The Million Dollar Way (The Bakken Oil Blog): 05/23/11

Monday, May 23, 2011

Pundits Say Drop in Oil Price Partly Due to Slowdown in Chinese Economy

Pundits said that part of the reason for today's drop in price of oil was due to the Chinese having some success in slowing their over-heated economy. (Of course, the big reason was the strengthening of the US dollar and the continued fiscal problems in Europe: the PIIGS.)

With regard to China, Rigzone reports that "Chinese Oil Demand Reaches Third Highest Level Since 2005."

Week 20: May 14 -- May 20, 2011

USGS To Undertake New Bakken/TFS Assessment

1,500 Additional Family Housing Units Proposed -- Williston, North Dakota

American Eagle Spuds First Horizontal Bakken Well

Update: Wells With IPs Greater Than 2,000 BOPD

There Are Now Nine (9) Wells Along the Hess Long Lateral #17117

Surge Energy Update

How Bad Is The Fracking Backlog in the Bakken?

BEXP To Accelerate Drilling

The Urse Borseth 15-22H: Why The Bakken Remains Exciting

Taxable Sales Up As Much As 50% in the Bakken

MDU's Knife River to Open Operations in Williston -- Heart of the Bakken

Federal and State Money Flowing Into the Bakken: $1 Billion To Start

Google Blogger Down For Two Days: Missing Blogs

Legacy: Incredible Story -- Or Am I Missing Something?

DISREGARD THIS POST: The reported IP of 3,000 was a gross error. I will leave this for archival purposes for the time being. UPDATE

May 26, 2011: Based on press release and comments, these are my thoughts regarding this well (numbers rounded)(feel free to comment) --

3,000 feet vertical (thus, the Spearfish).

3,000 feet horizontal (longer than EOG Spearfish horizontal wells).

Mud with little oil show in the Spearfish (this well).

Company's press release: the company remains optimistic about Spearfish prospects in Bottineau County and will report results of this well later.

My hunch: this well is either dry or disappointing.

May 24, 2011: This report was removed from an updated version of the May 23, 2011, daily activity report. For now, I do not know what was going on. See new posting here.

ORIGINAL POST

First, read this earlier post --> Legacy: To Extend Play into North Dakota

The future of the Spearfish formation in Bottineau Country remains a real mystery.

Early on, NDIC/Director, Lynn Helms, or others, said "we" could see 2,000 to 7,000 wells in a relatively small area along the North Dakota-Canadian border a bit east of the Bakken activity. There were articles that EOG would bring its Saskatchewan experience and success across the border into North Dakota.

But then, after a few wells were drilled, completed, and reported, EOG's activitiy ended. This was about the same time that EOG was shellacked by shareholders after reporting 3Q10 results. Shortly after that I posted a short essay questioning whether EOG had thrown in the towel on the Spearfish in North Dakota.

In today's NDIC daily activity report, Legacy reports a huge well:

19462, 3,000, Legacy, Legacy Etal Energy Norm 4-19H, Bottineau

According to the NDIC report it's a Bakken well, but when you go to the well file, it is reported as a SPEARFISH well. Because it was just released, the file report is not yet available.

For more on Legacy, use the search app at your browser to search "Legacy" at this site, or go to the "tags" at the bottom of this site, and click on "Legacy."

If this is not a typo, and it's truly a 3,000 bopd IP in the Spearfish, this will be very, very interesting. Remember, it seemed that EOG was not having the success in the Spearfish that the Canadians were having in southwest Manitoba.

The next thing to watch for: the cost of these wells. A typical Bakken well costs $7 million. The Canadian Spearfish well: $1.5 million.

For more on the Spearfish, click here, or on the link at the sidebar on the right.

Four (4) New Permits -- Legacy With a Huge Well -- Bakken, North Dakota, USA

Daily activity report --

Drillers: ERF (2), BR, CLR.

Fields: Moccasin Creek, Haystack Butte, and a wildcat in Williams County. The two ERF permits are for two wells on the same pad (different sections, but straddling the section line).

The big news from today's activity report, however:

19462, 3,000, Legacy, Legacy Etal Emery Norm 4-19H, Bottineau, a Bakken well according to the NDIC daily activity report, but I think it's a Spearfish well

And XTO has a nice well:

19691, 1,470, XTO, Dwyer Federal 44X-1, McKenzie County, a Bakken well

And BEXP with another nice well, typical for BEXP:

19807, 2,926, BEXP, Greenstein 30-31 1H, Camp, Bakken

BEXP Never Seems to Fail -- Another Great Well -- Camp Field -- Bakken, North Dakota, USA

Camp oil field: about two townships in size (about 72 sections); just east of Indian Hill, south of the river; east of US 85 south of Williston; an active field, but not particularly exciting -- until today

19807, 2,926, BEXP, Greenstein 30-31 1H, Camp, Bakken

EOG Has Some Great Wells Waiting to Be Tested and Reported: Initial Results Look Great -- Bakken, North Dakota, USA

The IPs for these two wells have not yet been reported but they have come off the confidential list. Based on their first two months of production, it looks like they will be great wells. Both wells are in the Van Hook field inside the reservation

18827, DRL, EOG, Liberty 10-36H, comes off confidential list on 6/30/2011 (looks like a good well; 17K in the first month; 16K in the second month); inside the reservation; target appears to be Middle Bakken
18828, DRL, EOG, Liberty LR 16-36H, comes off confidential list on 7/13/2011 (looks like a good well; 16K in first month; 17K in the second month); inside the reservation; target appears to be the Middle Bakken

I could be wrong, but based on the paperwork, it appears that 18827 will be a short lateral (section 36), probably running northeast to southwest; while 18828 will be a longer long lateral (section 36 to sections 35 and 34). Section 34 is under the river, and most of 35 is under the river (and with the flooding this year, perhaps all of 35 is under the river).

