[Senate Hearing 110-869]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-869
 
         ENERGY SUPPLY AND CONSTRAINTS IN WESTERN NORTH DAKOTA 

=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                            SPECIAL HEARING

                    SEPTEMBER 3, 2008--BISMARCK, ND

                               __________

         Printed for the use of the Committee on Appropriations


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                      COMMITTEE ON APPROPRIATIONS

                ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            TED STEVENS, Alaska
TOM HARKIN, Iowa                     ARLEN SPECTER, Pennsylvania
BARBARA A. MIKULSKI, Maryland        PETE V. DOMENICI, New Mexico
HERB KOHL, Wisconsin                 CHRISTOPHER S. BOND, Missouri
PATTY MURRAY, Washington             MITCH McCONNELL, Kentucky
BYRON L. DORGAN, North Dakota        RICHARD C. SHELBY, Alabama
DIANNE FEINSTEIN, California         JUDD GREGG, New Hampshire
RICHARD J. DURBIN, Illinois          ROBERT F. BENNETT, Utah
TIM JOHNSON, South Dakota            LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              SAM BROWNBACK, Kansas
FRANK R. LAUTENBERG, New Jersey      WAYNE ALLARD, Colorado
BEN NELSON, Nebraska                 LAMAR ALEXANDER, Tennessee

                    Charles Kieffer, Staff Director
                  Bruce Evans, Minority Staff Director
                                 ------                                

              Subcommittee on Energy and Water Development

                BYRON L. DORGAN, North Dakota, Chairman
ROBERT C. BYRD, West Virginia        PETE V. DOMENICI, New Mexico
PATTY MURRAY, Washington             THAD COCHRAN, Mississippi
DIANNE FEINSTEIN, California         MITCH McCONNELL, Kentucky
TIM JOHNSON, South Dakota            ROBERT F. BENNETT, Utah
MARY L. LANDRIEU, Louisiana          LARRY CRAIG, Idaho
DANIEL K. INOUYE, Hawaii             CHRISTOPHER S. BOND, Missouri
JACK REED, Rhode Island              KAY BAILEY HUTCHISON, Texas
FRANK R. LAUTENBERG, New Jersey      WAYNE ALLARD, Colorado

                           Professional Staff

                               Doug Clapp
                             Roger Cockrell
                         Franz Wuerfmannsdobler
                        Scott O'Malia (Minority)
                         Brad Fuller (Minority)

                         Administrative Support

                              Michael Bain

























                            C O N T E N T S

                              ----------                              
                                                                   Page

Opening Statement of Senator Byron L. Dorgan.....................     1
Statement of Representative Earl Pomeroy.........................     3
Statement of Hon. Joseph T. Kelliher, Chairman, Federal Energy 
  Regulatory Commission..........................................     5
    Prepared Statement...........................................     7
Oil Pipelines in the United States...............................     8
A Brief History of Oil Pipeline Regulation.......................     8
Requirements, and Limitations, of the ICA........................     8
Ratemaking Under the ICA.........................................     8
North Dakota Crude Oil Transportation............................     9
Statement of Lynn D. Helms, Director, North Dakota Industrial 
  Commission, Department of Mineral Resources....................    11
Justin Kringstad, Director, North Dakota Pipeline Authority......    11
Prepared Statement of Lynn D. Helms..............................    13
North Dakota's Bakken Resource...................................    13
North Dakota's Bakken Opportunity................................    13
North Dakota's Response..........................................    13
Federal Role.....................................................    14
Statement of Hon. Shirley Meyer, North Dakota State 
  Representative and Co-chair, North Dakota Oil Refinery Task 
  Force..........................................................    14
    Prepared Statement...........................................    16
Statement of Kevin Hatfield, General Manager, Gathering Systems, 
  Enbridge Energy Company, Inc...................................    18
    Prepared Statement...........................................    21
Statement of Harold G. Hamm, Chief Executive Officer and Chairman 
  of the Board, Continental Resources, Inc.......................    24
    Prepared Statement...........................................    26
The Opportunity for North Dakota.................................    26
The Challenges to Continued Growth...............................    27
Unconventional Shale Explorationists Break Reservoir Paradigm....    27
Pipeline Issues and Challenges...................................    28
State of North Dakota Bakken Formation Resource Study Project--
  April 2008.....................................................    45


         ENERGY SUPPLY AND CONSTRAINTS IN WESTERN NORTH DAKOTA

                              ----------                              


                      WEDNESDAY, SEPTEMBER 3, 2008

                               U.S. Senate,
      Subcommittee on Energy and Water Development,
                               Committee on Appropriations,
                                                      Bismarck, ND.
    The subcommittee met at 10:08 a.m., in the Auditorium, 
National Energy Center of Excellence, Bismarck State College, 
Hon. Byron L. Dorgan (chairman) presiding.
    Present: Senator Dorgan.
    Also present: Representative Pomeroy.


              opening statement of senator byron l. dorgan


    Senator Dorgan. I am going to call the hearing to order. My 
name is Byron Dorgan. I am a Senator from North Dakota. My 
colleague is joining me. This is Congressman Earl Pomeroy.
    This is a hearing of the Senate Appropriations Subcommittee 
on Energy and Water. And I appreciate my colleague joining me 
from the House side.
    We are here today to talk about particularly oil and gas 
development in North Dakota. And I appreciate all of you 
attending the hearing. I especially appreciate the witnesses 
who have joined us.
    I understand Mr. Hamm is attempting to catch a flight at 
noon today out of Bismarck, and we hope that we can accommodate 
your schedule. I appreciate very much your coming here from 
Oklahoma. We have five or six daily flights to and from 
Oklahoma, I am sure.
    So my guess is we will be able to accommodate that, Mr. 
Hamm. I appreciate your traveling here today for that purpose.
    We are here to talk about the nearly unbelievable amount of 
energy development that is occurring in North Dakota, 
particularly in the oil and gas area. As you know, the Bakken 
Shale development is providing substantial new drilling rigs 
here in North Dakota. I had asked the U.S. Geological Survey to 
do their assessment that Dr. Price had done some years before 
and died before it was peer reviewed or released.
    USGS rated the assessment. They assessed that under today's 
technology, there were 3.6 to 4.3 billion barrels of 
recoverable oil in the Bakken Shale. It was the largest 
accumulation of oil--recoverable oil ever assessed in the lower 
48 U.S. States, which is an interesting piece of information. 
It suggests that this industry will be a robust part of our 
economic future for a long, long time here in North Dakota.
    This news of 3.6 to 4.3 billion barrels is good news 
because we are in an energy crisis of sorts in this country. We 
use a quarter of the world's oil but produce only 3 percent of 
it in all of North America. We import well over 60 percent of 
oil from other nations, some of which are unfriendly and some 
of which are unstable. And it means we export our wealth to 
them and have an economy that is unbelievably dependent on 
their stability and their willingness to sell us their oil.
    Five nations in the Middle East control two-thirds of the 
oil reserves on this Earth. Ninety percent of the world's oil 
is, in fact, controlled by nationally known or largely 
nationally owned oil companies. That is, oil companies that 
have a substantial portion of their ownership by foreign 
countries.
    As you know, the price of oil doubled from May 2007 to May 
2008. There are a lot of reasons for that and a lot of 
conjecture about why. I have my own views about it. I think the 
oil futures market, while it is now adjusting back downward; I 
think it was a substantial amount of speculation by 
noncommercial interests in the market. And that may well be 
self-correcting, I don't know. But I won't go into that in 
great depth today, but we need to attack the problem of this 
energy crisis on all fronts.
    We need more domestic production. That means more drilling. 
We need to wrap up our investment in renewable energy sources. 
We need to take substantial steps in conservation. We need to 
address the issue of excess speculation in the futures markets.
    But when it comes to the issue of domestic production, the 
Bakken region is an outstanding resource, both for our State 
and our Nation. The goal of the hearing today is to talk about 
how we can maximize the production from the Bakken to 
contribute to our Nation's energy supply.
    My own view has been, for some while, that the largest 
reservoirs of recoverable oil are in the Gulf of Mexico. I was 
one of four Senators--two Republicans, two Democrats--that 
offered the legislation that is now law that opened up 8.3 
million acres called Lease 181 in the Gulf of Mexico.
    Much greater opportunity exists in the gulf. Just for your 
information, if you evaluate potential oil resources, the Gulf 
of Mexico is number one, the west coast of the United States 
number two, and Alaska is number three in terms of recoverable 
oil and opportunities for oil and gas that is recoverable under 
today's conditions.
    But we ought to do a lot of things and do them well. The 
question today is how can we maximize the opportunities from 
the Bakken Formation? And there are a couple of issues with 
respect to that. With all wonderful news come challenges and 
interesting needs for us to address those challenges.
    I have heard from a fair number of oil producers in the 
Bakken region that struggle to move their crude from their 
wells to the refineries or that they pay substantial prices to 
get space on a pipeline or a railcar to move their product. And 
it appears to me that we may well face a bottleneck of sorts if 
we don't think through this, and I am trying to understand, 
with this hearing, what may happen in the future with respect 
to the movement of the oil, the considerable amount of oil that 
is going to come from the Bakken.
    I have a chart that I want to show you. We are going to get 
to a point in just a few months. You see here that the ramp-up 
production in June 2008, 166,000 barrels per day is record 
production. We are told the North Dakota capacity limit for 
movement is 189,000 barrels. So it is pretty clear that as you 
ramp up production--I think we have 81 drilling rigs in the 
State. Someone might correct me on that. But somewhere, 80, 81 
drilling rigs at the moment drilling a hole every 30 or 40 
days.
    As you ramp up production, at some point you reach capacity 
on transportation. The question is what is going to happen in 
the future with respect to pipeline capacity? What will happen 
with respect to rail capacity so that we can move this product 
out and so that the producers in this region aren't paying a 
penalty on that product in order to get that movement?
    So I have called this hearing today to discuss that. I also 
think in the context of that, I asked one representative of the 
group that has been formed in North Dakota to talk about an 
interest of additional refining capacity in our State because I 
believe that we should find a way to achieve additional 
refining capacity, either through incentivizing some company, 
perhaps Tesoro or someone else, to expand or some company to 
come in and build a new refinery.
    I think it would make a lot of sense for North Dakota to 
have additional refining capacity. We produce much, much more 
than we use. And just last week, I had a report that we were 
going to be short somewhere. Well, we shouldn't be short 
anywhere. We are not at the end of the pipeline. We are at the 
start of the pipeline. There is no reason for a State that is 
at the start of the pipeline to be short of energy that we need 
in this State.
    So we are going to discuss all of that this morning, and I 
am especially interested in focusing on this question of the 
good news from this chart about production and where that meets 
limits on capacity to move it and then what might or might not 
happen to address those limits. I don't approach this as in any 
way being pessimistic. I am very optimistic about the future.
    This State is going to play a prominent and significant 
role in our country's energy future. We are going to be a very 
big contributor. That is very good news for the country, and it 
is great news for North Dakota. But it will present challenges, 
one of which is the infrastructure in our State.
    Yesterday, I was up in the Northwest region. I can't tell 
you how many big, old trucks I followed down the road, but 
there were a lot of them with a lot of weight. And so, you have 
got all these different challenges and interests. We are going 
to focus on a portion of them this morning, not all of them.
    But I have a group of witnesses. I appreciate very much 
their willingness to be here today. I will introduce them in 
just a moment. Let me call on my colleague Congressman Pomeroy.


                statement of representative earl pomeroy


    Mr. Pomeroy. In Congress 101, we learn that House guys 
better keep it short when appearing at a Senate hearing. So I 
will be very short.
    This is an extremely important time for North Dakota as we 
completely transition to a different place in terms of the 
energy role we will play relative to meeting our Nation's 
energy needs. And this is true relative to many sources of 
energy.
    So it is extraordinarily important for us that one of our 
Senators, Byron Dorgan, is chairman of the Energy and Water 
Appropriations Subcommittee, the funding committee driving much 
of congressional research, planning, and program of relative 
meeting our Nation's energy needs.
    A couple days ago, driving around Bismarck, I saw a pickup 
with a bumper sticker that said, ``It ain't over until the last 
barrel sings.'' Well, I suppose that was kind of a refrain on 
the ``drill, drill, drill'' chorus we have been hearing 
throughout the summer.
    If it was only as simple as that, I guess ``infrastructure, 
infrastructure, infrastructure'' doesn't have quite the same 
resonance. But if we are going to make the most of our domestic 
energy sources, we better get serious about the infrastructure 
for getting energy sources from where they are to where they 
are needed.
    Now, North Dakota has seen this in so many places, wind, 
for example, and the electric transmission issues that 
represent a choke point in terms of our ultimate potential. We 
see the same chorus with moving the tremendous opportunity the 
Bakken play represents. We are going to quickly reach the 
point, as this chart so painfully demonstrates, where our 
production outstrips our ability to ship and refine the 
product.
    We know what happens. Our producers pay a very serious 
price penalty when they butt up against overall transmission 
and pipeline maximums. And so, dramatic improvements and 
expansions to our Nation's electricity grid, biofuel pipelines, 
oil, and natural gas pipelines must all be made as we make 
steps to bring greater energy independence to our country.
    We are proud of North Dakota's role here and are very, very 
focused on this infrastructure application. I believe that 
there is going to be a tax component of this. With the House 
Ways and Means seat, I intend to make certain that we are very 
carefully attentive to looking at using the tax code in ways 
that might help build out infrastructure.
    So I am looking forward to the panel's testimony, and I 
think that you have done a terrific job, Mr. Chairman, in terms 
of pulling together a variety of perspectives to weigh in on 
this important issue.
    Thank you for allowing me to attend.
    Senator Dorgan. Congressman Pomeroy, thank you very much.
    I want to introduce Franz Wuerfmannsdobler, who works on 
the Appropriations Committee in the Senate with me, 
particularly on energy issues, and Jonna Hamilton, who also 
works on energy issues with us. They are here to my left, your 
right.
    We are going to begin today by hearing from Mr. Joe 
Kelliher, who is the Chairman of the Federal Energy Regulatory 
Commission. He has been Chairman of FERC since 2005. He has 
come to North Dakota previously when we did an energy expo and 
was a presenter here, and I have always appreciated his work.
    Then I am going to turn to Mr. Lynn Helms, who has served 
as the director of North Dakota's Industrial Commission, Oil 
and Gas Division, since July 1998, and director of the 
department of mineral resources since July 2005.
    And then I will turn to Shirley Meyer, a member of the 
North Dakota House of Representatives, where she serves on the 
Energy Transmission and Judicial Process Committees and is co-
chair of the North Dakota Oil Refinery Committee.
    Then we will hear from Mr. Kevin Hatfield, general manager 
for the gathering systems for Enbridge Pipelines North Dakota. 
And I will speak more about your background, Mr. Hatfield, in a 
moment.
    And finally, Mr. Harold Hamm is the chief executive officer 
and chairman of the board of Continental Resources, and we 
appreciate very much your traveling here.
    So we will begin with Mr. Joe Kelliher, who is the Chairman 
of Federal Energy Regulatory Board.
STATEMENT OF HON. JOSEPH T. KELLIHER, CHAIRMAN, FEDERAL 
            ENERGY REGULATORY COMMISSION
    Mr. Kelliher. Thank you, sir.
    Mr. Chairman, Congressman Pomeroy, I want to thank you for 
the opportunity to appear here before the subcommittee. And I 
want to particularly commend Chairman Dorgan for his interest 
in this subject, which is actually longstanding. It goes back a 
number of years.
    I am going to summarize my testimony and concentrate on 
FERC's legal authority with respect to oil pipeline regulation 
and also discuss the nature of the problem at hand today.
    But first of all, it is important to recognize the Nation's 
oil pipeline network consists of about 200,000 miles of 
pipelines performing a variety of roles. Crude oil pipelines 
transport crude oil and synthetic oil from production areas and 
marine terminals to refineries. Refineries produce a variety of 
petroleum products, and a separate system of pipelines moves 
those petroleum products to distribution points. Overall, this 
is a very robust network, and it operates very well, and it has 
for some time.
    Commission regulation of this network is under the 
Interstate Commerce Act, which gives the commission authority 
to regulate the transportation rates and practices of oil 
pipelines. The Hepburn Act of 1906 began the regulation of 
interstate oil pipelines, making pipelines common carriers 
subject to regulation. The act was an amendment to the existing 
Interstate Commerce Act, which was initially enacted in 1887, 
which had previously focused primarily on regulating railroads 
and telegraph companies.
    Responsibility for regulating oil pipelines was initially 
vested in the Interstate Commerce Commission, but was 
transferred to the Federal Power Commission, FERC's predecessor 
agency, in 1977.
    Now, under the Interstate Commerce Act--the Interstate 
Commerce Act applies to the transportation of oil and petroleum 
products from one State to any other State, from any place in 
the United States to a foreign country, and from a foreign 
country to any place in the United States, but only insofar as 
such transportation takes place within the United States.
    Because oil pipelines are common carriers, the Interstate 
Commerce Act requires that they provide transportation upon 
reasonable request. And that means, for example, that an oil 
pipeline operating at full capacity must prorate that capacity 
among current shippers to make capacity available to a new 
shipper requesting transportation service from the pipeline.
    And significantly, the commission has no authority to grant 
preferential treatment among domestic oil producers in 
prorationing or to somehow favor domestic oil producers over 
foreign sources.
    The Interstate Commerce Act requires that all charges for 
oil pipeline transportation must be just and reasonable, and it 
does authorize the commission to investigate the lawfulness of 
oil pipeline rates and practices and to prescribe changes upon 
complaint or upon its own motion.
    But there are limits on commission authority under the 
Interstate Commerce Act. The Interstate Commerce Act does not 
confer jurisdiction to FERC over the siting and construction of 
oil pipelines. That is a matter reserved for the States.
    The Interstate Commerce Act also does not give FERC 
authority over oil pipeline mergers and acquisitions, over 
abandonment of service, or over oil pipeline safety. Safety is 
entrusted to the Department of Transportation, the U.S. 
Department of Transportation Pipeline and Hazardous Materials 
Safety Administration.
    Now let us take a look at the problem we are dealing with 
today, that we are addressing today. If you look at the nature 
of the problem, I think it is fair to put it that the simple 
problem is that current North Dakota oil production and 
Canadian imports exceed the current transportation capacity of 
pipelines in the region. And the question is what do we do 
about that?
    I think the problem results in part from the very dramatic 
growth in crude oil production in the Williston Basin area of 
North Dakota, and that has increased North Dakota oil 
producers' need for available oil pipeline capacity to move 
their crude oil to market. Existing pipelines serving the area 
are operating at full capacity, requiring that they prorate 
their capacity among shippers. Actually, prorationing has been 
the order of the day in North Dakota since 2005. So 
prorationing is actually not a new circumstance.
    Now at the same time as North Dakota oil production is 
increasing, crude oil imports from Canada are rising. Canadian 
imports currently comprise about 20 percent of U.S. supply, and 
Canadian imports are a reliable source of oil for the United 
States and I think do improve this country's energy security, a 
point that the chairman made in his opening remarks.
    But Canadian imports do require space in the pipeline, and 
they create bottlenecks in pipeline capacity that limit the 
amount of crude oil that can be moved out of the North Dakota 
production region. Pipelines serving North Dakota are 
increasing their capacity, which should help to alleviate 
capacity shortages. Nevertheless, it is likely that with 
additional growth in North Dakota crude oil production and 
Canadian imports, the pipelines' proposed capacity increases 
still will not be adequate to transport North Dakota production 
without capacity prorationing among shippers seeking that 
capacity.
    Now FERC recognizes the need for investment in energy 
infrastructure to meet the Nation's growing demand for energy 
and encourages capacity expansion. The commission, in fact, has 
approved several proposals to expand the Enbridge pipeline's 
North Dakota mainline to provide additional takeaway capacity 
for the North Dakota production area and other Enbridge Energy 
Company proposals to expand major pipelines importing Canadian 
crude oil to help relieve pipeline capacity bottlenecks.
    But the commission's regulatory authority begins at the 
border and extends only to transportation that takes place 
within the United States, regardless of the source of the oil 
being transported. The commission, thus, does not have a role 
in regulating foreign sources of crude oil entering the United 
States, but only its movement once it crosses the border. And 
the commission does not regulate how much crude oil is coming 
into the United States from Canada.
    Now, as I indicated, the nature of the problem that we are 
discussing is that current North Dakota oil production, 
combined with Canadian oil imports, exceed the existing 
takeaway capacity for pipelines in the region, and that both 
North Dakota production and Canadian imports are expected to 
rise, and that even the announced additions in takeaway 
capacity would probably not suffice to meet those growing 
needs.
    Domestic and Canadian crude oil production, if you look at 
then the nature of the problem, then what is the nature of the 
solution? I think the solution is obvious, and I think the 
correct solution is to increase the pipeline capacity available 
to both sources; both North Dakota oil production as well as 
Canadian imports. And the commission certainly favors 
infrastructure development, and that was recognized in the 
recent report by the Interstate Oil and Gas Compact Commission.
    And I just want to say that to solve the problem--I just 
want to end with an injunction that to solve the problem, I 
think it is up to the parties themselves to resolve who will 
commit to support the development of new pipeline 
infrastructure and who is willing to pay for that 
infrastructure? And I think the commission, for its part, will 
continue to work with all parties to achieve that end.


