The Enid News and Eagle, Enid, OK

April 7, 2012

In the middle of it

Past year one of growth for midstream Hiland Co.

By Jeff Mullin, Senior Writer
Enid News and Eagle

ENID — When Continental Resources completes its move to Oklahoma City later this year, Enid will lose one energy company with roots deep in the Bakken field of North Dakota and Montana.

Another, however, is staying right here.

Enid-based Hiland Partners, wholly owned by Continental founder Harold Hamm and his family, is a completely separate company.

“We are not a subsidiary,” said Derek Gipson, Hiland Partners executive vice president and chief financial officer. “All of our transactions with Continental are done at an arm’s length. They are a great customer of ours; we enjoy working with them.”

Continental is far from Hiland’s only customer, however.

“We’re privileged to have them as a customer, but we’ve done a good job, too, of adding other key customers to our portfolio who are very active in that area,” Gipson said. That includes larger independents like Continental, some smaller private and public companies as well as some major oil companies, he added.

A midstream company

In the parlance of the petroleum business, Hiland is a midstream company, which means it purchases, gathers and markets natural gas, natural gas liquids and crude oil. Upstream firms locate and drill for petroleum, while downstream companies are involved in refining.

“We’re purely a midstream company,” said Gip-son, a St. Louis native who has been with Hiland since mid-2008. “We’re closer to the wellhead rather than when you think of long haul, interstate pipelines. We’re not in that business right now.”

Hiland takes natural gas from the wellhead, treats it to remove impurities, removes natural gas liquids, separates the NGLs and then sells the gas and its byproducts. Likewise, on the crude oil side, Hiland takes oil, blends, stores and markets it.

Hiland currently has 201 employees — 55 at its Enid headquarters, 32 in the field elsewhere in Oklahoma and 114 in North Dakota and Montana.

“As our asset base has grown, we’ve had to add folks,” said Gipson, “more so out in the field.”

Difficult but fulfilling year

The past year has been one of growth for Hiland.

“2011 for us was a big construction year,” Gipson said.

Last year the company built both a new natural gas plant and a compressor station in North Dakota, as well as a crude oil gathering system.

“The Bakken is a crude oil play,” said Gipson, “and we saw an opportunity to get in that line of business in a more meaningful way.”

2011 proved a difficult year for construction in North Dakota because of a record-setting winter.

“We’re really proud of our operating team,” he said. “2011 was, from a weather standpoint in North Dakota, of historic proportions. There was a record amount of snowfall in the winter and then we rolled into a record amount of flooding in the second quarter. Our guys did a great job of battling through those adverse conditions and getting our new facilities online.”

From his post on the financial side of the Hiland operation, Gipson said he and his team have been kept busy by the company’s expansion.

“We’re right in the middle of our Bakken capital projects,” he said. “We currently have budgeted about $600 million for capital projects that will take us through the end of 2013. We have been busy.”

Going with ‘guns blazing’

In the near term, Hiland plans to continue to expand its natural gas and crude oil gathering systems in North Dakota, Gipson said.

“As the play expands out amongst these 15,000 square miles and the play gets more productive, we’re successful working with other producers to grow our asset base and provide services they need in this new area with little existing infrastructure,” he said.

Beyond the near term, Gipson said, he foresees Hiland not only continuing to expand its Bakken operations but also branching out into other oil and gas plays.

“I would hope that you would see us active in another basin outside our existing territories here in Oklahoma, North Dakota and Montana,” he said. “I think that’s probably a good goal for us, to continue to diversify geographically and keep growing. That’s our mandate.”

Hiland presently operates 13 natural gas gathering systems with approximately 1,704 miles of gas gathering pipelines; five natural gas processing plants; seven natural gas treating facilities; and three facilities that separate, or fractionalize, natural gas liquids into propanes, butanes and natural gasolines. In terms of crude oil, Hiland operates four oil gathering systems with some 338 miles of pipelines, storage for 210,000 barrels of crude and 11 oil truck unloading stations. The majority of Hiland’s assets are located in the North Dakota-Montana Bakken play.

“It’s been guns blazing up there,” said Gipson, “building infrastructure as quickly as we can to accommodate our producers.”

Recently, Hamm called the Bakken “the largest field ever found in America,” saying it is bigger than the Prudhoe Bay oil field in Alaska. In January, according to the North Dakota Petroleum Council, the state’s portion of the Bakken play produced 546,047 barrels of oil and 571,539 million cubic feet of natural gas per day. And Hiland is right in the middle of it.

“We’re blessed to be in up there and providing midstream services to producers up there,” said Gipson.

Safety is at the top of Hiland’s list of core values.

“That is the biggest emphasis here at Hiland, operating in a safe and efficient manner,” said Gipson, “and keeping our employees safe. It’s not a line around here, it’s the real deal.”