For Newbies: For An Overview of the Bakken, Start With a Whiting Presentation

For newbies: I have said this several times, but it bears repeating: Whiting has the best corporate presentations among the Bakken oil exploration and production companies.

Go to their website, and click on their latest corporate presentation. Not only will you learn a lot about Whiting, but you will also learn a lot about the Bakken. With a couple more clicks you can find Whiting's 2010 IPAA conference presentation. If you can find that one, it's even better than the latest corporate presentation. The "Q & A" slides holds some of the best information about Bakken wells I've seen.

Scroll through the slides.

Recent completions and initial production figures
The first slide that might catch your attention is the one that updates their current year drilling program. Here are just a few of their latest examples (numbers in red are the initial production numbers):

• 19044, 2,110, Anderson 21-7H, Sanish
• 18953, 2,877, Lacey 12-10H2, Sanish
• 19069, 2,440, Strobeck 12-12H, Sanish
• 18947, 2,984, Dishman 13-19H, Sanish
• 18869, 1,080, Smith 44-26H, Sanish
• 18658, 2,973, Mayer 12-3H, Sanish, 22 stage frac
• 18965, 1,389, Satterthwaite, Sanish
• 18990, 1,236, Kinfe River State 21-16H, Sanish
• 18928, 2,137, Ogden 12-3H, Sanish
• 18876, 3,293, Rohde 14-6XH, Sanish, 22 stage frac; average 1,153 boe first 30 days
• 18743, 1,669, Miller 43-10H, Sanish
• 18926, 2,322, Hagey 12-13H, Sanish
• 18477, 1,875, Oppenboen 12-5H, Sanish
• 18711, 1,431, Fladeland 12-10H
• 18553, 1,910, Kannianen 43-31H
• 18882, 1,694, Peterson 13-4H, Sanish
• 18549, 1,211, Littlefield 21-7H, Sanish
• 18853, 1,611, Moore 14-7XH 

Location of Important Wells, Pipelines, Natural Gas Gathering Plants
Another slide that should get your attention is the slide that shows the completed wells in the Sanish and the Parshall oil fields, with the location of selected wells such as the Maki 11-27H (4,761); the Fladeland 12-10H (4,431); and the Hansen 12-20H (4,144).  That map also shows the location of the Robinson Lake Gas Plant, and the local pipelines connecting to major pipelines such as the Enbridge. Note the Behr 11-34H well (3,027): the Behr was one of the early wells, completed June, 2008, with 10 fracture stages, and as of June, 2010, two years later, had produced 580,000 barrels of oil (at $50/barrel --> $29 million at the wellhead).

Sanish Field Development Program
One of the new slides on Whiting's corporate presentations is a graphic explanation of the wells they are putting into the Sanish oil field. The slide is titled: "Sanish Field Development Program."

Initially, Whiting placed two long laterals parallel to each other, running northwest to southeast in each 1,280-acre spacing unit, targeting the Bakken formation. Then they added the Bakken cross-unit wells, long laterals, again parallel to the original wells, but capturing the southwest corner and the northeast corner of each section missed by the original two long laterals. In some places in the Bakken, instead of long lateral cross-unit wells, they put in short lateral wing wells which accomplished the same thing (capturing the southwest corner and the northeast corn of each section missed by the two original long laterals).

Meanwhile, in the Three Forks, the basic configuration is one long lateral flanked by two slightly shorter long laterals; all three horizontals running parallel to each other, northwest to southeast, as in the Bakken.

In a 1,280-acre spacing unit with horizontals in both the Bakken and the Three Forks formations, Whiting will have three long laterals in the TFS and two long laterals and two wing wells (short laterals), a total of seven wells in each 1,280-acre spacing unit, and the equivalent of about six short laterals in each section in the Sanish. When it's all completed, Whiting expects to have 534 wells in the Sanish oil field. Eighty-three of these will be wing wells (short laterals) but all the rest will be long laterals (or slightly shortened Three Forks long lateral wells ). 

Whiting estimates that the average estimated ultimate recovery (EUR) for each of these wells will be 850,000 barrels of oil equivalent (at $50/barrel --> $42.5 million/well). The cost to complete each of these wells is estimated to be $5 million, down from the $6 - $8 million quoted earlier in the boom.

So far, this discussion has been limited to the Sanish oil field, just one field that Whiting is operating in the Bakken, albeit its most prolific field. The Sanish is one of the most prolific fields in the Bakken; it is a relatively large field for the Bakken, encompassing about four townships, about 192 sections. Fields can increase in size if not hemmed in by other fields. The Sanish is pretty much hemmed in; it probably won't get any bigger; there are only about six sections abutting the Sanish that are not part of any named field.

Bakken Decline Rate
Do not be alarmed by the horrendous decline rate in the Bakken. This is a well-known phenomenon, and my hunch is that the operators are working hard at attenuating the decline. Two things to note: the high initial production which lasts for one to three months makes a nice dent in paying for the well. Second, where the production stabilizes is the important thing to note. A well that has paid for itself in the first six months may continue to produce at 200 barrels/day for years. Following the initial payoff, the estimated ultimate recovery (EUR) is the real number of interest.

Note
I do not hold shares in Whiting Petroleum Corporation (WLL). I missed this one when I first started investing in the Bakken a couple of years ago. I do hold shares in the Whiting Trust (WHX) for the distribution but that is a short term holding.

Some ridiculous back-of-the-envelope calculations

• WLL has mineral acreage and is operating in much more than just the Bakken
• Inside the Bakken, WLL has mineral acreage and is operating in more than just the Sanish
• As noted above: when completed, WLL plans to have 534 wells in the Sanish
• WLL's EUR for each well in the Sanish: 850,000 boe
• At $50/bbl: 850,000 bbls/well x 534 wells x $50 = $23 billion at the wellhead
• For me, it's hard to believe the price of oil will trend lower over the next 20 years
• Today, the market cap for WLL is under $6 billion (Yahoo!Financial)
• WLL's P/E is 24
• Yahoo!Financial reports WLL's EPS at $4.21 (I don't know if this is current)
• WLL reported $1.30 (excluding items)/share 3Q10 = $5.20/share
• I have said many times: I have no idea how to value these companies; the first question is whether they are value companies or growth companies; the P/E suggests a hybrid

Miscellaneous Data
According to the NDIC website, 231 permits have been issued for the Sanish oil field since oil was first discovered in North Dakota (in 1951)
WLL has 172 of those permits
Of the 172 WLL permits:

• 93 are actively producing oil and all were drilled in the current boom (since 2008)
• 28 are on the confidential list (C)
• 26 are still being drilled (DRL)
• 21 represent locations permitted to drill (LOC)
• 4 permits are now canceled (PNC)
• There have been no dry wells