                           prepared statement


    The Commission has been an infrastructure agency since 
1920. So we do like to see infrastructure expanded. We have 
taken creative approaches to approve surcharges for oil 
pipeline expansion proposals. So we are willing to take a 
creative approach, but I think there is a need for both 
shippers and pipelines to make commitments to support expansion 
projects.
    With that, Mr. Chairman, Congressman, I want to thank you 
for the invitation to participate in the hearing.
    [The statement follows:]
             Prepared Statement of Hon. Joseph T. Kelliher
    Mr. Chairman and members of the subcommittee, thank you for this 
opportunity to appear before your subcommittee to discuss Energy Supply 
and Constraints in Western North Dakota. My testimony today will 
include a description of the Nation's oil pipeline network, a brief 
history of oil pipeline regulation, a description of the Federal Energy 
Regulatory Commission's (FERC) authority under the Interstate Commerce 
Act to regulate the transportation of oil and oil products by pipelines 
and the jurisdictional limitations of the act on that authority, a 
description of current oil pipeline rate regulation, and comments on 
North Dakota crude oil transportation.
                   oil pipelines in the united states
    The Nation's oil pipeline network consists of approximately 200,000 
miles of pipelines performing a variety of roles. Crude petroleum 
systems transport crude oil and synthetic oil from production areas and 
marine terminals to refineries. The refiners produce a variety of 
petroleum products, principally gasoline, heating oil, and jet fuel, 
but also liquefied petroleum gases (e.g., butane and propane), 
kerosene, heavier distillates, naphthas, and asphalt. A system of 
pipelines separate from crude oil lines transport refined petroleum 
products from refineries or import terminals to distribution points. 
Both crude oil and petroleum product transportation is measured in 
barrels (bbls.). A barrel equals 42 U.S. gallons.
               a brief history of oil pipeline regulation
    The Interstate Commerce Act (ICA) gives the Commission the 
authority to regulate the transportation rates and practices of oil 
pipelines. The Hepburn Act of 1906 began the regulation of interstate 
oil pipelines, making pipelines common carriers subject to regulation. 
The act was an amendment to the existing Interstate Commerce Act that 
from its enactment in 1887 had focused primarily on railroad and 
telegraph company regulation. The responsibility for regulating oil 
pipeline rates was vested in the Interstate Commerce Commission (ICC) 
and remained with the ICC until 1977, when the Department of Energy 
Organization Act was enacted. That act transferred jurisdiction over 
oil pipeline regulation from the ICC to the new Department of Energy 
and the Federal Power Commission, predecessor to FERC.
    Regulation of oil pipelines is governed by the version of the ICA 
as it stood on October 1, 1977, the day of enactment of the Department 
of Energy Organization Act. That version can be found only as an 
appendix to the 1988 edition of title 49 of the United States Code 
(cited as 49 App. U.S.C.  1, et seq. (1988)). The 1977 version of the 
ICA also has been reproduced and made available on the FERC Web site.
               requirements, and limitations, of the ica
    The ICA applies to the transportation of oil and oil products, 
i.e., crude oil and petroleum products, from one State to any other 
State, from any place in the United States to a foreign country, and 
from a foreign country to any place in the United States (but only 
insofar as such transportation takes place within the United States). 
Because oil pipelines are common carriers, the ICA requires that they 
provide transportation upon reasonable request. This means, for 
example, that an oil pipeline operating at full capacity must prorate 
that capacity among current shippers to make capacity available for a 
new shipper requesting transportation service from the pipeline. In 
prorationing, the Commission cannot legally give preferential treatment 
to domestic oil producers over foreign sources.
    The ICA requires that all charges for oil pipeline transportation 
must be just and reasonable. Oil pipelines must file tariffs showing 
all their rates and charges and can make changes to those rates and 
charges only after 30 days' notice to the Commission and the public. On 
its own motion or in response to a protest, the Commission can suspend 
tariff filings for up to 7 months and institute investigations into 
their lawfulness; at the end of the suspension period, the proposed 
tariffs can go into effect subject to refund. The Commission can also 
investigate the lawfulness of oil pipeline rates and practices and 
prescribe changes upon complaint or its own initiative.
    Some matters the ICA does not confer jurisdiction over are the 
siting and construction of oil pipelines (authority rests with States 
and local jurisdictions), mergers and acquisitions, abandonment of 
service, and safety (authority rests with the Department of 
Transportation's Pipeline and Hazardous Materials Safety 
Administration).
                        ratemaking under the ica
    The Commission until 1992 historically used two ratemaking 
methodologies for the adjudication of oil pipeline rates--cost-based 
and market-based. The Commission's cost-based ratemaking methodology 
for oil pipelines employs a ``trended original cost'' rate base and was 
instituted in Opinion No. 154-B, Williams Pipe Line Co., 31 FERC 
(61,377 (1985). In brief, a pipeline's annual revenue requirement is 
calculated using a rate base that is trended to account for inflation.
    As an alternative to the cost-based ratemaking approach, the 
Commission adopted a market-based approach for Buckeye Pipe Line 
Company in Opinion No. 360, Buckeye Pipe Line Company, L.P., 53 FERC 
(61,473 (1990). Buckeye implemented a lighter-handed regulatory 
approach that permitted rates charged by the pipeline in competitive 
markets to be determined by market forces.
    In title XVIII of the Energy Policy Act of 1992 (EPAct 1992), 
Congress directed the Commission to establish a ``simplified and 
generally applicable ratemaking methodology for oil pipelines.'' 
Congress in EPAct 1992 also protected oil pipelines' existing rates by 
deeming them ``to be just and reasonable'' as of the date of enactment.
    There was no legislative history to discern how Congress intended 
the Commission to simplify its ratemaking methods, and the text of 
EPAct 1992 itself provided little guidance. In response, the Commission 
instituted rulemakings that culminated in Order No. 561, which adopted 
rate methodologies for oil pipeline rate changes, Order No. 571, which 
established filing requirements for cost information that pipelines 
must include with cost-of-service rate filings, and Order No. 572, 
which established filing requirements for pipelines proposing to charge 
market-based rates. These ratemaking methodologies became effective on 
January 1, 1995, and were affirmed by the U.S. Court of Appeals for the 
D.C. Circuit in 1996, Association of Oil Pipe Lines v. FERC, 83 F.3d 
1424 (D.C. Cir 1996).
    The regulations adopted in response to EPAct 1992 provide an 
indexing, or a price cap, methodology as the simplified and generally 
applicable ratemaking methodology for oil pipelines. The existing rates 
deemed to be just and reasonable by Congress in EPAct 1992 form a 
baseline for future oil pipeline rate changes within an indexed 
ceiling. The index used under the Commission's regulations is the 
annual change in the Producer Price Index for Finished Goods (PPI-FG), 
including an annual adjustment factor, currently plus 1.3 percent. 
Under indexing, oil pipeline rates may be adjusted up to the ceiling 
level established by the index. Rates changed under the index 
methodology may not exceed the ceiling level. If the ceiling level goes 
down, pipelines must lower existing rates that exceed the new ceiling 
level. The regulations also provide for challenges to individual rates 
on the basis that they are substantially in excess of the pipeline's 
costs, even though the rate may be at or below the ceiling level.
    A pipeline can seek to charge rates above its index ceiling level 
by showing that its cost of service substantially exceeds the revenue 
resulting from application of the index, or by negotiating an agreement 
with all its current shippers to charge higher rates. A pipeline that 
desires to charge market-based rates may do so after it has asked for 
and received from the Commission a finding that it lacks significant 
market power in the markets it serves.
    Other provisions of the Commission's regulations also provide 
procedures to resolve contentious issues short of full-blown 
litigation. All protested tariff filings are referred to a settlement 
judge, and disputed rates are set for hearing only after settlement 
proves infeasible.
                 north dakota crude oil transportation
    There has been dramatic growth in crude oil production in the 
Williston Basin area of North Dakota that has increased the North 
Dakota oil producers' need for available oil pipeline capacity to move 
their crude oil to market. In 2007, North Dakota crude oil production 
was approximately 125,000 barrels per day. In March 2008, daily 
production levels had risen by 22,000 barrels to approximately 147,000 
bpd, or an increase of approximately 17.5 percent on an annual basis. 
Existing pipelines serving the area are operating at full capacity, 
requiring that they apportion their capacity among shippers.
    At the same time, crude oil imports from Canada are rising. Annual 
crude oil production levels for 2007 published by the Alberta Resources 
Conservation Board reveal the Alberta Basin yielded about 482,000,000 
barrels that year or 1,860,000 bpd, a 3 percent increase from 2006. 
Significantly, Canadian imports are projected to reach 3,400,000 bpd by 
2017. Canadian oil imports currently comprise 20 percent of U.S. crude 
oil supply and represent our largest source of oil imports. We expect 
this trend to continue. These imports are reliable supplies from a 
secure country and improve our energy security.
    However, Canadian imports require space in the pipeline and can 
create bottlenecks in pipeline capacity that limit the amount of crude 
oil that can be moved out of the North Dakota production region. 
Pipelines serving North Dakota are increasing their capacity, which 
should help to alleviate capacity shortages; nevertheless, it is likely 
that with additional growth in North Dakota crude oil production and 
Canadian imports the pipelines' proposed capacity increases still will 
not be adequate to transport North Dakota production without capacity 
prorationing among shippers seeking that capacity.
    While the Natural Gas Act authorizes the Commission to issue 
certificates of public convenience and necessity to natural gas 
companies to construct and operate pipelines for the transportation of 
natural gas in interstate commerce, there is no similar authority with 
regard to oil pipelines. For natural gas pipelines, the Commission 
serves as the lead agency in charge of processing applications to 
construct interstate natural gas pipeline facilities, conduct the 
necessary environmental review pursuant to the National Environmental 
Policy Act, and coordinate the timing of other necessary Federal 
permits. The Natural Gas Act allows the Commission to attach reasonable 
conditions to its decisions or ``certificates.'' Further, Commission 
authorizations convey the right of eminent domain to the recipients of 
the certificate which may be exercised in the U.S. District Court for 
the district where the facility will be located or in State courts. In 
the instances where there is an application for a new pipeline or where 
a new service on an existing system is being proposed (most likely due 
to facility additions), the Commission has the authority to approve 
initial rates for the new service. It should also be noted that 
interstate natural gas pipelines are contract carriers, i.e., their 
services are provided on a contractual basis. Thus, if a pipeline is 
already fully used, a new shipper is not entitled to a prorationed 
share of the capacity.
    The siting of oil pipelines by contrast is handled primarily by 
State agencies. The Interstate Commerce Act, thus, does not authorize 
the Commission to regulate the siting or construction of oil pipelines.
    The Commission recognizes the need for investment in energy 
transportation infrastructure to meet the Nation's growing demand for 
energy and encourages new and expansion crude oil pipeline projects. 
The Commission, in fact, has approved several settlement proposals 
involving rates for expansion of Enbridge Pipeline's North Dakota 
mainline to provide additional crude oil takeaway capacity for the 
North Dakota production area, and rates for other Enbridge Energy 
Company proposals to expand the major pipelines importing Canadian 
crude oil to help relieve pipeline capacity bottlenecks. However, there 
is no ICA or other statutory provision that allows the Commission to 
regulate how much foreign oil can displace domestic oil in oil 
pipelines, since oil pipelines under the ICA are common carriers that 
must provide nondiscriminatory service to all who request it.
    The Commission's regulatory authority also begins only at the 
border and extends only to transportation that takes place within the 
United States, regardless of the source of the oil being transported. 
The Commission thus does not have a role in regulating foreign sources 
of crude oil entering the United States, but only its movement once it 
crosses the border. The Commission also does not regulate how much 
crude oil is coming into the United States from Canada.
                               conclusion
    The nature of the problem is that North Dakota oil production and 
Canadian crude oil imports exceed current pipeline takeaway capacity in 
the region. Both domestic and Canadian crude oil production are 
increasing, exacerbating the competition for limited pipeline capacity. 
There have been additions to pipeline takeaway capacity in the region, 
but not enough to eliminate constraints or accommodate future increases 
in North Dakota production or Canadian imports.
    The best solution is to increase the pipeline capacity available to 
both sources of crude oil. FERC supports energy infrastructure 
development and the Commission has participated as a member of the 
Interstate Oil and Gas Compact Commission Crude Oil Market 
Infrastructure Task Force that was first convened in 2006 to 
investigate the crude oil market dynamics in the Rocky Mountain region. 
However, the parties themselves must resolve who will commit to support 
the development of new infrastructure and who is willing to pay for it. 
FERC for its part will continue to work with all parties to achieve 
these ends.

    Senator Dorgan. Mr. Chairman, thank you for being here. As 
I indicated, it is at least your second trip to North Dakota, 
perhaps more. But we appreciate your willingness to come and 
testify. You do not have siting authority, but you do have 
tariff authority. Is that correct?
    Mr. Kelliher. We can set rates for oil pipelines. We don't 
site oil pipelines. In contrast to natural gas pipelines, where 
we both site natural gas pipelines, we can authorize eminent 
domain, and we do as well set rates for gas pipelines.
    Senator Dorgan. All right. Next we will hear from Mr. Lynn 
Helms. He served as the director of the North Dakota Industrial 
Commission Oil and Gas Division since July 1998 and director of 
the department of mineral resources since July 2005.
    Mr. Helms, thank you. And with you today is Mr. Justin 
Kringstad, the director of the North Dakota Pipeline Authority, 
and fairly new on the job, I believe. Mr. Kringstad, there you 
are. Mr. Kringstad is new on the job. Is that correct?
    Mr. Helms. Yes, sir. He has been with us about 1 month.
    Senator Dorgan. All right. Mr. Helms, you may proceed.
STATEMENT OF LYNN D. HELMS, DIRECTOR, NORTH DAKOTA 
            INDUSTRIAL COMMISSION, DEPARTMENT OF 
            MINERAL RESOURCES
ACCOMPANIED BY JUSTIN KRINGSTAD, DIRECTOR, NORTH DAKOTA PIPELINE 
            AUTHORITY

    Mr. Helms. Well, Senator, thank you very much for the 
invitation to speak at this hearing, and thank you for your 
interest in these very valuable resources that the State of 
North Dakota participates in.
    I don't really have to tell you about the size of North 
Dakota's Bakken resource. I do thank you for your efforts with 
the U.S. Geological Survey to get them on the ball and 
evaluating that. And you know, as you stated, that they have 
identified this as the largest continuous oil accumulation they 
have ever assessed.
    When we did our assessment, we initially came out with a 
mean value of about 150 billion barrels in place. Now seeing 
that the Three Forks, which is an underlying formation, is 
involved as well, that could be as much as 280 billion barrels 
from which we are only going to recover 2 to 4 billion barrels, 
and I say that with a smile on my face. ``Only'' means a 1.5 to 
3 percent recovery factor. So, as technology improves, we are 
certainly going to be in the business of producing Bakken oil 
for a long time.
    Development of this resource to achieve these production 
levels to move North Dakota to number five in daily production, 
the State has been working with private investors to increase 
pipeline capacity, natural gas processing, electric generation, 
transmission, and refining. We also need to train and to put to 
work another 12,000 new workers in our energy sector. And that 
is wonderful to be in this building where exactly that thing is 
happening, training new workers for North Dakota's energy 
sector.
    If you look at the response of the State of North Dakota, 
we have leased 106,000 acres in the last year through the State 
land department. Our current rig count is at 86 rigs. We are 
producing in excess of 165,000 barrels a day. We did form the 
Pipeline Authority a little over a year ago, and you have 
introduced Justin Kringstad. Thank you for that.
    The Pipeline Authority and Department of Mineral Resources 
maintain Web sites where we provide data to the public on a 
daily basis. Those are updated every day. We also publish 
quarterly and semi-annual newsletters to try to keep the public 
informed about what is happening.
    With regards to pipeline capacity, you are going to hear 
from Enbridge. They have expanded, done one expansion on their 
North Dakota pipeline system. They are in the process of 
implementing Phase VI, which will double their pipeline system.
    We have worked with the other pipeline company, the Belle 
Fourche Pipeline Company, who have expanded and redirected some 
of their oil to provide another market outlet for our Bowman 
County crude, which was suffering the highest differential. 
They are also introducing drag reducing agent between here and 
Guernsey, Wyoming. We hope to achieve about a 10,000 barrel a 
day increase to the south, which will improve that capacity 
limit to some extent.
    Non-pipeline, we currently have three rail shipping 
stations, shipping close to 17,000 barrels a day. We are 
planning some additional shipping stations in Stanley and 
Minot, and we are working with the tribe on the possibility of 
one in New Town, trying to work through the Bank of North 
Dakota and department of mineral resources.
    As far as gas gathering, we have built four new gas plants 
and expanded three systems. We are also going to expand this 
year four gas plants at Robinson Lake, Stanley, Tioga, and 
Trotters.
    In the refining area, we have helped fund a study by 
Northwest Refining for a Williston area refinery. We have tried 
to assist the Three Affiliated Tribes in permitting their 
refinery, and we have been working with Triad, who is their 
contractor there. Worked with American Lignite on exploring 
coal to liquids and also have implemented a sales tax incentive 
to help our Mandan refinery upgrade and maintain its capacity.
    As a result, we have seen record low levels in terms of 
crude oil price differentials over the last year. As your chart 
shows, though, we are heading into a time period where those 
low levels are going to go away, and we are going to see a 
return of price differentials.
    One of the difficulties, I read a----
    Senator Dorgan. Can I just--on that point, price 
differentials means discounting the price to the producer, 
right?
    Mr. Helms. Yes. That is a very good question, Senator. That 
is exactly right. The discount ends up going back to the 
producer, the royalty owners, and the State of North Dakota 
because we all get our share at the wellhead, where that oil is 
first sold, that first transaction. And so, that impacts all 
three parties.
    One of the challenges is that under the current scenarios 
with expanding refinery capacity on the gulf coast and also 
small expansions in demand, around the year 2020, if our 
biofuels production does what we would like to have it do, we 
are actually going to have a small surplus in refining capacity 
in this country. Not in this region, but in this country. And 
so, the private investors are struggling to make sense of all 
that and decide where they should invest.
    There is a role for the Federal Government. We would love 
to see the Federal Government provide tax-exempt status for our 
Pipeline Authority and Transmission Authority bonds. We really 
think that we could provide some good financing for our small, 
independent producers and co-ops to build oil pipelines, gas 
pipelines, maybe even diesel topping units if we had tax-exempt 
status for that bonding authority.
    Chairman Kelliher talked about permitting. It would be 
great if we could streamline and expedite some of the 
permitting and tariff processes for interstate pipelines. The 
gas pipeline system seems to be working pretty well, and maybe 
we could take some lessons from that and apply them to the oil 
pipeline system.

