox saying, listen guys, this is real. Um, you need to understand that there's a competition out there and we've become more efficient with how we're doing things. I don't know, I just, what, what do you want? People to remember?
Ed Schafer
Well, I want, I would like people to remember that we jump started the energy industry in North Dakota in the 1990s by lowering extraction tax so that we lowered the cost of that drilling, so that activity mental, right purchases, capital raised equipment moves started to come into the state and we started to see that activity go as that activity started to move.
That's great. We started getting revenues in and we started to spend our revenues and, and it's really benefit the whole state. And we were sitting in Fargo right here now and oil extraction tax is buying down property taxes right here in Fargo. So, you know, the, I mean, the whole state has benefited from this thing and, and rightfully so people say get it while you can take the money, you should raise the taxes. So you get more, those kinds of things. The reality is in the private
sector marketplaces, in the United States of America, the foundation of this country and the foundation of the economy in North Dakota. Um, it's a competitive, you know, uh, investment and where you can make the most money to satisfy your shareholders, your bankers, your owners, um, and, uh, and your and your suppliers and all those kind of things, um, that we, that we want to do. So, you know, you take care of your employees by making money and so
Jason Spiess
we
Ed Schafer
need to remember that, uh, that we need to remain competitive. That, you know, we're not saying, boy, we should just give the, the oil companies more money. Um, how do you handle this whole thing? The reality is at some point in time, if, as we saw in the nineties, the activity was across the border and we could do something about it to get it inside our border.
We, you know, we, we have to, we have to take that into consideration And say, do we want to be competitive? Do we want the activity here? We proved it works in the 90s. It'll work again the other way if we're not careful. So, you know, let's be careful about that. The other thing I think it's important to remember is that, is that oil companies are making plans 3-5 years from now, not today.
And so we, so we have to anticipate when this shift, the competitiveness comes so that we're not sitting there and saying, oh well, we have to do it. You know, we've lost our revenues and by the way, we've got to put it back in place today because it doesn't come back at the snap of a finger. Legislature can't lower the extraction tax and expect the next month to see activity increase. It is years out before you can generate the opportunity to bring that business back. So you know,
let's, let's be aware of the competitive situation. And let's remember that we have to, you know, it's kind of like when you're shooting ducks, you shoot ahead of them. You know, you don't shoot him, you shoot ahead of them. And, and uh, you know, we have to make sure that we're out ahead of this thing as we look at the extraction tax cost, extraction tax costs for North Dakota because we could get caught in a situation where we have a dip in revenues that could hurt us.
Jason Spiess
You know what I love about this energy boom and I've done some research and it's like with most energy booms, it's a, it's an inventor's backyard paradise. I mean they come up with some new flange, some new flange system for example, that's piping. I guess it could be an overnight millionaire because an oil company will put it on all all the rigs overnight if it works out that makes their business more efficient. There's a lot of that going on where, where you know, oil say
somebody's working for marathon oil. There you go. One of your competitors and he's taking a look at this pipe every day and he looks at it And he goes to his boss and his boss says, well why don't you design something? He goes out, gets a patent, next thing, you know, this guy is doing business with marathon as a, as a, as a rep. Now as an inventor that's happening a lot, isn't it?
Ed Schafer
Every day I get the opportunity to see some kind of a new project, new company, new way of doing business, new technology and it's in, it's in all areas like you said, you know, it could be a flange on the pipe, it could be the way you measure something, the way you distribute something, the way you seal something. Um, you know, it's just, it's amazing and it is an inventor's paradise and the economic activity is what creates that if you, you know, it's, it's, it's the not only
extraction of the natural resources extraction of the money, it's the extraction of the economics that people say, you know, if I could sell 52 of these things, I can make some money and and that economic create that economic activity is what allows you to invent those new products to get them tested and built and get them out there and get them sold, you know, providing tremendous opportunity in north Dakota for new companies, for new ideas for new technology, you know,
Jason Spiess
Well I tell you some of the inventions are neat as far as pulling um pulling metal out of pipes with, with magnetic blankets around pipes. I mean something as simple as that
Ed Schafer
every day. It's just like, wow, that is really a cool idea. You know,
Jason Spiess
then you also are seeing a lot of innovation and flaring happening. I mean we just had the alliance pipeline open up. Hess is scheduled to come on board in the next several months and to satisfy some of those natural natural gas flaring problems. Where's continental with a natural gas these days?