Jones 44-35 -- Whiting -- Shut In -- Wildcat -- Lots of Chatter -- Bakken, North Dakota, USA

Lots of chatter about this well.

18005, DRY/SI, WLL, Jones 44-35, Wildcat, Bakken -- very interesting. Vertical. See link.

This well was a real wildcat in the southwestern corner of North Dakota, section 35, T143N-105W. As noted it was a vertical well.

WLL has been issued a permit to drill another well in section 36, T143N-105W, less than a half mile to the southeast.

20889, LOC, WLL, Henry State 24-36H, another wildcat

I have placed these two wells on the "watch list."

For newbies, some facts, and then you can connect the dots:

The current boom is all about horizontal drilling
A vertical well is very inexpensive compared to a horizontal well
In the "old" days, it was not unusual for a company to drill vertical wells to get information about a new area
Hess has six wells monitoring a long lateral (although they are still confidential, my hunch is they are all vertical wells)

When I Wasn't Looking: NG to New Highs -- $4.37 -- On a Down Day for Commodities

10:12AM Natural gas to fresh highs at $4.37; now up 13 cents to $4.36.

From Yahoo!InPlay.

Something tells me we might be seeing a tipping point: natural gas is up despite a) end of winter; b) massive amounts of natural gas being found and produced; c) other commodities falling.

But then again, I am often inappropriately exuberant about the oil and gas industry.

By the way, I see the KOG story hit the Yahoo!InPlay site earlier today.

8:02AM Kodiak Oil & Gas agrees to acquire Williston Basin Producing Properties and undeveloped leasehold (KOG) 6.35 : Co announces that it has entered into a definitive purchase and sale agreement with a private oil and gas co to acquire Bakken/Three Forks leasehold and producing properties in the Williston Basin. The purchase price for the leasehold interests and associated assets is ~$85.5 mln, which will be paid through the issuance of 2.5 mln common shares of KOG and cash. With the expected delivery date of the fifth rig in the fourth quarter 2011, the co anticipates ~$10 mln of additional CAPEX related to the rig, bringing estimated 2011 capital expenditure guidance for drilling, completions and infrastructure to $230 mln.

A Reminder: Other Great Blogs Out There

A blog you should bookmark and check in on periodically: fourfiftygas.com.

See most recent comments to article about 60 percent of folks want vehicles that offer 60 mpg.

Be careful what you wish for.

Coal on CNBC

For those who think coal is dead, here's a reality check.

Link here to CNBC video. Enlightening.

Update on Future of the Bakken -- NDIC -- North Dakota, USA

A big "thank you" to Gregg for commenting. The comment was posted, but it is too good to get lost among comments, so here it is as a stand-alone post, without editing:

Lynn Helms was on prairie public radio this morning with some interesting numbers. The story isn't posted yet on prairies web site. I think AP and some local media picked up on some of what he had to say. He's talking about 10,000 wells by mid June 2013 and adding six newly built rigs a month thru the end of this year. Also, over 400 permits are backlogged. Ouch!

http://www.therepublic.com/view/story/743900a2e68f4c76b1281ea7d6334125/ND--Oil-Drilling-Growth/

This one is from Thursday.

http://www.publicbroadcasting.net/ndpr/news.newsmain/article/0/0/1804784/Prairie.Region.News/Oil.oversight.staff.beefing.up

I am not quite sure what "400 permits are backlogged" means: whether it is permits the NDIC has yet to issue, or whether we are talking about permits for wells yet to be spudded. Because I can come up with more than 900 permits that are yet to be spudded, my hunch is that "400 permits" refers to NDIC activity. If so, that's a heck of a lot of permits yet to be issued, and requests pour in weekly.

BEXP Is Now The "Darling" of the Bakken Investors -- Bakken, North Dakota, USA

Motley Fool has yet another article on this "darling" of the Bakken.

Link here.

KOG To Acquire Private O&G E&P CO in ND -- 25,000 Net Acres in Williston Basin; 400 Net Drilling Locations; One Rig; 200 BOED; and a Partridge in a Pear Tree

Just kidding about that last part: I am not aware of any partridge in any pear tree being part of the deal.

Link here.

KOG announced that it has entered into a definitive purchase and sale agreement with a private oil and gas company to acquire Bakken/Three Forks leasehold and producing properties in the Williston Basin.

The purchase price for the leasehold interests and associated assets is approximately $85.5 million, which will be paid through the issuance of 2.5 million common shares of Kodiak and cash. Kodiak will also assume the Seller's contract for a new build drilling rig and will reimburse the Seller for Seller's $2.5 million cash deposit on the rig. Kodiak expects to fund the cash portion of the of the purchase price with available cash balances and borrowings under its credit facilities.

Other data points:

25,000 net acres
200 boep currently
400 net, largely de-risked, undrilled locations
1 new rig ($2.5 million cash deposit on the rig)

Back-of-the-envelope calculations:

$85,500,000 / 25,000 net acres --> $3,420/acre and that's without the current production and a new rig. Maybe someone will correct me if my calculations are wrong
The price/acre is full price for Bakken, but not extravagant; remember, the bonuses paid to the state of core Bakken acreage is $3,000 - $6,000/acre
The acreage is in McKenzie County, one of the four core Bakken counties: Williams, McKenzie, Dunn, Mountrail
Almost no stock dilution: only 2.5 million more shares to be issued; currently 180 million outstanding