                           PREPARED STATEMENT

    And then, finally, the refining permitting process is just 
too long and too difficult. And we need to ensure that adequate 
resources are provided for those permitting authorities. We 
need to shorten those review timeframes and empower the 
Department of Energy to be a facilitator, to step in in the 
middle of these things and facilitate as the FERC does with 
pipelines.
    That is the end of my prepared testimony. Thank you again 
for inviting me, and I will be available for questions.
    [The statement follows:]
                  Prepared Statement of Lynn D. Helms
                     north dakota's bakken resource
    The Bakken Formation is an unconventional oil and gas resource that 
underlies most of the western portion of the State of North Dakota (> 
8.4 million acres).
    The original oil in place in the Bakken Formation within the 
thermally mature portion of the State of North Dakota is estimated to 
be 149 to 280 billion barrels; however, using current drilling and 
completion practices, only 2.1 to 4.3 billion barrels are recoverable.
    It is apparent that technology and the price of oil will dictate 
what is potentially recoverable from this formation.
                   north dakota's bakken opportunity
    Full resource development could move North Dakota from number 8 to 
number 5 among States in daily production. To achieve those production 
levels, the State is working to increase pipeline capacity, natural gas 
processing, electric generation, transmission, and refining capacity. 
The State is also working to recruit and train the roughly 12,000 new 
workers that will be required for the energy sector.
                        north dakota's response
    Current leasing (106,000 acres), drilling (86 rigs), and production 
(>165,000 barrels per day).
    Formed the Pipeline Authority in 2007.
    Signed historic tax and regulatory agreements with Three Affiliated 
Tribes.
    Department of Mineral Resources and Pipeline Authority update their 
Web sites daily and publish semi-annual and quarterly newsletters.
    Efforts supported by the State to increase pipeline export capacity 
include:
  --In 2006, Enbridge implemented their Phase V expansion to increase 
        their crude oil capacity from 80,000 to current 110,000 bpd.
  --Enbridge is now implementing Phase VI, a $130 million expansion 
        that will increase capacity by an additional 50,000 bpd for a 
        total of 160,000 bpd. After completion of Phase VI Enbridge 
        will have doubled their pre-Phase V crude carrying capacity of 
        about 80,000 bpd.
  --Belle Fourche Pipeline reconfigured their pipeline system serving 
        western North Dakota to reverse traditional north to south flow 
        on one of its pipelines and construct a 35-mile loop into the 
        Alexander area. This created additional outlets for 
        southwestern North Dakota-produced crude oil to go east or west 
        to markets.
  --Butte pipeline (current 92,000 bpd) is implementing a drag reducing 
        agent project on their pipeline to Guernsey, WY that is 
        expected to increase throughput as much as 10 percent, roughly 
        10,000 bpd.
    Current efforts supported by the State to increase non-pipeline 
export capacity:
  --Rail cars are now shipping 11,000 to 17,000 bpd from Dore, 
        Stampede, and Ryder.
  --Additional rail shipping stations are planned for Stanley and 
        Minot.
  --A rail shipping station is being evaluated for New Town.
    Gas gathering and processing expansion efforts supported by the 
State include:
  --Four new gas plants (Ray, Nesson, Robinson Lake, and Stanley).
  --Expansion of three gathering systems to collect previously flared 
        gas.
  --Proposed expansion of plants and gathering systems at Robinson 
        Lake, Stanley, Tioga, and Trotters.
    Current efforts supported by the State already underway to increase 
refinery capacity and fuel production include:
  --Oil and Gas Research Council funding for feasibility study of a 
        private refinery in the Williston area due out in September.
  --Assisting Three Affiliated Tribes in working on permitting a 
        refinery within the Reservation.
  --American Lignite Energy is exploring a coal-to-liquids plant that 
        would produce over 1.38 million gallons of liquid fuel per day. 
        The ALE project is enrolled in Lignite Vision 21 program.
  --State sales tax incentives to help Tesoro improve reliability and 
        increase low sulfur diesel fuel production (current input 
        capacity 58,000 bpd). Tesoro is investing $125 million in 
        upgrades to their refinery including expansion of low sulfur 
        diesel production.
                              federal role
    Provide Federal tax exempt status for Pipeline Authority and 
Transmission Authority bonds.
    Streamline and expedite the permitting and tariff process for 
interstate pipelines.
    The refinery permitting process of 4 to 6 years and is too long and 
difficult. We need to ensure adequate resources at permitting 
authorities to shorten review timeframes, and empower the U.S. 
Department of Energy to serve as a facilitator for timely permit 
reviews.

    Senator Dorgan. Mr. Helms, thank you very much for your 
testimony.
    Next we will hear from Ms. Shirley Meyer, who is a State 
legislator and is co-chair of the North Dakota Oil Refinery 
Task Force. Ms. Meyer, why don't you proceed?
STATEMENT OF HON. SHIRLEY MEYER, NORTH DAKOTA STATE 
            REPRESENTATIVE AND CO-CHAIR, NORTH DAKOTA 
            OIL REFINERY TASK FORCE
    Ms. Meyer. Thank you, Senator Dorgan. I would like to thank 
you personally for allowing me to testify here today.
    As you stated, I am currently the co-chairman, along with 
Representative Kenton Onstad from Parshall, of the North Dakota 
Oil Refinery Task Force. The main purpose of this task force 
was to add economic value to North Dakota crude oil by refining 
it in North Dakota.
    As you have probably noticed in the news, all of the new 
millionaires, they have become my new constituents. I represent 
Dunn County. And with that, I am approached on a daily basis by 
these new millionaires and also oil companies that indicate to 
me why are we receiving discounts for our oil?
    And as you are aware, the price of North Dakota crude is 
based usually 10 percent less than the NYMEX price of West 
Texas Intermediate. But in addition to that 10 percent 
discount, which is basically for transportation, we have had 
additional months of discounts as high as $11.43 a barrel, and 
that equates to a tax revenue loss to the State of North Dakota 
of over $3 million just for that month. The estimated impact on 
State revenues of a $1 increase or decrease in the price of a 
barrel of oil is approximately $8.75 million per biennium.
    Our production rate is continuing to grow. As was indicated 
previously, we are over 166,000 barrels per day. That is June, 
we are all waiting for July records, and I am assuming it is 
going to be quite a little higher than that yet.
    But at this rate of production, any discounts whatsoever 
amounts to huge losses of revenue to the producers, the royalty 
owners, and the State. The State of North Dakota is a huge 
royalty owner. As legislators, we are approached daily with the 
problems associated with the bottleneck and subsequent 
discounts of our crude oil.
    The producers out there are very concerned when the Bakken 
crude is discounted because of the high quality premium crude 
that that is, and it should be bringing a bonus to our citizens 
instead of being discounted. We are told the pipelines are 
full. The trucks are full. The trains are full. And we are 
going to have to shut down production of our wells.
    Building a refinery seemed like the obvious solution, and 
we have had significant community support that continues to 
grow. North Dakota, because of our sparse population and large 
agrarian population, burns tremendous amounts of fuel. 
According to the 2004 statistics at the U.S. Energy Information 
Administration, North Dakota was the fourth-highest energy-
consuming State on a per capita basis.
    In late 2007, there were significant price hikes and 
shortages due to multiple regional refineries being down at the 
same time. This created huge problems for our fall harvest in 
North Dakota, and this happened again in December with the 
shortage of number one diesel with the first cold snap. Our 
truckers up from Texas learned in a big hurry what it meant to 
have number two diesel in your trucks when you were coming up 
to North Dakota. They were sitting on the highway wishing they 
had learned this lesson a little quicker.
    With every hiccup in our current energy supply--whether it 
is a hurricane, pipeline explosion, refinery shutdown--our 
prices take huge spikes. North Dakota is last on the refined 
pipeline. So, subsequently, we will be the first State to 
suffer from price hikes and short supplies of fuel.
    With our vast supplies of oil and gas reserves and 
increasing population, this is not an acceptable situation for 
our citizens. The question posed to us most often is, why are 
we paying the highest gas and diesel prices in the Nation when 
we are producing record amounts of crude right here in western 
North Dakota?
    The two new refineries that are being proposed in the 
United States, Arizona and South Dakota, will process Mexican 
and Canadian crude. This will not ease the demand for refining 
capacity for our domestic production. There are currently 149 
refineries in the United States. Four are inactive at this time 
for repairs or maintenance.
    Since most refineries are operating at about 90 percent 
capacity, any disruption at a refinery causes a spike in 
prices. When we have most of the refineries in the Nation 
operating at or near capacity with these new fields coming on--
such as the Sanish, as Mr. Helms mentioned, the Three Forks--as 
they are developed, we will find that our pipeline and refining 
capacity is stretched even farther.
    Our task force over the course of the year has developed 
four objectives. Our first objective was to educate 
policymakers for the implementation of legislative policies 
that will advance the construction of a state-of-the-art 
refinery in North Dakota. As policymakers, we need to develop 
and expedite permit and siting rules for development and decide 
if the new refinery should have public ownership, private 
ownership, or a combination of both.
    Our second objective is to articulate to the citizens of 
North Dakota the need to further develop our infrastructure to 
strengthen our energy security, making us less dependent on 
foreign sources of oil. A refinery and adequate pipeline 
capacity will ensure more equitable pricing of North Dakota 
crude oil. In addition, we need to reassure citizens that they 
are receiving full benefits from our oil reserves.
    Our third objective was to ensure any future developments 
and decisions for increasing refining capacity was economically 
sound, environmentally friendly, and provide plans for a North 
Dakota Strategic Oil Reserve. In order to guarantee our 
agriculture producers have a continuous supply of diesel fuel, 
especially during spring planting and fall harvesting, our task 
force has determined we need to utilize the storage facilities 
on virtually every farm and ranch.
    Our fourth objective is to create an energy center to 
develop technical and educational support for the oil, gas, and 
refining industries. Because no new refineries have been built 
in the United States for over 30 years, refinery expertise and 
knowledge of this industry is negligible.
    To reach these objectives, we have discussed several 
options, including a State ownership of a refinery, a State/
private partnership, or State participation in the permitting 
and siting processes. Even as we have discussed these issues, 
the amount of crude being processed in North Dakota continues 
to grow, far beyond what anyone envisioned a year ago.

                           PREPARED STATEMENT

    We must have the foresight to be proactive on energy. We 
cannot look at where we are sitting now. The great hockey 
player Wayne Gretzky, when asked what made him such a great 
hockey player, he replied, ``I don't skate to where the puck 
is. I skate to where the puck is going to be.'' And we believe 
that that is what North Dakota and the Nation must do when we 
are considering our oil industry.
    Thank you for allowing me to testify.
    [The statement follows:]
                Prepared Statement of Hon. Shirley Meyer
    I would like to thank Senator Byron Dorgan for giving me the 
opportunity to testify before the Subcommittee on Energy and Water 
Development on energy supply and constraints in Western North Dakota.
    Currently, Representative Kenton Onstad and I serve as co-chairman 
of the North Dakota Oil Refinery Task Force. After trying 
unsuccessfully to pass a study resolution in the 2007 session to look 
at the feasibility of building a North Dakota oil refinery, we decided 
that the idea had enough merit to form a task force.
    The main purpose of this task force was to add economic value to 
North Dakota crude oil by refining it in North Dakota. Oil producers 
and royalty owners had approached us concerned with the discounts they 
had been receiving and continue to receive. Because of transportation 
cost, generally, the price of North Dakota crude oil averages 
approximately 90 percent of the NYMEX price of West Texas Intermediate 
(WTI) crude oil. In addition to that 10 percent discount we had months 
with additional discounts as high as $11.43 per barrel which equates to 
a loss of tax revenue to the State of $3,030,336.94 for just that 1 
month.
    Our production rate continues to set new records and increased in 
June to over 166,000 barrels per day. At this rate of production any 
discounts whatsoever amounts to huge losses of revenue to the 
producers, the royalty owners, and the State. As legislators we are 
approached on a weekly basis and asked to come up with answers on 
dealing with the problems associated with the bottleneck and subsequent 
discounts of our crude oil; especially the Bakken crude that is a 
premium crude and should be bringing a bonus instead of being 
discounted. We are told, ``The pipelines are full, the trucks are full, 
the trains are full, and we are going to have to shut down production 
of our wells.''
    Building a refinery seemed like the obvious solution and we have 
significant community support that continues to grow. North Dakota, 
because of our sparse population and large agrarian population, burn 
tremendous amounts of fuel. According to 2004 statistics at the U.S. 
Energy Information Administration, North Dakota was the fourth highest 
energy consuming State on a per capita basis. In late 2007, there were 
significant price hikes and shortages due to multiple regional 
refineries being down at the same time creating problems for our fall 
harvest, and again in December with a shortage of number one diesel 
with the first cold snap.
    With every hiccup in our current energy supply, albeit it 
hurricane, pipeline explosion, refinery shut down, saber rattling, or 
actual war, our prices take huge spikes. North Dakota is last on the 
pipeline so subsequently we will be the first State to suffer from 
price hikes and short supplies of fuel. With our vast supplies of oil 
and gas reserves and increasing production this is not an acceptable 
situation for our citizens. The question posed to us most often is 
``Why are we paying the highest gas and diesel prices in the Nation 
when we are producing record amounts of crude right here in western 
North Dakota?''
    North Dakota has seen a steady increase in production from 30 
million barrels in 2003, to 45 million barrels in 2007. Current 
production growth will put us well over 50 million barrels in 2008.
    The two new refineries being proposed in the United States (Arizona 
and South Dakota) will process Mexican and Canadian Crude. This will 
not ease the demand for refining capacity for our domestic production. 
There are currently 149 refineries in the United States. Four are 
inactive at this time for repairs or maintenance. Since most refineries 
are operating at about 90 percent capacity, any disruption at a 
refinery causes a spike in prices. With most refineries in the Nation 
operating at, or near capacity, as the Bakken, Sanish, and Three Forks 
fields are developed; we will find our pipeline and refining capacity 
stretched even farther.
    Because of our limited refining capacity in the United States, 
besides importing crude oil, we import 66,000,000 gallons of gasoline 
per day to meet our daily needs above our refining capacity (2004 
figures).
    Our task force over the course of the year has developed four 
objectives. Our first objective was to educate policy makers for the 
implementation of State Legislative Policies that will advance the 
construction of a state-of-the-art refinery in North Dakota.
    As policy makers we need to develop and expedite permit and siting 
rules for development and decide if a new refinery should have private 
ownership, public ownership, or a combination of both.
    Our second objective is to articulate to the citizens of North 
Dakota the need to further develop our infrastructure to strengthen our 
energy security making us less dependent on foreign sources of oil. A 
refinery and adequate pipeline capacity will ensure more equitable 
pricing of North Dakota crude oil. In addition, we need to reassure 
citizens they are receiving full benefits from our oil reserves.
    Our third objective was to ensure any future developments and 
decisions for increasing refining capacity was economically sound, 
environmentally friendly, and provide plans for a North Dakota 
Strategic Oil Reserve. In order to guarantee our agriculture producers 
have a continuous supply of diesel fuel especially during spring 
planting and fall harvesting, our task force has determined we need to 
utilize the storage facilities on virtually every farm and ranch.
    Our forth objective is to create an energy center to develop 
technical and educational support for the oil, gas, and refining 
industries. Because no new refineries have been built in the United 
States for over 30 years, refinery expertise and knowledge of this 
industry is negligible.
    To reach these objectives, we have discussed several options, 
including State ownership of a refinery, a State/private partnership, 
or State participation in the permitting and siting process.
    Even as we have discussed these issues, the amount of crude being 
produced in North Dakota continues to grow, far beyond what we 
envisioned a year ago. We must have the foresight to be proactive on 
energy. We cannot look at where we are now.
    The great hockey player, Wayne Gretzky, when asked ``what made him 
such a great hockey player'', replied, ``I don't skate to where the 
puck is, I skate to where the puck is going to be!''
    That is what North Dakota, and the Nation, must do.

    Senator Dorgan. Ms. Meyer, thank you very much for your 
testimony.
    Next we will hear from Mr. Kevin Hatfield, the general 
manager for the gathering systems for both Enbridge Pipeline 
North Dakota and Enbridge Pipelines Saskatchewan. Enbridge is 
the operator of the major pipeline that brings North Dakota oil 
to Midwest refineries and to markets. They have been upgrading 
their capacity, and I look forward to hearing about their 
current projects and discussing future options.
    Mr. Hatfield recently relocated his office to Minot, North 
Dakota, to directly oversee the Enbridge pipeline expansion 
efforts in North Dakota. These expansions, we are told, based 
on the record Bakken production and forecast, will result in 
increased pipeline capacity demanded by shippers.
    Mr. Hatfield, thank you for being with us.
STATEMENT OF KEVIN HATFIELD, GENERAL MANAGER, GATHERING 
            SYSTEMS, ENBRIDGE ENERGY COMPANY, INC.
    Mr. Hatfield. Thank you. Good morning, Mr. Chairman and 
Congressman Pomeroy, and thanks for the opportunity to share 
Enbridge's view on pipeline capacity issues in North Dakota, 
which, along with the Midwest pipeline infrastructure in 
general, are important components of the North American energy 
security picture.
    Enbridge is a transporter of energy and has an interest in 
some 50,000 miles of gathering, transmission, and distribution 
pipelines. Enbridge does not produce or refine crude oil.
    My comments will focus on the crude oil pipeline systems. 
We do have some maps that have been handed out and are on the 
back for reference, but I will focus on our crude oil pipeline 
systems, and primarily on the Enbridge North Dakota system, 
which I am responsible for.
    By way of some background, the Enbridge system delivers 
approximately 1.9 million barrels per day of crude oil to the 
Midwest. Enbridge is in the process of undertaking a phased-in 
expansion approach in which it is adding 450,000 barrels per 
day, expandable to 1.2 million barrels per day capacity to our 
mainline system, including expansions from Alberta, Canada, to 
the hubs in Chicago and Cushing and on to the gulf coast of the 
United States.
    On a more local front, the Enbridge North Dakota system 
delivers crude oil produced in eastern Montana and North Dakota 
to Clearbrook, Minnesota, and the Tesoro refinery in Mandan. 
The system has historically had an 80,000 barrel per day 
maximum capacity but, up until a few years ago, had been 
largely underutilized due to declining production in the area.
    At the end of 2007, we completed the Phase V expansion, 
which increased our capacity to 110,000 barrels per day. Phase 
VI is underway and, when completed in 2010, will increase the 
capacity to 161,000 barrels per day or just over double what we 
were a few years ago.
    The development of the Bakken--and this is no surprise. The 
development of the Bakken and the Williston Basin has given 
rise to a dramatic increase in our production levels for the 
area, and Enbridge has attempted to proactively step up to meet 
this increased transport capacity requirement. Our expansions 
have been driven by long-term trends in supply and demand 
patterns. Crude production from traditional U.S. States is 
forecast to continue to decline.
    On the other hand, the demand forecast, which I am sure the 
chairman and Congressman are more than well aware of, in the 
United States shows a continued increase over the long term, 
even when consideration is given for conservation and 
additional fuel sources coming out of the market in the future.
    Back to the production side, the Alberta oil sands are 
forecast to increase from 1 million barrels per day today to 
over 3 million barrels per day in the future. On the North 
Dakota front, once again, I don't have to reiterate what Mr. 
Helms and others have talked about, but we could reach as high 
as 3.65 of the technically producible volumes that are in the 
reserves at this point with regard to the Bakken. North Dakota 
has already seen its oil double from approximately 2003 to 
160,000 barrels, and the reason we are here today is because we 
anticipate more to follow.
    So there are definitely some bright spots on the horizon. 
The United States has access to energy supplies in our own 
backyard, but we need significant enhancement to pipeline 
infrastructure to connect regions of growing supply to key 
refinery markets that meet the public's demands for petroleum.
    As I have just stated, there is a forecasted increase in 
supply from the Northern Rockies in Alberta, and Enbridge is a 
key player in connecting these sources with refineries. 
Enbridge overall has $12 billion in projects underway, with at 
least an equivalent amount of projects under review.
    Enbridge North Dakota is spending over $220 million that is 
committed at this point in expansions up to and including Phase 
VI, with potential for more expansions in the future to meet 
the demand, including additional potential for utilizing 
railcars that access off the system near Minot, potential 
utilization for future spare capacity on what we call a 
``portal link,'' which is an interconnection that we could 
potentially reverse to the north to connect to the Enbridge 
Saskatchewan system to access pipeline space through the 
Enbridge mainline at Cromer, Manitoba. And ultimately, we are 
also reviewing the long-term support for the potential 
additional pipeline from Minot to Clearbrook, Minnesota.
    Enbridge is committed to working with customers to deliver 
capacity that is right-sized, right-priced, and at the right 
time. It is not good enough for us to just ensure that the 
Enbridge North Dakota production has adequate capacity to reach 
the markets. Additionally, we must ensure that the Enbridge 
mainline facilities at Clearbrook, Minnesota, have takeaway 
capacity, such as through our Alberta Clipper expansion 
currently pending Federal regulatory approvals.
    That brings me to some of our challenges. In addition to 
the ever-increasing challenges posed by special interest groups 
and public opposition, as well as challenges faced by 
increasing costs and something that Mr. Helms referred to with 
regard to our workforce strategies and shortfalls, there are 
commercial challenges.
    Our customers have varying business models and compete with 
each other on a day-to-day basis. This causes differing 
viewpoints with regard to the comment I made about right size, 
right price, and right time. Projects rarely move forward 
without critical mass being reached with regard to customer 
support.
    Enbridge North Dakota is attempting to address this 
challenge through a new forecasting tool which has just been 
developed, which will enhance our predictive ability to expand 
the local infrastructure to meet the growing capacity demands 
produced by Bakken production as it comes onstream.
    And finally, the regulatory challenges. I would start by 
saying that our North Dakota expansions have received 
permission to proceed from the North Dakota Public Service 
Commission and anticipated approval from the Minnesota Public 
Utilities Commission and go on to further state that Enbridge 
very much appreciates the transparent, streamlined regulatory 
proceedings of North Dakota that provided the timely approval 
for our project and, further, would urge other States to follow 
similar regulatory models.
    However, Enbridge's Alberta Clipper expansion project, 
which is a 990-mile, 36-inch pipeline from Alberta to 
Wisconsin, with initial capacity of 450,000 barrels per day, is 
still undergoing a protracted State and Federal regulatory 
approvals process.
    Just to take a brief look at that process, as an example, 
on the Alberta Clipper, the North Dakota Public Service 
Commission approval was received in approximately 6 months. The 
Minnesota Public Utilities Commission and, similarly, the 
Canadian National Energy Board approvals were in approximately 
16 months. And currently, it is anticipated that the U.S. 
environmental impact statement and subsequent Federal permits 
will take approximately 24 months.
    I would like just to take a second to thank Congressman 
Pomeroy for your assistance with regard to trying to assist 
Enbridge in speeding those permits along. So, thank you.
    I will restate what I have said earlier. Enbridge's 
downstream expansions, like Alberta Clipper and others like it 
are required to ensure North Dakota production has takeaway 
capacity downstream of Clearbrook to reach the markets.
    I have gone into more detail in written testimony, where I 
have highlighted other challenges. However, in light of keeping 
my verbal comments brief, I would just like to suggest that the 
public and the private sector need to work together to 
streamline the sometimes very lengthy and duplicative State and 
Federal review of major projects. If we want energy security, 
we need to ensure these projects are given approval and then 
delivered when required.
    In closing, Enbridge and others are investing billions of 
dollars in North American energy infrastructure, helping the 
Nation to be less dependent on crude oil from unstable or 
hostile nations. We will continue to work with our customers 
and stakeholders to address the challenges involved with 
ensuring the right project is built at the right time. We will 
continue to work with the industry and Government on a host of 
energy supply solutions and to hopefully streamline regulatory 
processes.