What do you make of that? Because that's, that's Tony clark calls that the next wildcard in the bacon and you talk about volatility. Natural gas could spike up to 67 bucks next week and we could see a natural gas renaissance out in the
Ed Schafer
bacon.
Jason Spiess
Well,
Ed Schafer
first of all, natural gas is not going to spike up. You know, the, the supply that's out there versus the demand is such to where, you know, we see $3 ... you know, three to even a little less in some places and then that's gonna stay around for a while, the prices are inching up. If you look at the forward hedging on sale prices and gas and things over the next few years, you're gonna see a little bump in prices, but nothing dramatic and uh, but, but importantly, um, you know, continental
resources to answer your question is an oil company. You know, the vast amount of our efforts and investments and capital expenditures go to extract oil. A lot of the gas play that we have, um, continental comes from oil discoveries and, and, and, and the liquids that are in gasses, etcetera. But you know, the innovation is amazing because, you know, they're, they're now today are all kinds of companies that are working on, you know, how can you manage the natural gas on site?
How can you extract the liquids on site and you know, and just ship the gas and, and things that are really happening Continental as a matter of fact, um, where North Dakota on average extracts are flares, about 30% of the gas, continental flares 10. And they've done it by innovative ways of figuring out how to, um, you know, how to move that gas, how to store it, how to get it to the processors. But importantly, Continentals done it by making commitments to the pipeline companies so
that they know they've got a revenue stream to invest in pipes and collectors and tanks to get that gas moves, you know, importantly, um, North Dakota's finding ways to reduce that flaring. Um, it's important for us to do the legislatures put some incentives to do so in. But the company's economic incentives are really what is pushing our efforts to, to collect that gas and to recognize the economic value.
Jason Spiess
So what's Continentals future? What are you guys looking at here?
Ed Schafer
Well, Continental, our plans are to triple the size of the production in five years. Uh, and that's like the
Jason Spiess
best sound I've ever heard in my life. ...
Ed Schafer
You know, it's, it's pretty amazing that the company is growing rapidly. Um you know, really, the, the amount of mineral rights that are owned by continental across this country, uh in proven oil and gas plays are, are tremendous. We're fighting every day to figure out how can we raise the capital to realize that the usage of those mineral rights and um you know, you get, you get capital constraint because there's so much opportunity, you just don't have the money to be able to
explore and extract all of the natural resource reserves that are out there. But you know, we, we, we've mapped out a way to triple the size of the company and um and plan, yeah, I plan on doing that.
Jason Spiess
So you're serious about tripling the size of the company. Okay, well, good luck with that. Uh Tyler anything with the Tyler guys doing anything.
Ed Schafer
I, you know, I love the Tyler play. You know, first of all it was Tyler play was a pre Bacon play. And it's important for us remember. But if you look at the shape of the Tyler geological formation of the Tyler, its shape runs to the south and southwest of the Bacon and what we're seeing now is now is minimal as, as the bacon has become proven reserves as you shape that play up there.
Um What's next? You know, where you're going next. Well, what's next it looks like in North Dakota is, people are mineral rights are being purchased activity starting to go to the south and southwest. The Tyler Formation is more of a horizontal, a straight, vertical, well drill. Um, the oil is close to the surface, it's kind of in pools instead of in scenes.
Um, so it is a little expensive to extract. But importantly, um, it is, It moves the activity out of the north and northwest of the state to the south and the southwest and, you know, the south and the southwest. We've had, we've had, uh, those plays going on since the 50s and the infrastructure is more developed, collections, more developed.
You know, the activity I think is kind of, we're used to that activity in the marketplace. So it's gonna have, it's gonna be able to spread out the activity across a wider geographical range in North Dakota, but it's also moving into an area that I think is more manageable and easier for the state to deal with. And so I'm excited about the Tyler play. I think it's, um, it's really gonna be an important economic aspect for the state of North Dakota and It looks like there's a lot of
activity moving that way. Like I said, you know, you're dealing with that 3-5 years out. Not tomorrow, but if you look at mineral purchases, you look at, you know, installations tanking pipes, storage yards. The stuff that's been rented and build and stuff. It's, you know, it's moving that way. And I think that's an exciting play for North Dakota.
Jason Spiess
You can see the trends. You can see the trends. Governor Schaefer, Thank you very much.
Interview was conducted on November 8, 2013.
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The Crude Life Podcast: Former North Dakota Governor and Continental Resources Board Member Ed Schafer