                           PREPARED STATEMENT

    This is a complicated issue that we are facing. We believe 
we can see a path forward to a better energy secure future, and 
Enbridge would like to continue to help North America get to 
that point.
    That concludes my testimony. I will be available for 
questions at the end. Thank you.
    [The statement follows:]
                  Prepared Statement of Kevin Hatfield
    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to offer Enbridge's views on issues related to pipeline 
capacity in North Dakota and the Midwest and how such capacity is an 
important component to North American energy security.
    Enbridge is a transporter of energy, and does not produce or refine 
crude oil. We also have a significant presence in natural gas 
processing, distribution, and transportation; provide petroleum liquids 
rail and trucking transport; and through our wind and fuel cell 
businesses are positioned to contribute to North America's alternative 
energy sector. However my comments today will focus on our crude oil, 
common carrier, interstate FERC-regulated pipelines with which I am 
most familiar. Since 1950, Enbridge has operated what is now the 
world's longest liquid petroleum pipeline, expanding to now comprise 
nearly 9,000 miles of pipe spanning over 3,000 miles from the Northwest 
Territories, through North Dakota, serving Great Lakes refinery markets 
and beyond. Enbridge acquired the Portal Pipeline system over a decade 
ago, which we now call the Enbridge North Dakota System. In 2007, 
Enbridge transported over 1.9 million barrels per day (bpd) of crude 
oil and natural gas liquids in the Upper Midwest. Our mainline system--
the cross-border system connecting western Canada to the Midwest--
transports over 10 percent of U.S. imported supply from Canada, 
America's largest and most secure trading partner.
    In the last 2 years, we have phased-in a number of crude oil 
pipeline expansions, to ultimately add 1.2 million bpd of capacity to 
our mainline system; extended our reach from Alberta to the Cushing 
hub; announced plans to extend to gulf coast markets; and expanded our 
North Dakota system from 80,000 bpd capacity to current levels of 
110,000. With the completion of Phase VI in 2010, we expect our North 
Dakota system to reach 161,000 bpd of capacity. The Enbridge system 
provides access for North Dakota producers to the majority of 
refineries in PADD II and as far as the gulf coast, home to over 40 
percent of America's refinery capacity.
    This subcommittee receives regular updates from the Energy 
Information Administration and is already well-aware of forecasts that 
show several key trends. First, the production in the Midcontinent 
areas of Kansas, Oklahoma and surrounding States continues to decline. 
Second, we are all too familiar with the disruptions in supply from 
unstable nations or disruptions caused by storms in the gulf coast. 
Conversely, production from Alberta's oil sands will increase from the 
current level of 1 million bpd on the market to grow to over 3 million 
bpd. Following Senator Dorgan's request, the USGS now estimates the 
reserves in the Bakken shale to exceed 4 billion barrels. So while 
Midcontinent production is falling, America can tap supplies in our own 
back yard to reduce our reliance on imports from overseas. Further, 
despite increased use of alternative fuels and improved conservation, 
petroleum demand continues to grow over the long term. Combined, these 
factors drive the need for major enhancements in our transportation 
infrastructure to connect regions of growing supply to refinery 
markets.
    Together, this has prompted a number of projects to expand and 
extend the pipeline infrastructure. Enbridge alone has over $12 billion 
in approved projects, many of which are already under construction. And 
we have another wave of investment right behind this that proposes 
another $12 billion or more in investments. Enbridge recognizes the 
importance to producers of extending our gathering lines and expanding 
the capacity of our North Dakota transmission pipeline. Last year, we 
added 30,000 bpd of capacity to our North Dakota System and are now 
investing another $150 million to phase in another 51,000 bpd of 
capacity by 2010. But it is not enough to just expand our North Dakota 
System which ends at Clearbrook, Minnesota--a hub that has no 
refineries. Through interconnections to other pipelines, North Dakota 
volumes can move to Minneapolis or through the Enbridge mainline system 
to Wisconsin, Chicago, and Cushing. We have announced projects to 
extend service to the east coast and, with a joint venture with BP, a 
network of existing and new lines to reach the gulf coast by 2012. 
Thus, the expansion of Enbridge's mainline system east of Clearbrook is 
imperative so Canadian production has transport options around the 
State and North Dakota producers have unconstrained access and 
flexibility to not only reach refineries along the Rockies, but serve 
most markets east of the Mississippi.
    Turning attention back to North Dakota, Enbridge has received 
regulatory approvals for Phase V and is expecting FERC review of our 
Phase VI tariff rate filing. We received approval from the North Dakota 
Public Service Commission for Phase VI expansion. Indeed, Enbridge has 
appreciated the efficient regulatory process in North Dakota and the 
support we have received in undertaking pipeline expansions in the 
State.
    Further expansion and debottlenecking of our North Dakota system is 
now under consideration should Bakken production continue to outpace 
capacity. We are considering all options, including rail links and up 
to the most expensive, longer term, solution of adding a second 
transmission line parallel to our existing line to northern Minnesota. 
Our discussions with shippers are aimed at developing the right-sized, 
right-priced, and right-timed expansion for take-away capacity into the 
future. We must keep in mind that as a common carrier, we are obliged 
to provide service to all without discrimination and must balance the 
transport needs with the long term support needed to recoup millions in 
investment.
    However even with expansion of the North Dakota system, to get 
beyond northern Minnesota to tap refinery markets throughout the 
Midcontinent, Enbridge needs to complete expansions on our mainline 
system, specifically the Alberta Clipper project that will add 
initially 450,000 bpd of capacity over and above what can now move east 
of Clearbrook. This capacity is vital for North Dakota production to 
access refinery markets throughout the Midwest and beyond. Subject to 
the U.S. Federal regulatory approval of the Alberta Clipper project, 
that new 36-inch pipeline can also be easily expanded in the future to 
reach 800,000 bpd with added horsepower, so we are in good shape to 
step up to meet anticipated capacity needs in the short-to-medium term 
on our mainline system.
    Opportunities are all too often coupled with challenges. So, while 
this is an unprecedented era of pipeline expansion opportunities, 
Enbridge also needs to call attention to some of the hurdles faced when 
trying to match the needs of the market in a very challenging 
regulatory regime and when we are so often faced with public skepticism 
of energy projects.
    Commercial Challenges.--While it may seem that meeting our 
customer's needs should come easily, our customers--producers, 
marketers and refiners--sometimes compete, so designing a system 
expansion that can be agreed to by all interests can be challenging. 
That is why Enbridge has attempted to be proactive to plan solutions 
for tomorrow's needs. We are completing an enhanced forecasting model 
for the entire Williston Basin which, when complete, will further 
enhance our ability to predict pipeline capacity demand and gain 
consensus from all stakeholders to meet the region's energy 
transportation requirements. Enbridge is up to this challenge.
    Regulatory Challenges.--While FERC has risen to the challenge of 
adapting policies to recognize the need for pipelines to recover the 
costs of investments, FERC's role does not extend (as it does for 
natural gas pipelines) to the siting, certification or lead Federal 
agency for environmental assessments for new interstate liquid 
pipelines. Rather, there is a plethora of Federal and State permitting 
requirements for liquid pipelines. The best way to illustrate this 
regime is to summarize the process for the two major projects that most 
affect North Dakota take-away capacity.
    As a transmission system, our expansions in North Dakota have been 
subject to approvals by the Public Service Commission. Enbridge 
appreciates the transparent, streamlined regulatory proceedings of 
North Dakota and Minnesota. Actually we'd like to urge other States, 
such as Illinois, to follow a similar regulatory model. As I said 
before, the capacity of pipelines in distant States affect North Dakota 
producers who need to reach diverse refinery markets. Thus, Enbridge 
and others have worked, for instance, with the Interstate Oil and Gas 
Compact Commission (IOGCC) leadership to develop recommendations for 
effective, publicly transparent, and streamlined State regulatory 
regimes for approving pipeline routes, capacity, public need and State 
environmental assessments.
    However, the Alberta Clipper expansion project on Enbridge's 
mainline, which is important to North Dakota producers' ultimate market 
access, is still undergoing more protracted State and Federal 
regulatory approvals. The project is a new 990 mile, 36-inch pipeline 
along our existing route from Alberta to Wisconsin, with its 450,000 
bpd of capacity easily expandable to 800,000 bpd. The North Dakota PSC 
approved our application for the pipeline that crosses the Northeast 
corner of the State in a record 6 months and the Minnesota Public 
Utilities Commission is expected to approve a Certificate of Need, a 
Routing Certificate and complete the State's environmental assessment 
by October, about a 16 month process. The Canadian portion of the 
project, spanning three provinces, was approved by the National Energy 
Board in 16 months and construction began last week on the Canadian 
portion. The Federal approvals in the United States are still pending 
the completion of an Environmental Impact Statement led by the U.S. 
Department of State, who stepped up their role as lead agency following 
the Executive Order 13337 in 2004. While the initial goal was to have 
approvals to allow winter 2008/2009 construction in some wetlands, 
Enbridge is hopeful that the current target of March 2009 approvals of 
the final EIS is met. Thus the U.S. Federal approvals for the project 
will take just under 2 years, if the current schedule holds. It is 
vital that capacity east of Clearbrook, Minnesota be added through the 
completion of the Alberta Clipper project so North Dakota volumes 
landing at Clearbrook have unconstrained outlets to refinery markets 
throughout the Midwest.
    Public Scrutiny.--Enbridge has built over a thousand miles of new 
pipeline in the last decade so we appreciate the value of getting 
public input early and often during a project to help identify and 
resolve many issues of concern. The public is often frustrated, 
however, by a confusing array of public meetings, formal regulatory 
intervention processes and means to offer their written comments. And 
sometimes the need to connect supply sources with refineries requires a 
route that a vocal minority of the affected public opposes. This is 
especially true when environmental interest groups organize or 
negotiations for the pipeline right-of-way result in an impasse and the 
pipeline company seeks to use the State's power of eminent domain. Of 
course, when crossing sovereign tribal lands, there is no process for 
resolving an impasse in securing the right-of-way. While the private 
sector is stepping up to the investments needed in energy 
infrastructure, it is wise to appreciate the challenge presented by 
trying to satisfy both energy market needs and the public affected by 
the project. Even a well-planned project with proactive, responsive 
public consultation can be stopped in its tracks by intense opposition.
    Project Costs and Financing.--When planning and securing support 
for a major expansion, shippers need to know what transportation rates 
they are committing to fund the expansion. Staying true to project 
capital estimates is expected and is managed by experienced companies. 
However, as a multitude of projects in North American compete for 
materials and labor, we've seen costs rise significantly. For instance, 
in 2008 the price of pipe increased approximately 40 percent and the 
cost of other steel products, such as valves and pumps increased an 
average of 50 percent over the last 2 years. Labor costs and 
availability of experienced welders and construction workers is tight 
and Enbridge has seen increases in mainline contracting and labor go up 
by some 5-10 percent each year over last decade. In addition to 
competition for construction labor, many in the industry are facing the 
challenge of retaining our own energy-experienced technical and 
business professionals. We appreciate the continued attention to many 
of these issues by the Senate Energy Committee over the last year.
    In conclusion, Enbridge has devoted significant efforts to try to 
match pipeline expansions to the needs of the market. We remain 
committed to working with shippers on future expansions as the promise 
of production from the Bakken formation is realized. Enbridge also has 
over $12 billion in projects underway, with double that on the drawing 
board, to expand our North American pipeline network so that growing 
volumes produced in both North Dakota and western Canada can reach a 
variety of refinery markets. The net effect of this infrastructure 
investment is less dependence on crude oil from unstable nations 
outside North America.
    But these opportunities come with challenges. Pipelines need 
shippers to align on the right project at the right time. Regulatory 
processes that require parallel and sometimes multi-year efforts at the 
State and Federal level should be streamlined. Enbridge, and others in 
the private sector, need to rise to the challenge of increasing costs, 
public scrutiny, financing and the frequent intervention by 
environmental interest groups. It is Enbridge's view, however, that the 
public and private sector must work together to better streamline 
regulatory processes.
    Energy security requires a host of solutions including alternatives 
and conservation. While we are still dependant on fossil fuels, U.S. 
energy security is enhanced with access to growing supplies from Bakken 
as well as from western Canadian Production. Enbridge, and others in 
the pipeline sector, need to continue to work collaboratively with 
customers, regulators and elected officials to ensure projects can be 
completed with the right balance of input from the affected public and 
the need for swift approvals to meet the needs for secure supplies of 
energy.

    Senator Dorgan. Mr. Hatfield, thank you very much. We 
appreciate your being here.
    And finally, Mr. Harold Hamm is the chief executive officer 
and chairman of the board of Continental Resources. He also 
serves as chairman of the board of directors of Hiland 
Partners, a publicly traded gas gathering and processing 
company with operations in a number of States, including our 
State.
    He also serves as director of Complete Production Services, 
a publicly traded oil and gas service company operating in 
States including North Dakota, served as chairman of the 
Oklahoma Independent Petroleum Association, president of the 
National Stripper Well Association, founder and chairman of 
Save Domestic Oil, and served on the board of Oklahoma Energy 
Explorers.
    You are a busy man, Mr. Hamm. Thank you for being with us. 
You may proceed.
    Mr. Hamm. I just try to stay hooked up.
    Senator Dorgan. It sounds like you are pretty well hooked 
up to me.
STATEMENT OF HAROLD G. HAMM, CHIEF EXECUTIVE OFFICER 
            AND CHAIRMAN OF THE BOARD, CONTINENTAL 
            RESOURCES, INC.
    Mr. Hamm. Thanks, Senator Dorgan and Congressman Pomeroy. I 
appreciate the invite and the opportunity to testify here 
today.
    I also thank you for being involved in the request to the 
USGS. I think that did a whole lot to authenticate the Bakken 
as a major producing area and gave the pipelines and a lot of 
the other people, rig people that we need so desperately in the 
field the confidence to bring equipment into the area and start 
building the infrastructure out. So appreciate that very much.
    Continental has been working up here in North Dakota a long 
time, and we have a long history. We started drilling the Red 
River units down there, one of the first fields drilled 
strictly with horizontal drilling. Currently, we drilled about 
600 horizontal wells to date. So we have been doing this a long 
time.
    We are the second-largest producer in the Rocky Mountain 
region, and as you can imagine, our problems with moving oil, 
we have been dealing with this a long time. We started over in 
Elm Coulee in the Bakken. And so, we have been dealing with 
this pipeline situation for several years now. So it hasn't 
just started.
    I won't say much about the opportunity. We had a big belief 
in how big this was a long time before the USGS came out with 
it. Today, we own over 500,000 acres up here in the North 
Dakota Bakken, so we are the largest leaseholder up here. So it 
did authenticate what we were doing and a lot of other people.
    I will just try to summarize briefly my comments and then 
talk a little bit about the pipeline challenges and other 
challenges that exist out there today. I think our industry 
growth is challenged because, first of all, the market is 
flooded somewhat by overhanging oil dumped into the Guernsey, 
Wyoming market by Express Pipeline that came down. Basically, 
that happened 2004, 2005.
    And we all remember, particularly as producers, that 
differential that we talked about earlier, that came up as high 
as $34 a barrel, shut in a lot of North Dakota production, very 
harmful. We shut in our Red River units for over a month at 
that time so we could access pipelines out of the area.
    So an effort to alleviate the situation by bringing more 
pipelines to the area recently has been delayed somewhat by 
SemGroup's bankruptcy. You know, they bring a pipeline to 
Platteville, which we expected to be hooked up to Plains 
pipeline in Cheyenne, which would alleviate some of the oil 
coming into that Guernsey market. We still expect that to 
happen, but it has been slowed down just a little bit. That 
would give us about 65,000 barrels of additional capacity out 
in front of the Guernsey market.
    As Enbridge said, they have added a lot of capacity, and 
Continental stepped up to support that capacity every time they 
have asked by signing on the dotted line, committing barrels. 
And we will be there for the next expansion.
    They have lagged the industry needs, and I don't think 
anybody could foretell exactly how big this thing was going to 
be in the beginning. And so, it is natural that that was lagged 
somewhat. But I think now, without a doubt, the biggest 
constraint on growth up here is pipelines. We have to get it to 
market. And so, we have to step up to do that.
    So I appreciate Mr. Pomeroy's comments earlier. It is going 
to mean a whole lot to the State of North Dakota. We just did a 
rough, back of the napkin, if you will, as to what it might 
cost North Dakota if the differentials went to $25 or 
something. And we are hearing it out in the field right now 
from producers that they are saying that we need to shut it 
under and take about a $25 differential hickey right now.
    So that could mean as much as--that back of the napkin 
figure was about $168 million a year. So perhaps some help with 
pipeline construction in like tax-free bonds or whatever it 
would take to step up big time and increase this capacity out 
of here I think is duly warranted.
    You know, it is kind of ironic that this happens right now. 
We talk about the development of the North Dakota Bakken. This 
came about as basically from a geologist's perspective, and 
that is what I talk from. We were all taught that you look for 
conventional reservoirs and the ones with permeability, 
porosity, and everything which you could produce easily.
    But the Bakken Shale is anything but that, and all the 
other shales that have been found across the United States 
today, we have basically had a virtual revolution that about 15 
companies across the country--and I characterize those that are 
companies that embrace the horizontal technology, the high-
pressure fracs, 9,000 to 12,000 pounds, multiple-stage fracs, 
the use of ceramic proppants--all of these are those companies, 
the technology that they have employed to bring about this 
revolution that has occurred, about 15 independents have been 
involved in this all across the United States.
    Now think that this was too small for the majors to begin 
with. It just didn't look like it was going to work very well. 
But now we see the majors up here, particularly in North 
Dakota, getting involved in it, and then that is good. They are 
picking it up. But this is just at a time that this evolution, 
as you will, had been brought about for America's needs.
    You know, we talked about even the surface perhaps of 
natural gas. I don't think we will see that with oil because 
most of these plays are gas. But wouldn't it be something to 
see gas liquids coming on that would provide a lot of our 
transportation needs, and I believe that will happen. So it is 
something that this has occurred. It is rather ironic.

                           PREPARED STATEMENT

    And yes, we see these infrastructure problems. This is not 
the only play that has got it. We see those in Marcellus and 
other places that we are involved in. But you have to step up 
and figure out ways to deal with it, and a lot of times it 
takes involvement from a lot of different interagencies to get 
that job done.
    So, anyway, that sums up my testimony, and I thank you very 
much for being here.
    [The statement follows:]
                  Prepared Statement of Harold G. Hamm
    Senator Dorgan and Members of the Energy and Water Development 
Appropriations Subcommittee, thank you for the opportunity to speak to 
you today on this most important subject facing our State and Nation, 
Energy Supply and Constraints in Western North Dakota.
    My name is Harold Hamm. I am founder and serve as CEO and chairman 
of the Board of Continental Resources, Inc., an $8 billion market cap 
company, publicly traded under the symbol CLR on the New York Stock 
Exchange. Currently CLR is the second largest producer of crude oil in 
the Rocky Mountain Region only behind Conoco Phillips. CLR's capital 
expenditure budget in 2008 is $883 million, of which over $400 million 
is being spent on leases and drilling in North Dakota. Continental 
celebrated its 40th year in business in 2007. I am a founder and 
current member of the Northern Alliance of Independent Producers, 
representing producers in North Dakota, South Dakota, and Montana. I am 
past chairman of the Oklahoma Independent Petroleum Association and 
past president of the National Stripper Well Association.
    Continental has played a pioneering role in horizontal well 
drilling with over 600 horizontal wells drilled to date and as an 
unconventional shale resource developer that is active in over 10 
resource plays across the Nation. Our Company is currently the largest 
leasehold owner in the Bakken Shale play with over 500,000 leased acres 
in North Dakota and Montana. Approximately 80 percent of our production 
is crude oil, as is the case for the State of North Dakota.
    North Dakota has a tremendous opportunity to exploit the Williston/
Bakken Shale resource, and independent exploration and production 
companies are already leading the charge, with new technology, 
horizontal drilling, etc. However, if the industry isn't encouraged to 
develop sufficient takeaway infrastructure, with State support, the 
pace of energy development will continue to be restricted.
                    the opportunity for north dakota
    Recently, the United States Geological Survey identified 
approximately 4 billion barrels of recoverable oil in the Bakken 
Formation of the Williston Basin with the current level of technology. 
Approximately 75 percent of the existing assessment is in North Dakota. 
In short, the opportunity for the State of North Dakota and our Nation 
is huge considering the $120 pricing environment we are experiencing 
for crude oil.
    And corresponding to this opportunity we have seen a considerable 
ramp up of drilling activity over the past 18 months to about 84 
working rigs now. This is about twice the level in 2007.
                   the challenges to continued growth
    Recently the price of oil has been trading in a range of $110-$120 
a barrel, versus approximately $7.50 per mcf for natural gas. This 15 
times oil-to-gas ratio reflects the premium value of oil as an input in 
the manufacturing of liquid transportation fuels, yet 80 percent of the 
Nation's drilling rigs today are employed drilling for gas. Why is that 
we ask?
    I would like to suggest a few of the challenges exploration and 
production companies face in answer to that proffered question for your 
consideration.
    First, we producers clearly remember the historic manipulation of 
crude oil prices by foreign multi-national oil companies and countries 
such as Venezuela. When Venezuela decided to dump oil into this country 
below their cost of production in 1998 and 1999 to drown America's 
higher cost stripper well operators, they drove the price of oil to 
$8.00 per barrel. Please note that this occurred less than 10 years ago 
today. And then there was OPEC always willing to open their spigots 
whenever America's producers began to get a little traction in reserve 
replacements. And we must not forget the nationalization of our 
interests abroad, all without any support from international courts.
    Second, let's consider the ever-looming threat of punitive 
legislation from Congress in the form of windfall profits taxes, 
rollback of geological and geophysical expensing, and etc. These 
threats send the wrong message to domestic exploration and production 
companies. The Federal Government should be encouraging the development 
of our crude oil resources so that we are less dependent on foreign 
supplies. However, if instead the Government enacts policies that 
penalize oil production, then we will expend our resources drilling for 
natural gas, which is more abundant anyway, and easier to find.
    To keep drilling focused on oil, as we did at Continental, we had 
to be pretty persistent or plain hard headed. Sometimes, it was 
necessary to ignore the disincentives to oil exploration and 
production.
    In addition to those challenges, there are the physical obstacles 
of limited infrastructure. In some parts of North Dakota, these include 
a lack of natural gas gathering transportation lines to market, gas 
plants, crude oil lines (I'll cover this in more detail later), 
drilling rigs, frac fleets, service companies, labor to operate 
equipment, housing for personnel, (many are living in camps in 
temporary housing) and more deficiencies.
    The point is, the process of exploring for and producing oil and 
natural gas is expensive, high-risk, and complex. The process goes far 
beyond simply identifying a prospective site and drilling a well.
    We need Congress and the American public to know and understand the 
difference between the producers of crude oil and natural gas and the 
refiners/marketers of crude oil and its products in America. They are 
different. We, independent producers, are price takers, so increasing 
supply is the key to moderating end prices to the consumer. 
Independents drill 85 percent of America's wells. Consequently, we 
deserve a supportive attitude--not one of condemnation and punishment. 
I've been in this business 41 years. I've witnessed the demise of most 
of my peers in the late 1980s and in 1998 and 1999. It became difficult 
to keep our eyes on the big picture at times as America's energy 
dependence deepened and a crisis in energy supply loomed.
    However, I continue to be completely dismayed at how little our 
Congress, even today, understands about our most important industry and 
the challenges of finding, drilling, and transporting oil and gas to 
markets. Congress gets caught up in the public's concern over the 
increased cost of gasoline, but instead of reacting constructively to 
encourage more supply, they blame the Nation's producers. We aren't 
price makers. We are price takers who re-invest over 100 percent of our 
cash flow in exploration and development year after year.
    We deserve acclamation for our actions over the past decade and 
supportive measures such as permanent relief from net income 
limitations on marginal wells, expansion of the current 1,000 bbl 
limitation of the depletion allowance for marginal wells (I refer to 
Senate bill S. 3395, introduced by Senator Inhofe), and alternative 
minimum tax relief, and immediate expensing of geological and 
geophysical costs in the year incurred. And the largest one of all, 
regulatory relief on Federal lands and access to them. It should not 
take a year to obtain a permit to drill on Federal lands.
     unconventional shale explorationists break reservoir paradigm
    Over the past decade a small group (about 15), all made up of 
independent producers have truly brought about an exploration 
technological evolution which has turned the industry literally upon 
its head. We have developed the technology to find and extract oil and 
natural gas from unconventional shale rocks themselves through 
unconventional means such as long lateral horizontal well bores, high 
pressure fracture treatments of up to 9,000-12,000 pounds per square 
inch, high grade proppants, such as ceramics, and the ability to 
fracture-stimulate wells in multiple stages along a horizontal well 
bore.
    As a geologist trained to find only conventional reservoirs with 
high porosity and permeability, I can tell you this transformation is 
completely phenomenal.
    These advances in technology have changed the entire world of 
exploration in a very short time and made it possible to harvest huge 
amounts of reserves heretofore believed unrecoverable. Most of these 
reserves are natural gas. The Williston Basin's Bakken shale formation 
is an exception, since it is an oil resource play. It is a very good 
example of trapped reserves becoming accessible through these recent 
technologic advances.
    These pioneering resource players embrace these new technologies 
and take huge land positions in those shale plays in multiple producing 
basins. They haven't sought or received much acclaim nor have they been 
given credit for these advances to release America's energy resources 
for the consuming public both today and for the next 100 years. Do they 
deserve to be punished for their years of fortitude and persistence to 
make these stable domestic resources available to the American 
consuming public? I don't think so.
                     pipeline issues and challenges
    To quickly summarize this scenario, North Dakota producers remain 
flooded by an overhang of oil dumped into the Guernsey, Wyoming market 
area by Express Pipeline in 2005, which overran all of the existing 
pipeline take-away capacity and drove differentials through the roof to 
levels reaching $34 per barrel and shut-in quite a bit of the State's 
production.
    Efforts to alleviate this situation have recently been slowed by 
SemGroup's bankruptcy, owner of the White Cliff's Pipeline being built 
to Platteville, Colorado. This segment was expected to connect to 
Plains Pipeline in Cheyenne, which links to Guernsey and could move 
65,000 barrels of oil per day from the area.
    Enbridge, a Canadian company, continues to lag the demand for 
service and remains prorated. Our own company has 16,000 barrels of oil 
per day to move from the Bakken and was allocated less than half this 
amount of space on Enbridge.
    Keystone Pipeline thwarts the needs of North Dakota producers by 
design, jogging east of North Dakota's producing region to access 
right-of-way across the State hauling none of North Dakota produced 
oil, while gaining access to its markets at Cushing, Oklahoma and 
refineries in the Midwest.
    Keystone XL, another proposed line from Edmonton, Alberta, 
advertises precisely to its customers in Canada their barrels will not 
be diminished in any manner on its path directly to refinery markets in 
Houston.
    Yet, the northern States continue to grant right-of-way access 
unfairly to its northern neighbor at the expense of its own indigenous 
crude and in the face of fair treatment by FERC. Are we the only guys 
who must play by the rules?
    I urge the use of tax-free bonds to build an adequate pipeline 
system to move North Dakota's oil to market now.
    We also need more support for the development of energy 
infrastructure, not more market transparency. Once again this year, we 
are being forced to rail-out oil from this region due to pipeline 
constraint and lack of infrastructure, with the only alternatives being 
very negative: shut-in production or differentials of $25 per barrel, 
or more, which could cost the State of North Dakota up to $168 million 
per year at current rates of oil production and prices. For this 
reason, a tax-free bond issue should be considered by the State to meet 
this need at once.
    The State of North Dakota has the authority in this matter to take 
action. The North Dakota Industrial Commission identified the Williston 
Basin crude oil transportation bottleneck on July 7, 2006, yet there is 
no viable plan of action on the table today.
                               in summary
    The Nation's independent producers have risen to the occasion and 
challenge of providing fuel for our country in spite of great 
obstacles. Encouraging the production of crude oil and natural gas in 
the United States has huge, beneficial impacts on local and State 
economies in this country, particularly where these resource plays are 
located. We can increase supply in an environmentally responsible way, 
taking advantage of advanced technologies that also benefit 
exploitation of the resources themselves.
    The growth of the global economy, especially in China, India, 
Brazil and other dynamic societies, will continue to put pressure on 
energy supplies--demand is not likely to abate long-term. The U.S. 
economy will continue to grow, accompanied by increased energy needs. 
The question is the control of energy resources and whom we will pay 
for crude oil and natural gas, as we transition to more diversified 
energy resources. Will we choose to be increasingly self-reliant, to 
the benefit of local and State economies in the United States, or will 
we continue to transfer the wealth overseas to satisfy our energy 
needs?
    North Dakota has an unprecedented opportunity today to capitalize 
on its vast crude oil reserves as the Nation transforms its 
transportation fuel system to alternative sources such as CNG, ethanol, 
and natural gas to liquids, which produce light diesel and gasoline. 
North Dakota is very dependent on its natural resources and has one 
last shot at getting it right.
    This transformation period is expected to occur over the next 
several years. The leadership and citizens of this great State must not 
sit idly by and see their resources diminished once again by the 
challenges of pipeline take away capacity, punitive legislation, and 
manipulation or lack of infrastructure needs. I urge them to accept a 
new vision of prosperity and growth for the benefit of N. Dakota, its 
citizens and all Americans.

    Senator Dorgan. Mr. Hamm, thank you very much.
    That is all very interesting testimony about a wonderful 
subject of bountiful production here in North Dakota that will 
benefit our economy, but also challenges to make certain that 
that production reaches market without substantial price 
discounts.
    I have a lot of questions. So let me begin with you, Mr. 
Hamm. With the U.S. Geological Survey study, we had some in the 
industry here who said, ``Well, so what? We knew there was oil 
there. What value is there in having USGS look at it?'' You 
obviously disagree with that. You think it was valuable?
    Mr. Hamm. Oh, I think it was very valuable. Like I say, I 
think it authenticated the play for a lot of different people. 
They could start seeing that within the assessment units that, 
sure enough, that was possible. Along the Nesson incline, that 
assessment unit, and the one to the east where the Parshall 
area is, those--obviously, people start adding up the barrels 
pretty quick. So it was a really good thing.
    Senator Dorgan. You were one of the only producers willing 
to testify at an open hearing. We asked a lot of producers. It 
is not that we asked for a lot of dates before we got to you, 
but we did ask a number of producers about their willingness to 
testify publicly about what they had described to us privately 
as a potential problem, a looming problem. And a number of them 
were saying I don't think we can say that publicly because of 
other concerns.
    Mr. Hamm. Well, they have concerns. We are a public company 
also. We are about an $8 billion market cap company. Actually, 
my travels today, I am going to New York, and we will put on a 
presentation tomorrow at Lehman conference up there.
    But we have been very open with our situation here in North 
Dakota and our problems. They know that we are railing oil. 
Rail is our last choice, last choice of producers. But this is 
the kind of expensive process, but we have been doing it 3 
years and got it down to where we can get it done. But you know 
it is expensive, and we would much rather have it on pipeline 
and an environment like that instead of on rail.
    Senator Dorgan. Let me ask Mr. Helms. Mr. Hatfield has 
described Phase VI, which is underway and will be completed in 
2010. If you see this line of production, it appears to me that 
we keep having the experience we have been having. And you see 
where these drilling rigs are moving every 30 or 40 days, 
drilling a new hole and producing new energy.
    Are you concerned, are we going to come to a point where we 
hit an even greater capacity limit than we now have, which is 
going to impose steeper discounts in 2009 or probably part of 
2010?
    Mr. Helms. Senator, that is a very good question, and I 
think the short answer would be yes.
    We are approaching a time period in 2009 where we are going 
to be very constrained. And just the fact of moving crude oil 
by rail is going to cost significantly more than moving it by 
pipeline, a factor of about 10. So, therefore, that results in 
less value at the wellhead to the producers and the royalty 
owners and the State.
    Part of the situation with Phase VI is delay in equipment. 
We had hoped that Phase VI would come in in 2009, but as you 
know, copper, steel, everything is at a premium. And so, it is 
not going to happen until first quarter of 2010. So we are 
going to see price differentials in 2009. That is anticipated.
    We have been participating fully with Enbridge in 
constructing their model for future projections, not wanting to 
have this happen again. And so, we are excited to see that 
Enbridge is really working the problem and recognizes that 
Phase VI is only going to provide maybe a few months' to a 
year's relief and Phase VII needs to be coming right behind 
that.
    Senator Dorgan. But let me ask, is there a Phase VII? My 
understanding is that Phase VI gets you to kind of where you 
can be with respect to your current infrastructure. Would you 
have to, beyond Phase VI, lay new pipe? And if that is the 
question, what sort of timeline do we talk about with respect 
to additional capacity for laying pipe?
    Mr. Hatfield. Well, like I mentioned in my verbal 
testimony, beyond the current Phase VI, we have a couple of 
options. They are not the overall grand slam option that 
potentially takes another doubling of North Dakota production 
and allows it to move to market.
    It does potentially take a 20,000 to 50,000 barrel 
shortfall, and potentially--and I am trying to couch that a bit 
because some of the projects that I had mentioned in my verbal 
testimony rely on another system having extra capacity, which, 
as you mentioned, I have just moved from Estevan and the 
Saskatchewan system down to North Dakota. I am fully aware of 
their restrictions up there as well.
    Past Phase VI, we need a major undertaking of new pipeline 
for major volumes again.
    Senator Dorgan. But there you are talking long lead times, 
aren't you?
    Mr. Hatfield. We are talking years out in front, yes.
    Senator Dorgan. And in the meantime, we may well be talking 
about substantial price discounts. I will come back to that in 
a moment.
    But Mr. Kelliher, Mr. Chairman, you have, I assume, some 
sense of what is happening in Canada with respect to planning 
and building pipeline capacity, and perhaps Mr. Hatfield and 
Mr. Hamm have the same notion. I think they have a different 
system up there. Some observe that and say, well, that seems to 
work a lot better, more streamlined, and less cumbersome. 
What's your assessment of that?
    Mr. Kelliher. I think the U.S. process works reasonably 
well for oil pipeline expansions. It is different from the gas 
model in the United States, and it is different still from the 
way we go with electric transmission.
    But in part, it is hard to say definitively because there 
haven't been very many oil pipeline expansions in the United 
States in recent years, unlike gas. But as Mr. Hatfield pointed 
out, the State of North Dakota approved the new line in about 6 
or 7 months. So some States act very quickly in approving State 
siting of the new oil pipelines. In other States, it takes 
longer.
    Senator Dorgan. Mr. Hamm, will the lack of transport cause 
a company like yours to not expand production as you otherwise 
might?
    Mr. Hamm. If somebody was drilling by lease held, lease 
term and things like that, but you can usually get those 
extended or buy a new lease term. But absolutely, we could see 
this drop precipitously if we can't move from well to market.
    A lot of small companies don't have the ability to set up 
the railing operation, for instance. So they are probably going 
to be shut out. And that is what they have told me that we are 
just limited. We either take a big hickey on price or we are 
shut in.
    And so, yes, it could very well----
    Senator Dorgan. Is that hickey or hiccup? Is that 
apparently a term of art of the industry?
    Mr. Hamm. We call it hickey, but hiccup, yes. It could very 
well limit them.
    Senator Dorgan. So what we see in front of us is an 
unbelievable amount of new productive capability here in North 
Dakota. But it won't happen just because it is there. It will 
happen because you can pull it up and move it.
    We are pretty prodigious users of energy here in North 
Dakota. But most of what we are going to be producing 
additionally is going to be moved elsewhere.
    Mr. Hamm. Absolutely. Most oil will be moved, going to 
markets at Cushing or Houston, so most of it will move out of 
the State.
    Senator Dorgan. What is the difference of cost of 
transporting by pipeline versus rail?
    Mr. Hamm. Well, you are looking at $10, $11 or more.
    Senator Dorgan. A barrel?
    Mr. Hamm. Yes, a barrel by rail, and $2 to $3 by pipeline.
    Senator Dorgan. Two to $3?
    Mr. Hamm. So it is four times more expensive probably, 
three or four.
    Senator Dorgan. Mr. Hamm, another question. In my 
subcommittee, we have--in this subcommittee, we have funded the 
research component, and that research component is oil and gas 
research, particularly with respect to unconventional and 
ultra-deep resources. I mean, we have funded that nationally at 
the Federal level, $75 million a year.
    Some have said there is no reason to fund any research any 
place for the industry. The industry is making a lot of money. 
Others have said--in fact, the President has said that.
    Others have said that that funding of ultra-deep and 
unconventional kinds of research is what has allowed 
independents who have led the way in being able to go down and 
do horizontal drilling and fracture, and it is what has really 
precipitated the ability to get this oil and gas. It is not 
from the majors that precipitated this. It is from the 
independents, and it is from the use of Federal research that 
has been going on and which puts us in the position of around 
the world having the best capability of that ultra-deep, 
whether it is offshore outer continental shelf or here onshore.
    Tell me the value of this Federal research. Is it something 
that has contributed to the 15 independents that you say have 
led the way here or not?
    Mr. Hamm. It has been my experience that every play, 
including this one, had a learning curve that you had to go 
around. And it was quite steep. In fact, North Dakota gave some 
incentive for about a year to help get around the curve on the 
Bakken, and it has helped.
    You know, the wells--our wells drilled a year ago were 
about 335,000 barrels EUR, and now they are about 455,000. And 
so, it has helped tremendously in doing better jobs of 
completing them and better frac rates, proppants, multi-stage 
fracs all the way around the long well bore. We are seeing as 
many as 14 and perhaps maybe as many as 20 frac stages along a 
10,000-foot well bore eventually.
    So this research is very important in every play, and every 
resource play is very important. And a lot of independents will 
use, take full benefit of that.
    Senator Dorgan. Just a couple more questions and then I 
will call on Congressman Pomeroy.
    Shirley Meyer, you are looking at all that is happening in 
this State with respect to potential refinery expansion. Can 
you tell me what you know about what is happening up in the 
Williston area with that group?
    Ms. Meyer. Well, they are very much on track. They have 
their feasibility study. I was thinking it was going to be 
released September 1. And it looks very promising. I would 
agree with all the gentlemen on the panel. We definitely need 
pipeline capacity, but what we are looking at and what also the 
Williston group is looking at, is we want to start shipping 
refined product.
    Everyone here is talking about increasing pipeline capacity 
for crude, to ship our crude out. We want to add value to our 
crude and refine it here in North Dakota. True, we need 
pipeline capacity, but we need pipeline capacity to ship our 
refined product.
    And Williston is on course there. I think it is going to be 
surprising to some people how economically feasible their study 
has been. Their business plan looks very promising, and they 
will be releasing that study very shortly, I believe this 
month.
    Senator Dorgan. Are they talking about 100,000 barrels?
    Ms. Meyer. A hundred thousand barrels a day is what their--
--
    Senator Dorgan. What is the estimated cost of a project of 
that type?
    Ms. Meyer. We have been--our task force has been told that 
it was $2.1 billion.
    Senator Dorgan. Mr. Helms, the Keystone pipeline is 
planning to build a pipeline that at one point was to go 
through western North Dakota and now apparently is just going 
to touch a tiny corner of our State. What kind of work exists 
or who is doing what to talk to the folks that build a pipeline 
of that type to see are there ways to put North Dakota on that 
pipeline?
    Mr. Helms. Well, Senator, that is a very good question, and 
that is the very reason that we created a Pipeline Authority in 
the State is that it is very difficult for producers and 
shippers to kind of bypass all of that and talk to a company 
like TransCanada about getting their production on a pipeline 
like that.
    Those pipelines are what they call bullet pipelines. They 
are designed to take Canadian crude oil directly from the oil 
sands in Alberta to major refining centers well south of here. 
The gulf coast really is their goal.
    There is a plus in that in that will take away some of the 
flooding of our refined market by the Canadian crude oil. It 
will move it outside of the area of refineries that we like to 
access with our refineries.
    But it is very difficult to access those kinds of pipelines 
with North Dakota crude oil. It takes massive investments in 
facilities to do so. We did some cost estimation on what it 
would take to get North Dakota crude oil into the pipeline in 
the eastern part of the State, and it was going to be a $300 
million investment to build a pipe and facility to batch our 
crude oil into that pipeline. They are really designed to move 
Canadian crude past us to the south.
    However, that is--one of the purposes of the Pipeline 
Authority is to talk with those people and continue to try to 
create possibilities for on ramps for North Dakota crude on 
those pipes. I just don't see a lot of promise in that. Really, 
the promise of them is relief of the Rocky Mountain crude oil 
complex from the influx of Canadian oil.
    Senator Dorgan. What is, finally, the best case for mid 
2009 to late 2009 here in North Dakota, where our production 
continues to increase? We all expect that to be the case. One 
only needs to drive around the western part of North Dakota to 
understand the aggressive activity in production.
    What is the best case for, let us say, late 2009 with 
respect to additional capacity for conveyance, price discounts? 
What is the best case we can expect?
    Mr. Helms. Well, that is a very difficult question to 
answer, and we haven't estimated what price discounts might be 
in late 2009. What we do hope is--or our best-case scenario 
would be that we add 10,000 barrels a day of takeaway capacity 
through the Butte pipeline to the south, and we add another 
20,000 barrels a day of takeaway capacity with rail stations in 
Minot and in New Town. So that is a total of 30,000 barrels a 
day.
    We will be very close to overrunning those capacity 
increases by the time Enbridge Phase VI can kick in. And so, I 
am almost certain that we are going to see price differentials 
mid to late 2009. I don't think they are going to approach the 
catastrophe that we had in early 2006. But they are going to be 
significant, and they will probably be on the order of what we 
saw around early 2007.
    Senator Dorgan. Which is how much?
    Mr. Helms. We saw price differentials at that time running 
$4 to $5 a barrel in excess of the normal transportation 
charges that we would see. So that is a best guess is $4 to $5 
a barrel.
    Senator Dorgan. Mr. Hatfield, what is your assessment of 
that?
    Mr. Hatfield. I would very much agree with Mr. Helms, 
although he is the expert and much closer to it on a daily 
basis--and my crystal ball happens to be in the shop this week. 
I believe the fact that--I mean, he is pretty well right on.
    One of the things that I would point out is I am not 
absolutely sure if we are taking into account our current plans 
on top of the rail facilities at New Town and Minot that 
Enbridge is also looking at, if that is what Mr. Helms was 
looking at. That could be a potential.
    Now that starts to potentially restrain the rail capacity. 
I don't have those answers. I think that is--there is a 
potential for the market to tighten up in that timeframe. I 
also agree that I don't believe it is going to be anything like 
the situation that we had a number of months back.
    Senator Dorgan. Mr. Hamm, your assessment?
    Mr. Hamm. I think with the current rate, this many rigs, 
you are going to eat up 30,000 barrels a day awfully quick. We 
have seen it is almost straight up here in 2008, so that is on 
the chart. My assessment is it is going to get severe pretty 
quick.
    Senator Dorgan. In what timeframe?
    Mr. Hamm. In the 2009 timeframe.
    Senator Dorgan. Will it restrain production then, do you 
think?
    Mr. Hamm. I think so. I think we can all agree on that.
    Senator Dorgan. Well, maybe just an observation. With every 
opportunity comes challenge. And we would prefer to be sitting 
here with these problems accompanied by the prospect of 
increased production than to have no prospect of increased 
production and certainly no problems. But all of us have to 
search for ways to begin to address this because I think these 
are longer-term issues.
    So let me ask Congressman Pomeroy to inquire.
    Mr. Pomeroy. Thank you, Senator Dorgan.
    Mr. Hamm, I am very pleased you could be on the panel. You 
are a well-known figure in North Dakota petroleum that it is an 
honor to meet you.
    Mr. Hamm. Thank you.
    Mr. Pomeroy. Your name came up in a visit I had recently 
with T. Boone Pickens. He had one of his town meetings 
addressing his plan in Fargo. We were talking about you, and I 
understand he is a geologist?
    Mr. Hamm. He is.
    Mr. Pomeroy. You are a geologist. Guess I am going to have 
my son go into geology. I commend you for how well you are 
doing. Your success has been to the benefit of all of us. You 
have really developed and tapped a tremendous capacity.
    Last week, I was talking with Governor Schweitzer of 
Montana. He is convinced that the horizontal drilling taking 
place in North Dakota's wells is going down and pulling out 
this big old pool under Montana. So I am pleased your testimony 
straightened that one out.
    On a serious note, let me just ask you, when we talk about 
a refinery, would building refining capacity in North Dakota 
help on this problem of crude oil pipeline capacity?
    Mr. Hamm. Well, you know, I am not an expert in that. I did 
work for Champlin Petroleum, which had refineries, when I first 
got started.
    But generally, refineries are needed for whatever their 
market is of refined products. Now refined products generally 
are harder to ship than crude oil is. You need several lines, 
if you will, pipelines to ship all those refined products or 
transportation for them, at least--water, rail, whatever--to 
get that to market.
    Where, with crude oil, it is generally one pipe that will 
send it on down to the markets and where it can be refined and 
used within a Midwest area or wherever the compilation centers 
are.
    Mr. Pomeroy. But what about refining for our needs up in 
the northern plains? At least you take that off of the pipeline 
going south and then getting it back up again?
    Mr. Hamm. That is true. We have seen the comments on 
diesel. We have seen shortages up here on diesel. But that is a 
backhaul for some of these movements of crude for rail is 
backhaul being diesel. So that will probably take up some of 
that need.
    Mr. Pomeroy. Chairman Kelliher, is there a national plan 
relative to enhancing, especially in light of the tremendous 
debate taking place now on how we quickly accelerate 
independent energy capacity? In all the attention on drilling, 
is there a corollary discussion in terms of increasing a 
national perspective to somehow fast-track infrastructure 
development?
    Mr. Kelliher. I think that is part of FERC's mission in 
these scenarios where we have infrastructure responsibility. We 
don't regulate oil refineries, so we don't have any activity in 
that area. But with oil pipelines, we have a rate-making 
jurisdiction. We have taken some creative approaches to use our 
rate-making authority to make expansions possible.
    We have approved surcharges on a number of crude oil as 
well as petroleum product pipelines. And that has had the 
effect of promoting expansions. And last year was a record year 
for the natural gas pipeline network. We approved 2,700 miles 
of new natural gas pipelines, and that was a record year, at 
least going back 15 years or more.
    And transmission, electric transmission is a little bit 
different story. That is under State jurisdiction. We have some 
very limited new Federal authority that I actually am not very 
optimistic is going to work very well. So I think siting the 
grid, the Congress, I think, does need to look at changing the 
law and adopting the natural gas pipeline model for 
transmission siting.
    Otherwise, I don't think----
    Mr. Pomeroy. Is that a pretty good parallel, do you think? 
We can use the natural gas pipeline type approach with 
electrical transmission?
    Mr. Kelliher. I think so, for the same reasons. It used to 
be that gas pipelines were sited by States. But it didn't work. 
That was the way the Federal law was written in 1938. By 1947, 
Congress concluded that that was an unworkable approach because 
the network is interstate, and many States were blocking 
pipelines for various reasons. They weren't considering the 
interstate benefits.
    Mr. Pomeroy. Yes.
    Mr. Kelliher. But I do think the State siting of oil 
pipelines, I think, works. It is because I think we should be--
we shouldn't approach preemption lightly, Federal preemption 
lightly. And I think in the case of gas pipelines, I think 
Congress in 1947 did the right thing because there was very 
compelling evidence that State siting of gas pipelines wasn't 
working.
    So we have gone for exclusive Federal siting, and I don't 
think States feel aggrieved by the way the Federal process 
works for gas pipelines generally. We don't have a lot of 
disputes with States on gas pipeline siting. It works very 
well. I think we have reached the same point on the power grid.
    But oil pipeline siting, partly because there haven't been 
a lot of pipelines proposed, there is not proof. There is not 
proof that State siting doesn't work, and there are examples 
like in North Dakota and South Dakota, where the State acted in 
a number of months to approve the Enbridge project.
    So there is evidence that State siting can work in some 
cases. It is----
    Mr. Pomeroy. My expectation would be there that if we can 
tap into--get it out and tap into another network, maybe you 
are right. But if a new network to major market is required all 
the way, I don't see anything about oil pipelines that would be 
easier than the other pipeline issues or, for that matter, 
electrical transmission line issues that have proven so 
problematic State by State.
    You know, you have heard Representative Meyer cite the 
flat-out loss to the State treasury that we are going to have 
when activity stagnates or maybe is even pulled back because we 
can't get the product out. So North Dakota has a very clear 
interest here. Is there activity a State can do to expand its 
oil pipeline capacity?
    Mr. Kelliher. To me, I can't see what a State can do to 
expand oil pipeline capacity other than to generally be 
supportive and act efficiently on projects that expand the 
pipeline capacity.
    Mr. Pomeroy. You know, I think that kind of makes my point 
about more of a national approach perhaps necessary. I mean, we 
can build all kinds of things out to the borders. But if that 
is the extent of where we can reach, it gets pretty tough.
    Now, Mr. Helms, you have spent a lot of time thinking about 
this one. What do you think?
    Mr. Helms. Congressman, thank you for the question, and I 
think it is an appropriate question. I realize that oil 
pipelines have been working but, as the chairman indicated, 
largely because there haven't been a lot of proposals for major 
interstate pipelines. Some movement, I believe, toward the 
model that is used in natural gas would be appropriate.
    I participated, when I worked in the oil industry, in a 
project to put gas on a major new natural gas pipeline that was 
being built through North Dakota. And the aspect of firm 
transportation provided the risk mitigation that that company 
needed in order to make that kind of investment.
    So some application, and I know FERC has been moving in 
that direction, to provide more and more firm transportation so 
that pipeline companies and those who build this infrastructure 
can see their way clear to a return on their investment as 
opposed to the old complete common carrier market, where it was 
all just tariffs and historical production and that sort of 
thing.
    Mr. Pomeroy. You mention a rifle pipeline, which I think is 
an interesting concept. Who could stop a rifle pipeline in 
exchange for a pipeline that would have more gathering capacity 
for U.S. supply as well? What authority?
    Mr. Helms. Well, Congressman, it is my understanding that 
the local utility commissions or public service commissions in 
each State have authority over those pipeline processes. And 
so, what you will see with those pipelines is they are 
frequently routed through parts of the country where States are 
efficient and fast at approving those kinds of things.
    I think that is why you saw Express where you saw it and 
you see Keystone XL going down through the Rocky Mountain 
States because we are very infrastructure friendly.
    Mr. Pomeroy. Why would North Dakota approve a pipeline that 
really precludes gathering any of our product at a time when we 
can't get our product out?
    Mr. Helms. That is an excellent question, and I touched on 
that a little bit in my discussion maybe in answer to a 
previous question or my testimony, and that is to try to move 
the huge volumes of Canadian crude that are coming in the next 
decade.
    To move those far south of here, outside of our refining 
infrastructure so that we maintain our Minnesota, Wisconsin, 
Oklahoma, Rocky Mountain refinery infrastructure for our crude 
oil and move that oil well south of here to refineries on the 
gulf coast, which are better suited to handle it.
    Mr. Pomeroy. We have to allow--by our law, we have to allow 
Canadian product into our pipeline, and we do. But the 
reciprocity of that seems to be kind of tipped on its head if 
they basically design the location of their pipeline so it 
misses our product. Yes, we, by law, can get access to it, but 
we really can't because they put it in the wrong part of the 
State.
    Mr. Helms. And that is exactly accurate. They did hold an 
open season on those pipelines. But as I stated, the cost and 
the process of accessing that pipeline along the way, these 
bullet pipelines, is tremendous, hundreds of millions of 
dollars.
    Senator Dorgan. I don't understand that. Congressman 
Pomeroy just put his finger on something important. We want the 
Canadian crude. It is not as if we don't want it. We want it, 
and we need it, right? The proximity of that crude is something 
we want. So we want to be hospitable to anybody that wants to 
transport it into this country.
    And yet the issue of why we can't connect at some 
connection point to put domestically produced crude on, I don't 
understand, and if you would tell us a bit more? Because we 
hear that it costs a king's ransom to find a way to tie into 
that. That baffles me. Why does it cost a king's ransom to tie 
into a pipeline at some point to allow some domestic production 
to be loaded on?
    Mr. Helms. That is a very good question, and the reason is 
that you have to create a batch of North Dakota sweet crude in 
this giant bullet pipeline. If you want to maintain premium 
price for your crude, then you need to deliver it to a refinery 
that really wants it, and you have to input it as a large batch 
of crude oil. You can't just mix it in with the heavy Canadian 
sour. Otherwise, you get the same price heavy Canadian sour 
fetches.
    So in order to batch into a pipeline, say, such as Keystone 
to the east, you have to be able to deliver 100,000 barrels 
over an 8-hour period. So you have to store up 100,000 barrels 
and put it into their pipeline over about an 8-hour period, and 
then they will take that to Oklahoma and drop it off for you.
    But that is the only way you get premium price for that 
crude is keeping it in a neat batch and bringing it to a 
refinery that wants that neat batch. You don't want it to mix 
with the heavy Canadian sour.
    Mr. Pomeroy. So is it the types of oil rather than the 
location of the Keystone pipeline in the northeastern part of 
the State that is the problem?
    Mr. Helms. It is predominantly that. Yes.
    Mr. Pomeroy. Is that your agreement, Mr. Hamm?
    Mr. Hamm. I would like to comment on that, if you don't 
mind?
    Actually, what has happened is the North Dakota system of 
Enbridge has been loaded up on other Canadian oil. You know, 
this is very high-grade oil that is produced out of Bakken. So 
a lot of people have chosen to blend a lot of low-gravity oil 
on our system, and we are estimating 12,000, 15,000 barrels.
    Because once the Bakken started flowing into it out of Elm 
Coulee, suddenly we saw the volume blown up because that was a 
very high-gravity oil that they could blend oil in from Canada. 
And so, that is what happened. It blew those volumes up at 
about 40,000 barrels--as Kevin said, it was underutilized--to 
suddenly over 80,000 barrels and we hadn't produced that much 
out of Elm Coulee.
    So we knew what was happening, and so that occurred. So 
they have used ours. But we can't use theirs. They basically, 
by design, sidestepped all of the production in North Dakota. 
And so, we can't use it. They could have very well come through 
and that was a straight line of their system that they, by 
design, sidestepped it.
    We are caught in the middle right here, North Dakota is. 
And we don't have to let them come across. The border State 
could have stopped them, and we definitely could have said you 
can't cut across us to carry your oil. But all they want to do 
is move across us to get to our markets, basically, and that is 
Cushing and Houston.
    So they could very well have carried our oil for us. We 
don't have that much compared to what they are moving. That is 
a minute amount compared to it. So it is a failed system that 
we have working here.
    Mr. Pomeroy. And that is done? It is too late----
    Mr. Hamm. I don't know if it is done yet. I am glad to see 
North Dakota stepping in the right direction, having somebody 
on staff here with authority in the pipeline area. But 
something needs to be done about it. It is criminal.
    Mr. Hatfield. If I could step in just for a second? I just 
wanted to clarify for the record that I believe Mr. Hamm made a 
transition from talking at the beginning with the statement on 
the Enbridge system we saw the numbers potentially jump with 
regard to Canadian crude oil and the North Dakota system and 
then transition into a discussion with regard to the 
TransCanada Keystone pipeline coming on. That wasn't stated.
    I didn't necessarily want to be implicated in that. I don't 
disagree with the statement, but I don't want to be implicated.
    Mr. Pomeroy. Well, we are carrying Canada oil on the 
Enbridge, but we are not getting North Dakota oil on Keystone.
    Mr. Hatfield. Well, just to clarify, and Mr. Hamm put forth 
a number of in the teens or 12,000 to--I forget the exact 
number. We don't necessarily know exactly what the number is 
coming into our system. It is a potential for that crude to 
come down. We don't see it as being a major driver in the 
shortage that we have right now. It is a potential driver in 
the shortage that we have right now.
    Mr. Pomeroy. The bigger issue is the lost opportunity on 
Keystone, not the capacity we forego on Enbridge.
    Mr. Hatfield. Well, and that is--the lost opportunity on 
Keystone is something to discuss with TransCanada. We are 
interested in coming forward with the forecast that to make 
sure that we are going to try and have the proper amount of 
capacity on the Enbridge system, regardless of what Keystone 
and TransCanada does.
    Senator Dorgan. Thank you, Earl.
    Let me--on this 166,000 barrel per day production, June 
2008, Lynn, where are we now? That is June 2008. It is now 
September 2008.
    Mr. Helms. Well, Senator, the July numbers are just now 
coming in at the office, and so I don't have exact numbers. But 
there is every reason to believe that the trend continues and 
that we have added in the neighborhood of 5,000 barrels a day 
every month since then.
    So we are very likely, just right at the bottom of your 
dotted line there, in the neighborhood of 181,000 to 185,000 
barrels a day as we move into September and will certainly be 
there in October.
    Senator Dorgan. And if we are probably right now--although 
we don't have the documentation, if we are up at 180,000 
barrels per day that is the highest production in our State's 
history. That 189,000 barrel per day North Dakota capacity 
limit, that number comes from your office?
    Mr. Helms. Yes, Senator. That number comes from our office 
with regards--now that does not include the rail shipping 
stations that we are expecting to add toward the end of this 
year. But, yes, that is a number that we provided through the 
Pipeline Authority with regards to what we have with our Mandan 
refinery, the Enbridge pipeline, and then what we can get on 
the Butte pipeline to go south into Guernsey.
    Mr. Hatfield. If I could, Senator, just----
    Senator Dorgan. Yes.
    Mr. Hatfield [continuing]. Backing up 1 second. Just to add 
one comment to the conversation about the amount of Canadian 
oil that is potentially coming across the border. I would just 
like to point out, coming from the Saskatchewan system, I know 
this issue is going both ways.
    Now putting your finger on exactly how much net is ending 
up on one side of the border or the other, from my standpoint, 
is something that, one, I haven't looked at and, two, I think 
would almost be impossible from my vantage point to see. But 
trucking and movement of oil across the Canadian border is 
going both ways from North Dakota to Saskatchewan and from 
Saskatchewan to North Dakota.
    Senator Dorgan. Right. But the discussion on the panel here 
describes a number of interesting challenges. Number one, I 
think we would like to refine more in North Dakota so that to 
the extent that we are shipping out, we are shipping out a 
refined product because that provides value to us in North 
Dakota.
    It is also the case that we have seen shortages in North 
Dakota, acute shortages. And having additional refining 
capacity in the State would help address that issue because we 
are a very substantial user of energy.
    At the same time that we would like additional refining 
capacity, much of what we are going to produce has to go 
elsewhere. And so, the question is what the conveyance to get 
it there is, and what I am trying to understand is where might 
there be a restriction or constriction of our ability to 
continue to produce?
    I think all of us would probably prefer in North Dakota, 
going forward, that we have the capability of producing 
unimpeded with any other issues, and just produce as much as we 
can produce. We can address the infrastructure issues of roads 
and so on as this production occurs, and not be constrained by 
pipeline or rail capacity. That would be our preference.
    It appears to me nearly certain, just because of the 
timeframe it takes to address these issues, it appears that by 
the end of this year--perhaps October, November of this year--
or certainly in 2009, we are going to have some substantial 
discounts on North Dakota crude prices because that is the only 
way it will be able to find conveyance. Is that correct?
    And let me try to understand something else because I don't 
understand this as well as I should. There is a pipeline owner, 
Enbridge in this case--I want to come back to Keystone in a 
moment. But there is another intermediate economic activity, 
isn't there, of people who are gathering contracts and getting 
space on your pipeline? And they are the intermediaries between 
the producer and the pipeline. And they are actually out there 
buying and selling space. Is that correct? Can you help me out 
on that?
    Mr. Hatfield. Well, with regard to our customer is the 
shipper on our pipeline. Shippers can be producers. They are 
not always producers. Shippers can be marketers.
    And you are right. Yes, the shipper is--in some cases can 
be an intermediary to the producer and the pipeline.
    Mr. Hamm. Could I speak to that?
    Senator Dorgan. Yes. Mr. Hamm?
    Mr. Hamm. You have touched on an area that is really a huge 
concern to us as producers. Right now, due to confidentiality, 
we don't know who all those shippers are. They keep that 
secret. But we do know for a fact that a lot of them are 
marketers, and they usurp that capacity and their nominations, 
and we call them air barrels for obvious reasons.
    Senator Dorgan. Air barrels?
    Mr. Hamm. Air barrels. For instance, on his system of 
160,000 barrels, they may nominate half a million barrels. So, 
obviously, it can't fit that much. Nobody can. But they blow 
all those up, and so they are able to get additional capacity. 
And producers are somewhat shut out by the process itself.
    And so, it is supposed to be based on historical, and I 
know that they go by that. But a lot of it is totally distorted 
by these air barrels and the secrecy of who these shippers are 
month to month. And so, it is really a problem.
    Senator Dorgan. It is likely that today on the oil futures 
market 20 to 25 times more oil will be bought and sold than 
actually exists today or at least produced today. So is that 
the same as the air barrel with respect to this intermediate 
function with respect to the pipelines?
    Mr. Hamm. As far as oil delivery, that is correct. There is 
not that much oil out there. As you can tell, Lynn can tell you 
exactly how much oil is available for shipment. So there is 
maybe two, three times as much nominated.
    Senator Dorgan. Let me go back to Keystone, if I might, 
just a minute. You used the word; you said this is 
``criminal.'' That is an expression of angst?
    Mr. Hamm. It was an expression of angst. I am sorry about 
that. It really is very disturbing. We give them right-of-way 
to come across our State, but basically, they don't ship a 
barrel out of the State. Our pipelines are open to them, but on 
the flip side, we can't ship a barrel across it.
    Number one, by design, they jog across and miss all the 
producing area, by design. They could have come straight. I 
don't think it would have been any more expensive to come 
straight across than it would to go around the oil-producing 
area in North Dakota or Montana.
    Senator Dorgan. So we have a Pipeline Authority in North 
Dakota that is, Mr. Helms, not completed? Does North Dakota 
have any leverage at the moment with respect to Keystone? And 
if so, what leverage might that be?
    Mr. Helms. Well, Senator, at this point, the Keystone 
pipeline has been permitted across the State of North Dakota. 
So the big leverage that we had is no longer in place, which 
was the Public Service Commission. However, there are sales tax 
and property tax issues leverage that the State can utilize in 
order to try to get companies like TransCanada to play ball 
with our producers and our shippers.
    And so, as Keystone XL goes through down in Bowman County, 
we may see our way clear, through the Pipeline Authority, to 
take a bit stronger approach with these companies. Primarily, 
the Pipeline Authority is designed around networking these 
things and trying to get producers and shippers and pipeline 
companies like TransCanada connected, to sit down at a table 
and create a win-win situation.
    Because of antitrust laws and that sort of thing, we have 
to be very careful about bringing a group of producers or a 
group of shippers together in a meeting to discuss oil prices 
and that sort of thing. And that is a big purpose for the 
Pipeline Authority is to be able to do that and not encounter 
problems with those sorts of antitrust situations that could 
develop.
    Senator Dorgan. But you have explained twice this morning 
that, in any event, it is very expensive to try to put North 
Dakota crude on a pipeline of that sort. I assume, even if the 
expense is not impossible and then the question is how 
expensive is it relative to the cost that we will exhibit here 
of deep discounts if we don't have the capacity? So I am just 
trying to think forward here a bit of it appears to me that if 
the State siting authority has already permitted the siting, 
most of the leverage is gone.
    But moving that pipeline through the middle of our State, 
closer to where our productive capability is, the argument that 
you raised, Mr. Helms, of it being very expensive to put North 
Dakota crude on it, I assume the reason they moved it was 
because if they put it in the middle, it is sufficiently 
economically viable that they would have tremendous pressure to 
put North Dakota crude on it. Would that not be the case?
    Mr. Helms. There may be something to that. I never heard 
that, Senator.
    The stated reason that they built Keystone where they built 
it was so they could maximize the use of an idle pipeline that 
they had in Canada. They wanted to use as much of that existing 
pipe as possible and minimize the construction of new pipe. And 
clearly, there was about an $800 million savings to the company 
by doing that, by utilizing that old TransCanada pipeline.
    You know, by comparison, we had looked at the cost of a 
facility to ship North Dakota crude on Keystone pipeline, 
around $300 million. That is a very significant investment. 
Enbridge Phase VI is about $130 million to $140 million. So it 
is double that.
    On the other hand, compared to the cost of a new Greenfield 
refinery, it is a tenth of that amount. So, all of these things 
come to play. And we certainly want to encourage private 
investment in any and all of those kinds of projects, and that 
is really what the Pipeline Authority and the State is about.
    If we can get a Greenfield refinery built with private 
capital, we would love to have it. If we can get a facility to 
ship on Keystone built with private capital, we would love to 
have it. And we would even like to be able to enter in with a 
tax-exempt bond status to assist one of those projects to 
mitigate risk.
    Mr. Pomeroy. Mr. Helms, it is my view that I think--in 
college, I used to hitchhike. If you got on the road a long, 
long time, you didn't care what vehicle stopped. You just 
climbed onboard anything.
    And we are not in an environment where North Dakota just 
wants to be a facilitator for anyone who wants to cross our 
State. We believe in interconnectedness relative to energy 
infrastructure development. So we are in there as a cooperative 
partner. That is fine.
    But we have got crude we have got to get out of here or we 
are going to take a substantial discount on price, and it is 
going to even impede production that is undertaken. So I think 
that anyone that wants to cross a little corner of our State 
better be willing to talk about how we are going to get some of 
our product on their pipeline.
    And if we don't have that as a driving view of the Pipeline 
Authority, I think we are missing some of the need we have as a 
State, don't you think?
    Mr. Helms. Well, I agree 100 percent. We need to be in 
there at the very beginning, pushing these companies to provide 
access and take North Dakota crude oil on their pipeline. And 
to the extent that we can maintain their open seasons and get 
shippers of North Dakota crude to bid on that pipeline 
capacity, we should be doing everything we can to make sure 
that we are on those pipes.
    Mr. Hatfield. Could I make a comment?
    Mr. Hamm. I have one question. This XL pipeline, has it 
been permitted already?
    Mr. Helms. No, it has not.
    Mr. Hamm. So you have got some authority with that?
    Mr. Helms. We have a lot of leverage over that one because 
it has not been permitted yet.
    Mr. Hamm. It crosses several major pipelines that oil can 
come out of our Bakken area. Butte, for instance, the proposed 
line goes right across it right now. And as I understand it, 
the batch process--I don't want to operate crude oil lines. The 
Batch process has been around forever.
    Mr. Hatfield. If I could make just a couple of comments 
with regard to this? I am not going to speak on behalf of 
TransCanada or the Keystone pipeline at all. I am speaking with 
regard to the Enbridge view on permitting, and we have had some 
discussion and comments with regard to how permitting goes 
forward and how it might improve.
    I think either you understand the point of trying to help 
companies ensure that they are going to pick up the North 
Dakota crude oil if crossing your State. I believe it is a very 
dangerous precedent to set at the outset.
    One of the things, and just to step back a little bit, with 
regard to the permitting process, and I would agree with Mr. 
Helms in that some movement towards a grander oversight by a 
Federal agency is appropriate. I think we have to be careful to 
not kind of trip up the--well, in this case, the oil pipelines 
with regard to the fact that in many cases, we compete with 
companies that aren't regulated on a Federal basis.
    On a gathering system, for example, what I run is competing 
directly with companies that aren't regulated by Federal 
agencies. If we are regulated by Federal agencies, many times 
we lose those competitions if we run directly into competition 
face-to-face with, say, another producer or somebody else. So I 
would agree, but we have to be careful that oversight by a 
FERC-type agency has to be measured.
    I would also agree with Chairman Kelliher that, to some 
extent, some of the States--as I mentioned with North Dakota 
and the PSC, some of the States are doing a very good job of 
turning some permits around. Some aren't. That is kind of the 
fact that we are running up against now.
    In order to help that, if we could get across and get 
assistance from the Federal level with regard to--I mentioned 
an environmental impact statement that we had in front of the 
Department of State right now. The major problem that we see 
with that is that over the years, the ownership of the 
environmental impact statement, the agency that was in charge 
and had the mandate for that has changed a number of times. 
That has caused inefficiencies in how that permit gets 
approved.
    If we could have a consistent approach with an agency that 
has the ability to staff that, staff up for that environmental 
impact statement, that would be much appreciated.
    I think the idea--and I will just try and shut my mouth 
here real quick. The idea of individual States essentially 
drawing a fence at their border to--and I understand all the 
best intentions--but if we are an interstate pipeline, trying 
to put a pipeline in, you can imagine the difficulties we are 
going to have going from State to State to State to State, who 
may all want their own piece of the pie.
    On the other hand, Enbridge is going to try and come up 
with a forecast specifically for North Dakota to help fix the 
problem.
    Senator Dorgan. Mr. Hatfield, you represent the pipeline 
interest very well. We appreciate you being here. That is why 
we asked you to be on the panel.
    And I want to make a closing comment and thank my colleague 
Congressman Pomeroy for joining us today. There is an issue of 
stranded energy in this country. We have stranded energy 
potential with respect to wind energy because we don't have the 
kind of transmission capability to move everything that we 
could produce to where it is needed.
    It appears to me we are going to have some stranded energy 
with respect to oil production, especially here, because we 
don't have the pipeline system to move it to where we want to 
move it. And at a time when you have an energy crisis and the 
issue is produce, produce, produce, the last thing you want to 
do is have stranded energy out there that you have the 
capability to produce, but not to move it where it is needed.
    You know, when Dwight Eisenhower created the interstate 
highway system, the Congress and the President built an 
interstate highway system to connect all parts of this country. 
I have often made the case that someone might have taken a look 
at that--maybe in today's political climate with all of the 
individual groups out there, someone would have taken a look at 
Sentinel Butte to Beach and said, ``Do you have any idea what 
it costs to build four lanes from Sentinel Butte to Beach, 
North Dakota, and how few people live there?''
    Well, so there is Government waste, right? But it was an 
interstate system. Some make the case, and I think accurately 
so, on transmission of electric energy. We need to create an 
interstate system to be able to produce where we can produce 
and convey where it is needed.
    Regarding a pipeline system, I am not making a case here 
for dramatic new regulation, but I am saying that the current 
system is whatever happens, happens, and that is fine. Maybe 
that is not fine. I mean, maybe there needs to be some more 
direction about what is necessary for our country to have the 
best use of all of its resources available to where it is 
needed from where it is produced.
    At this point, there is no such plan. It is whatever 
happens out there to create the incentive for the investment to 
make that particular availability a reality.
    Well, this has been a very interesting hearing for me, and 
I think there is urgency here about this issue. We are on the 
front steps of a lot of good news here in North Dakota with 
energy production. But one of the challenges that accompanies 
and attends this good news is we are a State without sufficient 
capability to move that energy where it is needed.
    In the case of oil, we need more pipeline capacity. And it 
appears to me that we are going to have a kind of a bathtub 
effect here of being able to move product as is produced to 
where it is needed. And I think the State and the Pipeline 
Authority at the State, Earl is on the Ways and Means Committee 
working, I think there is a lot to be said here about tax-
exempt bonding and various incentives.
    I want in our committee, both in our Appropriations 
Committee that I chair and also on the Energy Committee of 
which I am the senior member, to sink our teeth into this, on 
an urgent basis, and try to find ways to unlock this issue. We 
need to unlock the opportunity to move our product from where 
it is produced to where it is needed.
    So this is really an interesting hearing. I appreciate it. 
Chairman Kelliher, as I indicated, you have been to North 
Dakota previously. I personally think you have done a really 
terrific job at FERC----
    Mr. Kelliher. Thank you.
    Senator Dorgan [continuing]. And I appreciate your being 
here. I should say that you have done a terrific job at a time 
when previously FERC didn't do such a good job.
    So I won't go back to the west coast energy issue, but you 
have come in and done a very strong job in setting things 
right, I appreciate your work.
    And the State legislators, who are working on this, Ms. 
Meyer, thank you very much on that. That is a very important 
issue, the refining capacity.
    And Mr. Helms, you are in the middle of all of it, and this 
Pipeline Authority, I think all of us are hoping that gets up 
and operating very quickly.

                     ADDITIONAL SUBMITTED STATEMENT

    The following statement was submitted by the Bakken 
Formation Resource Study Project for inclusion in the record.
    [The statement follows:]
 State of North Dakota Bakken Formation Resource Study Project--April 
                                  2008
 (By M. Bohrer, S. Fried, L. Helms, B. Hicks, B. Juenker, D. McCusker, 
            F. Anderson, J. LeFever, E. Murphy, S. Nordeng)
    This paper presents the results and methodology of a project by the 
North Dakota Department of Mineral Resources (DMR) Oil and Gas Division 
(OGD) and Geological Survey (NDGS) to estimate the original oil in 
place (OOIP) and recoverable reserves in the Bakken Formation within 
the State of North Dakota.
    The original oil in place in the Bakken Formation within the 
thermally mature portion of the State of North Dakota is estimated to 
be 149.2 billion barrels. The estimates are presented by county and 
separated into the total Bakken Formation, upper Bakken shale member, 
middle Bakken member, and lower Bakken shale member to make them more 
useful for resource evaluation and planning (Tables 1-4) and (Figures 
3-6).
    OOIP is defined as the total hydrocarbon content of an oil 
reservoir and refers to the oil in place before the commencement of 
production. OOIP is measured in stock tank barrels, meaning the volume 
of oil is corrected for shrinkage that occurs when the oil is brought 
to the surface to be sold at standard pressure and temperature. OOIP 
must not be confused with oil reserves which are the technically and/or 
economically recoverable portion of the oil volume in the reservoir and 
is referred to in this publication as estimated ultimate recovery 
(EUR).
    The estimates of Bakken Formation OOIP and EUR provided in this 
publication are valuable for economic forecasting and infrastructure 
planning. These estimates also highlight the enormous potential for 
increasing recovery through continued development and deployment of new 
technology.
    Previous publications on the Bakken Formation from Dow (1974) to 
Flannery and Kraus (2006) focused on the potential of the formation as 
a source rock. These investigators made estimates of the volume of oil 
that the Bakken Formation has generated ranging from 10 to 500 billion 
barrels. This paper differs from those publications in that it uses a 
wealth of public geology and engineering data generated since 2004 to 
estimate OOIP in the Bakken Formation. This estimate validates the 
highest oil generation estimates of Price (unpublished) and Flannery 
and Kraus (2006).
    The Bakken Formation EUR using current drilling and completion 
practices within the thermally mature portion of the State of North 
Dakota has also been estimated. The estimated ultimate recovery is 
approximately 1.4 percent of original oil in place, which is equal to 
2.1 billion barrels. The estimated recovery factors are also presented 
by county to show the high degree of variability in the geology and 
productivity of the Bakken Formation (Table 1). Note the recovery 
factors range from a low of 0.7 percent in Divide County to a high of 
3.7 percent in Billings County.
    The process of estimating Bakken Formation OOIP began with the 
compiling of a database containing all rock property, oil property, 
EUR, well cost, and well performance data presented to the Industrial 
Commission as expert testimony from June 2004 through December 2007. 
This database contains the geological and engineering data from 496 
cases representing over 2,100 square miles of the Bakken resource 
broadly distributed across the State and is included as an 
ExcelTM spreadsheet on the CD version of this publication. 
The data was sorted by county and evaluated using standard statistical 
methods to eliminate outliers and to determine mean, minimum, and 
maximum values. Well performance and economic data was also included 
and can be analyzed to evaluate the effectiveness of variations in well 
spacing and well bore geometry.
    The rock properties in the case exhibit database yield 
statistically representative porosity and oil saturation values for the 
middle Bakken member for each county within the thermally mature region 
of the Bakken in western North Dakota. Additional data was required to 
evaluate the upper and lower Bakken shale members. A total of 601 core 
derived porosity analyses from the Bakken Formation are included in OGD 
well files (data is included as an ExcelTM spreadsheet on 
the CD). The average effective porosity from the entire Bakken 
Formation was found to be approximately 5.5 percent. The upper Bakken 
shale member and lower Bakken shale member were found to contain an 
average effective porosity of 7 percent based on 60 analyses from seven 
wells in the upper Bakken shale member and 104 analyses from 13 wells 
in the lower Bakken shale member. Plug analyses of the middle member 
obtained from 437 samples from 16 wells yielded an average effective 
porosity of 5.4 percent. A water saturation of 30 percent was selected 
for the mean value because it represents irreducible saturation and 
reflects the typically water free production from the Bakken shales. 
Minimum and maximum values of 20 percent and 40 percent were selected 
as representative of the same range above and below the mean as the 
middle Bakken member water saturation data.
    The rock volume in each county was determined by using 
PetraTM software to planimeter isopach maps developed by 
Lefever (2008) as NDGS publication GI-59. Only the rock volume within 
the thermally mature region as determined through Time Temperature 
Index (TTI) mapping by Nordeng (2008) as NDGS publication GI-61, was 
included in this analysis (Figure 1). The TTI mapping was confirmed by 
comparison with a recent update of the work of Schmoker and Hester 
(1989). In this study it was proposed that the eastward limits where 
the upper and lower members of the Bakken Formation in North Dakota are 
thermally mature can be determined from resistivity measurements. Neset 
(2007) evaluated resistivity measurements of wells drilled after 1989 
using resistivity logs obtained from the OGD Web site to evaluate and 
confirm or modify the thermal maturity boundaries of the Bakken 
Formation. Logs with a geometric average deep resistivity reading of 35 
ohm-m or greater were classified as thermally mature and those with a 
reading less than 35 ohm-m were classified as thermally immature. 
Neset's results confirm Schmoker and Hester's previous maturity 
boundary and extended it to the south and west (figure 2).
    We estimate that additional resources of 10.5-17.6 billion barrels 
OOIP have migrated from thermally mature areas into areas of the Bakken 
Formation that are not thermally mature. This is evidenced by 
significant production from the upper Three Forks Formation in the 
Sinclair Field located in southwestern Manitoba more than 70 miles from 
the leading edge of oil generation in the Bakken Formation. Possible 
migration pathways include major lineament trends such as the Brockton-
Froid or through Bakken Formation ``thicks'' associated with sub-basins 
in southern Renville and central Bottineau Counties. OOIP was 
calculated for the area that is not thermally mature using rock volume, 
average porosity, and tight sand irreducible oil saturation estimates 
for the Bakken Formation middle member only. This resource volume is 
estimated separately because it represents an unconventional tight 
formation oil play that requires oil migration together with structural 
or stratigraphic trapping mechanisms. The uncertainty of encountering 
accumulations of this resource is much greater than for the 
unconventional resource play within the thermally mature Bakken 
Formation region. There is currently no data from which to estimate EUR 
for this migrated resource.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 Figure 1.--Thermally Mature Area (green area TTI > 15) of the Bakken 
Formation, Nordeng(2008) used a TTI of 15 as the limit for the onset of 
 oil generation. TTI < 15 indicates the area of potential migrated oil 
                       potential in North Dakota.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


  Figure 2.--Green contours are Bakken structure on top of the upper 
shale member. The red line indicates the eastward limit where the lower 
  shale resistivity exceeds 35 ohm-m and the blue line indicates the 
   upper shale thermal maturity boundary. The red dashed line is the 
extension from data collected in the Neset study (modified from Neset, 
                                 2007).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 Figure 3.--Williston Basin with major structural features and modern 
                  Bakken/Three Forks production areas.

                                TABLE 1.--BAKKEN FORMATION OIL IN PLACE AND RECOVERABLE RESERVES (BARRELS)--JUNE 18, 2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
                          County                            OOIP per County      OOIP per 640      EUR per County      EUR per 640         Rec Factor
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Mean Values
                                                          ----------------------------------------------------------------------------------------------
McKenzie.................................................     32,438,937,580         11,698,740        382,654,320            138,000               1.18
Mountrail................................................     27,242,795,837         14,043,773        424,826,873            219,000               1.56
Williams.................................................     26,263,485,095         12,235,090        474,392,108            221,000               1.81
Dunn.....................................................     18,059,716,691          9,392,995        294,169,921            153,000               1.63
Divide...................................................     16,836,857,774         13,380,393        123,315,660             98,000               0.73
Burke....................................................     14,891,719,317         16,715,777        187,975,278            211,000               1.26
Ward.....................................................      4,540,670,907          7,903,591  .................  .................  .................
McLean...................................................      3,253,719,118         10,742,320  .................  .................  .................
Billings.................................................      3,141,271,156          4,636,325        115,858,434            171,000               3.69
Stark....................................................      2,349,351,546          2,856,068         86,371,150            105,000               3.68
Golden Valley............................................         66,147,411          1,209,544  .................  .................  .................
Grant....................................................         62,508,094            509,248  .................  .................  .................
Slope....................................................         10,586,089            238,919  .................  .................  .................
                                                          ----------------------------------------------------------------------------------------------
      Total..............................................    149,157,766,614  .................      2,089,563,745  .................  .................
                                                          ==============================================================================================
                                                                                                   Minimum Values
                                                          ----------------------------------------------------------------------------------------------
Mountrail................................................     14,054,974,161          7,245,397        100,872,134             52,000               0.72
McKenzie.................................................     12,768,723,210          4,583,246         78,006,785             28,000               0.61
Williams.................................................     12,218,256,790          5,691,989        422,874,413            197,000               3.46
Burke....................................................     10,985,956,451         12,331,605         50,780,051             57,000               0.46
Divide...................................................      8,202,264,716          6,518,660         18,874,119             15,000               0.23
Dunn.....................................................      7,486,735,279          3,890,845         38,483,854             20,000               0.51
Ward.....................................................      2,261,265,978          3,936,009  .................  .................  .................
McLean...................................................      1,277,048,035          4,216,239  .................  .................  .................
Billings.................................................      1,242,100,878          1,836,073         10,147,480             15,000               0.82
Stark....................................................      1,046,331,232          1,349,654         62,020,731             80,000               5.93
Golden Valley............................................         24,538,677            484,981  .................  .................  .................
Grant....................................................         23,265,040            189,538  .................  .................  .................
Slope....................................................          3,922,551             88,529  .................  .................  .................
                                                          ----------------------------------------------------------------------------------------------
      Total..............................................     71,595,382,997  .................        782,059,568  .................  .................
                                                          ==============================================================================================
                                                                                                   Maximum Values
                                                          ----------------------------------------------------------------------------------------------
McKenzie.................................................     61,092,805,333         22,094,637        904,171,770            327,000               1.48
Williams.................................................     52,407,038,986         24,414,309        804,963,984            375,000               1.54
Mountrail................................................     48,066,522,137         24,778,490        739,082,368            381,000               1.54
Dunn.....................................................     38,148,811,183         19,834,738        569,306,630            296,000               1.49
Divide...................................................     33,046,783,554         26,262,104        241,602,214            192,000               0.73
Burke....................................................     22,189,139,910         24,907,044        199,556,693            224,000               0.90
Ward.....................................................      7,454,033,280         12,974,653  .................  .................  .................
McLean...................................................      6,871,671,997         22,687,176  .................  .................  .................
Billings.................................................      5,796,035,234          8,564,872        206,400,129            305,000               3.56
Stark....................................................      4,479,035,609          5,317,672        108,655,741            129,000               2.43
Golden Valley............................................        130,056,732          2,239,223  .................  .................  .................
Grant....................................................        126,677,986          1,032,035  .................  .................  .................
Slope....................................................         21,249,293            479,578  .................  .................  .................
                                                          ----------------------------------------------------------------------------------------------
      Total..............................................    279,829,861,234  .................      3,773,739,530  .................  .................
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                                                                                                       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                                                                                                                       

      TABLE 2.--UPPER BAKKEN SHALE MEMBER RESOURCE AREA, VOLUME, AND OIL IN PLACE (BARRELS)--JUNE 18, 2008
----------------------------------------------------------------------------------------------------------------
           County                acres       acre-ft    porosity   Sw    Bo     OOIP per County    OOIP per 640
----------------------------------------------------------------------------------------------------------------
                                                                  Mean Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,826,692   26,799,229      7.06   30   1.400      7,339,167,061       2,571,351
Williams....................    1,373,805   22,163,100      7.06   30   1.500      5,664,893,694       2,639,044
Dunn........................    1,233,355   18,315,725      7.06   30   1.400      5,015,896,693       2,602,798
Mountrail...................    1,241,503   20,850,610      7.06   30   1.600      4,996,332,036       2,575,630
Burke.......................      570,162    7,377,558      7.06   30   1.200      2,357,132,090       2,645,853
Divide......................      806,065    9,061,937      7.06   30   1.500      2,316,233,185       1,839,044
Stark.......................      738,655    6,023,577      7.06   30   1.500      1,539,627,844       1,333,995
Billings....................      492,496    4,156,380      7.06   30   1.300      1,225,813,668       1,592,949
Ward........................      367,685    4,331,664      7.06   30   1.600      1,037,975,913       1,806,723
McLean......................      193,848    3,325,726      7.06   30   1.400        910,774,749       3,006,969
Grant.......................       78,557      244,554      7.06   30   1.500         62,508,094         509,248
Golden Valley...............       63,599      191,189      7.06   30   1.350         54,297,863         546,403
Slope.......................       28,357       38,655      7.06   30   1.400         10,586,089         238,919
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     32,531,238,982  ..............
                             ===================================================================================
                                                                Minimum Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,826,692   26,799,229      3.27   40   1.600      2,549,476,943         893,235
Williams....................    1,373,805   22,163,100      3.27   40   1.640      2,057,005,427         958,275
Mountrail...................    1,241,503   20,850,610      3.27   40   1.640      1,935,190,345         997,599
Dunn........................    1,233,355   18,315,725      3.27   40   1.600      1,742,420,204         904,159
Burke.......................      570,162    7,377,558      3.27   40   1.250        898,362,087       1,008,401
Divide......................      806,065    9,061,937      3.27   40   1.660        830,924,783         659,738
Stark.......................      738,655    6,023,577      3.27   40   1.600        573,037,832         496,503
Billings....................      492,496    4,156,380      3.27   40   1.400        451,893,441         587,237
Ward........................      367,685    4,331,664      3.27   40   1.640        402,031,120         699,784
McLean......................      193,848    3,325,726      3.27   40   1.600        316,384,571       1,044,560
Grant.......................       78,557      244,554      3.27   40   1.600         23,265,040         189,538
Golden Valley...............       63,599      191,189      3.27   40   1.500         19,400,884         195,232
Slope.......................       28,357       38,655      3.27   40   1.500          3,922,551          88,529
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     11,803,315,229  ..............
                             ===================================================================================
                                                                Maximum Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,826,692   26,799,229     10.85   20   1.200     15,038,708,708       5,268,963
Williams....................    1,373,805   22,163,100     10.85   20   1.200     12,437,089,556       5,793,934
Dunn........................    1,233,355   18,315,725     10.85   20   1.200     10,278,088,597       5,333,401
Mountrail...................    1,241,503   20,850,610     10.85   20   1.410      9,957,931,770       5,133,355
Divide......................      806,065    9,061,937     10.85   20   1.200      5,085,214,500       4,037,561
Burke.......................      570,162    7,377,558     10.85   20   1.200      4,140,005,371       4,647,106
Stark.......................      738,655    6,023,577     10.85   20   1.300      3,120,187,177       2,703,456
Billings....................      492,496    4,156,380     10.85   20   1.150      2,433,811,594       3,162,746
Ward........................      367,685    4,331,664     10.85   20   1.410      2,068,736,273       3,600,887
McLean......................      193,848    3,325,726     10.85   20   1.200      1,866,271,205       6,161,590
Grant.......................       78,557      244,554     10.85   20   1.300        126,677,986       1,032,035
Golden Valley...............       63,599      191,189     10.85   20   1.175        109,571,000       1,102,619
Slope.......................       28,357       38,655     10.85   20   1.225         21,249,293         479,578
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     66,683,543,030  ..............
----------------------------------------------------------------------------------------------------------------

                                                                                                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                                                                                  

         TABLE 3.--MIDDLE BAKKEN MEMBER RESOURCE AREA, VOLUME, AND OIL IN PLACE (BARRELS)--JUNE 18, 2008
----------------------------------------------------------------------------------------------------------------
           County                acres       acre-ft    porosity   Sw    Bo     OOIP per County    OOIP per 640
----------------------------------------------------------------------------------------------------------------
                                                        Middle Bakken OOIP Mean Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,818,731   58,794,758      6.70   30   1.400     15,389,491,328       5,415,465
Williams....................    1,373,805   62,906,006      5.80   29   1.500     13,435,647,982       6,259,122
Mountrail...................    1,241,503   52,667,884      6.20   24   1.600     12,033,194,776       6,203,161
Divide......................      805,209   48,861,367      5.50   32   1.500      9,465,290,116       7,523,245
Burke.......................      570,162   29,551,776      6.00   25   1.200      8,597,350,325       9,650,423
Dunn........................    1,233,355   37,991,535      4.90   28   1.400      7,386,142,503       3,832,742
Ward........................      367,685    8,846,722      6.20   24   1.600      2,021,237,904       3,518,211
Billings....................      421,876    5,206,097      7.00   27   1.300      1,583,245,050       2,401,835
McLean......................      193,848    5,047,835      4.90   28   1.400        981,377,177       3,240,067
Stark.......................      377,719    2,886,374      7.00   38   1.500        653,114,200       1,106,626
Golden Valley...............       11,042       37,000      6.85   29   1.350         10,413,908         603,581
Grant.......................  ...........  ...........      7.00   38   1.500  .................  ..............
Slope.......................  ...........  ...........      7.00   33   1.400  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     71,556,505,269  ..............
                             ===================================================================================
                                                       Middle Bakken OOIP Minimum Values
                             -----------------------------------------------------------------------------------
Mountrail...................    1,241,503   52,667,884      5.00   30   1.640      8,720,067,439       4,495,231
Burke.......................      570,162   29,551,776      6.00   25   1.250      8,253,456,312       9,264,406
Williams....................    1,373,805   62,906,006      4.00   36   1.640      7,617,948,034       3,548,892
McKenzie....................    1,818,731   58,794,758      5.00   50   1.600      7,127,027,052       2,507,956
Divide......................      805,209   48,861,367      5.00   50   1.660      5,708,832,597       4,537,521
Dunn........................    1,233,355   37,991,535      4.00   43   1.600      4,200,021,176       2,179,432
Ward........................      367,685    8,846,722      5.00   30   1.640      1,464,725,799       2,549,534
Billings....................      421,876    5,206,097      4.00   42   1.400        669,301,843       1,015,353
McLean......................      193,848    5,047,835      4.00   43   1.600        558,045,681       1,842,416
Stark.......................      377,719    2,886,374      6.00   50   1.600        419,859,129         711,402
Golden Valley...............       11,042       37,000      4.50   46   1.500          4,650,139         269,518
Grant.......................  ...........  ...........      6.00   50   1.600  .................  ..............
Slope.......................  ...........  ...........      5.00   46   1.500  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     36,023,867,762  ..............
                             ===================================================================================
                                                       Middle Bakken OOIP Maximum Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,818,731   58,794,758      9.00   25   1.200     25,657,297,387       9,028,640
Williams....................    1,373,805   62,906,006      7.00   20   1.200     22,774,490,477      10,609,709
Mountrail...................    1,241,503   52,667,884      8.00   20   1.410     18,546,267,039       9,560,677
Dunn........................    1,233,355   37,991,535      9.00   20   1.200     17,684,299,689       9,176,557
Divide......................      805,209   48,861,367      7.00   25   1.200     16,584,158,693      13,181,497
Burke.......................      570,162   29,551,776      6.00   25   1.200      8,597,350,325       9,650,423
Ward........................      367,685    8,846,722      8.00   20   1.410      3,115,250,656       5,422,473
Billings....................      421,876    5,206,097     10.00   25   1.150      2,634,058,978       3,995,954
McLean......................      193,848    5,047,835      9.00   20   1.200      2,349,666,026       7,757,542
Stark.......................      377,719    2,886,374      8.00   25   1.300      1,033,499,393       1,751,144
Golden Valley...............       11,042       37,000      9.50   25   1.175         17,405,957       1,008,834
Grant.......................  ...........  ...........      8.00   25   1.300  .................  ..............
Slope.......................  ...........  ...........      9.00   25   1.225  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......    118,993,744,621  ..............
----------------------------------------------------------------------------------------------------------------

                                                                                                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                                                                                  

      TABLE 4.--LOWER BAKKEN SHALE MEMBER RESOURCE AREA, VOLUME, AND OIL IN PLACE (BARRELS)--JUNE 18, 2008----------------------------------------------------------------------------------------------------------------
           County                acres       acre-ft    porosity   Sw    Bo     OOIP per County    OOIP per 640
----------------------------------------------------------------------------------------------------------------
                                                         Lower Bakken OOIP Mean Values
                             -----------------------------------------------------------------------------------
Mountrail...................    1,241,503   41,303,562      6.83   30   1.500     10,213,269,025       5,264,982
McKenzie....................    1,674,220   36,651,456      6.83   30   1.400      9,710,279,191       3,711,924
Williams....................    1,373,805   30,898,898      6.83   30   1.600      7,162,943,418       3,336,924
Dunn........................    1,224,334   18,304,207      6.83   30   1.200      5,657,677,494       2,957,455
Divide......................      805,209   20,444,318      6.83   30   1.500      5,055,334,474       4,018,104
Burke.......................      570,162   16,984,118      6.83   30   1.600      3,937,236,901       4,419,501
Ward........................      367,685    4,792,938      6.83   30   1.200      1,481,457,090       2,578,656
McLean......................      193,848    4,772,148      6.83   30   1.300      1,361,567,191       4,495,284
Billings....................      331,414    1,253,936      6.83   30   1.400        332,212,438         641,542
Stark.......................      241,258      633,346      6.83   30   1.500        156,609,501         415,447
Golden Valley...............       15,427        5,419      6.83   30   1.400          1,435,639          59,560
Grant.......................  ...........  ...........      6.83   30   1.500  .................  ..............
Slope.......................  ...........  ...........      6.83   30   1.450  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     45,070,022,363  ..............
                             ===================================================================================
                                                       Lower Bakken OOIP Minimum Values
                             -----------------------------------------------------------------------------------
Mountrail...................    1,241,503   41,303,562      2.90   40   1.640      3,399,716,377       1,752,568
McKenzie....................    1,674,220   36,651,456      2.90   40   1.600      3,092,219,215       1,182,055
Williams....................    1,373,805   30,898,898      2.90   40   1.640      2,543,303,329       1,184,822
Burke.......................      570,162   16,984,118      2.90   40   1.250      1,834,138,052       2,058,798
Divide......................      805,209   20,444,318      2.90   40   1.660      1,662,507,337       1,321,402
Dunn........................    1,224,334   18,304,207      2.90   40   1.600      1,544,293,899         807,253
McLean......................      193,848    4,772,148      2.90   40   1.600        402,617,782       1,329,263
Ward........................      367,685    4,792,938      2.90   40   1.640        394,509,058         686,691
Billings....................      331,414    1,253,936      2.90   40   1.400        120,905,594         233,483
Stark.......................      241,258      633,346      2.90   40   1.600         53,434,271         141,748
Golden Valley...............       15,427        5,419      2.90   40   1.500            487,655          20,231
Grant.......................  ...........  ...........      2.90   40   1.600  .................  ..............
Slope.......................  ...........  ...........      2.90   40   1.500  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     15,048,132,568  ..............
                             ===================================================================================
                                                       Lower Bakken OOIP Maximum Values
                             -----------------------------------------------------------------------------------
McKenzie....................    1,674,220   36,651,456     10.76   20   1.200     20,396,799,238       7,797,034
Mountrail...................    1,241,503   41,303,562     10.76   20   1.410     19,562,323,329      10,084,458
Williams....................    1,373,805   30,898,898     10.76   20   1.200     17,195,458,953       8,010,665
Divide......................      805,209   20,444,318     10.76   20   1.200     11,377,410,361       9,043,046
Dunn........................    1,224,334   18,304,207     10.76   20   1.200     10,186,422,897       5,324,780
Burke.......................      570,162   16,984,118     10.76   20   1.200      9,451,784,214      10,609,515
McLean......................      193,848    4,772,148     10.76   20   1.200      2,655,734,766       8,768,044
Ward........................      367,685    4,792,938     10.76   20   1.410      2,270,046,350       3,951,292
Billings....................      331,414    1,253,936     10.76   20   1.150        728,164,662       1,406,173
Stark.......................      241,258      633,346     10.76   20   1.300        325,349,039         863,072
Golden Valley...............       15,427        5,419     10.76   20   1.175          3,079,774         127,769
Grant.......................  ...........  ...........     10.76   20   1.300  .................  ..............
Slope.......................  ...........  ...........     10.76   20   1.225  .................  ..............
                             -----------------------------------------------------------------------------------
      Total.................  ...........  ...........  ........  ...  ......     94,152,573,583  ..............
----------------------------------------------------------------------------------------------------------------

                                                                                                  [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                                                                                  

                               BAKKEN FORMATION RESERVES ESTIMATES--APRIL 7, 2008
----------------------------------------------------------------------------------------------------------------
                          County                                   Max               Min              Mean
----------------------------------------------------------------------------------------------------------------
                Bakken Recoverable ReservesMcKenzie..................................................    61,092,805,333    12,768,723,210    32,438,937,580
Mountrail.................................................    48,071,238,924    14,057,191,895    27,242,795,837
Williams..................................................    52,407,038,986    12,218,256,790    26,263,485,095
Dunn......................................................    39,194,906,967     7,735,183,028    18,059,716,691
Divide....................................................    33,541,035,300     8,372,403,011    16,836,857,774
Burke.....................................................    23,700,992,275    12,437,334,722    14,891,719,317
Ward......................................................     7,892,628,307     2,467,484,199     4,540,670,907
McLean....................................................     6,871,671,997     1,277,048,035     3,253,719,118
Billings..................................................     5,796,035,234     1,242,100,878     3,141,271,156
Stark.....................................................     4,479,035,609     1,046,331,232     2,349,351,546
Golden Valley.............................................       130,056,732        24,538,677        66,147,411
Grant.....................................................       126,677,986        23,265,040        62,508,094
Slope.....................................................        21,249,293         3,922,551        10,586,089                   Upper Bakken ReservesMcKenzie..................................................    15,038,708,708     2,549,476,943     7,339,167,061
Williams..................................................    12,437,089,556     2,057,005,427     5,664,893,694
Dunn......................................................    10,278,088,597     1,935,190,345     5,015,896,693
Mountrail.................................................     9,957,931,770     1,742,420,204     4,996,332,036
Burke.....................................................     5,085,214,500       898,362,087     2,357,132,090
Divide....................................................     4,140,005,371       830,924,783     2,316,233,185
Stark.....................................................     3,120,187,177       573,037,832     1,539,627,844
Billings..................................................     2,433,811,594       451,893,441     1,225,813,668
Ward......................................................     2,068,736,273       402,031,120     1,037,975,913
McLean....................................................     1,866,271,205       316,384,571       910,774,749
Grant.....................................................       126,677,986        23,265,040        62,508,094
Golden Valley.............................................       109,571,000        19,400,884        54,297,863
Slope.....................................................        21,249,293         3,922,551        10,586,089                  Middle Bakken ReservesMcKenzie..................................................    25,657,297,387     7,127,027,052    15,389,491,328
Williams..................................................    22,774,490,477     7,617,948,034    13,435,647,982
Mountrail.................................................    18,550,983,825     8,722,285,173    12,033,194,776
Divide....................................................    17,078,410,439     5,878,970,891     9,465,290,116
Burke.....................................................    10,109,202,690     9,704,834,583     8,597,350,325
Dunn......................................................    18,730,395,473     4,448,468,925     7,386,142,503
Ward......................................................     3,553,845,683     1,670,944,021     2,021,237,904
Billings..................................................     2,634,058,978       669,301,843     1,583,245,050
McLean....................................................     2,349,666,026       558,045,681       981,377,177
Stark.....................................................     1,033,499,393       419,859,129       653,114,200
Golden Valley.............................................        17,405,957         4,650,139        10,413,908
Slope.....................................................  ................  ................  ................
Grant.....................................................  ................  ................  ................                   Lower Bakken ReservesMountrail.................................................    19,562,323,329     3,399,716,377    10,213,269,025
McKenzie..................................................    20,396,799,238     3,092,219,215     9,710,279,191
Williams..................................................    17,195,458,953     2,543,303,329     7,162,943,418
Dunn......................................................    10,186,422,897     1,544,293,899     5,657,677,494
Divide....................................................    11,377,410,361     1,662,507,337     5,055,334,474
Burke.....................................................     9,451,784,214     1,834,138,052     3,937,236,901
Ward......................................................     2,270,046,350       394,509,058     1,481,457,090
McLean....................................................     2,655,734,766       402,617,782     1,361,567,191
Billings..................................................       728,164,662       120,905,594       332,212,438
Stark.....................................................       325,349,039        53,434,271       156,609,501
Golden Valley.............................................         3,079,774           487,655         1,435,639
Grant.....................................................  ................  ................  ................
Slope.....................................................  ................  ................  ................
----------------------------------------------------------------------------------------------------------------

                         CONCLUSION OF HEARING

    Senator Dorgan. Mr. Hatfield, Mr. Hamm, thank you for being 
here on behalf of producers and also conveyors.
    This hearing is recessed.
    [Whereupon, at 11:57 a.m., Wednesday, September 3, the 
hearing was concluded, and the subcommittee was recessed, to 
reconvene subject to the call of the Chair.]

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