Monday, January 9, 2012

Ten (10) New Permits -- An Eye-Popping 1-Million-Bbl-Madison Well -- The Bakken, North Dakota, USA

A week or so ago someone asked me my prediction for the number of new permits in calendar year 2012. I suggested less than 2,000 (or about 2,000) but permits for multi-well pads could change things dramatically. Today, "we" see exactly what I was talking about. Dakota-3 (WMB) has six new permits: but only two new pads.

Daily activity report, January 9, 2012:

Operators: Dakota-3 (6), EOG, Petro-Hunt, CLR, BR

Fields: Clear Water, Tree Top, Van Hook, Stoneview

Eight wells were released from "tight hole"status (four were not completed/fracked), including:
  • 20184, 2,033, Whiting, Snyder 21-11H, Sanish (Mcountrail), t7/11; cum 368K 6/16;
  • 20275, 2,924, Oasis, Kline Federal 5300 11-18H, Sanish (McKenzie), t7/11; cum 369K 6/16;
  • 20926, 2,682, KOG, Skunk Creek 12-10-11-9H3, Baker (Dunn); t7/11; cum 215K 6/16;
Those are incredible IPs by anyone's criteria, and to see three IPs like this of four wells reporting, makes it even more incredible. "Eye-popping" for me. Maybe not for others.

I was not familiar with the Tree Top oil field. It is located in the north end of Billings County, one of the southwestern counties in North Dakota's oil patch. There are a lot of old, abandoned wells in this field, but here are some vertical wells (160-acre spacing for the most part?) that are still active in the Tree Top (these were not screened before selecting; I simply put down a few wells that were still active in one area in the Tree Top):
  • 7349, 361, Petro-Hunt, Fritz 2, s11/79, t3/80; cum 862K 7/17; Madison
  • 7352, 116, Petro-Hunt, Fritz "A" 1, s2/80, t5/80; cum 336K 6/16; Madison
  • 7353, PA/473, Petro-Hunt, Fritz "A" 2, s1/80, t4/80; cum 428K 5/09; Madison
  • 7934, IA/331, Petro-Hunt, Anna Osadchuk B-1, s12/80, t7/81; cum 543K 5/16; Duperow
  • 8116, 926, Condor Petroleum, Federal 2-28, s2/81, t3/81; cum 1.030921 million bbls 7/17, Madison; it appears "they" are up to something on this well; it has been on-line for only one day each month since 3/11; prior to that a consistent 600 bbls/month. [Update: starting December, 2011, this well is now back on line and can still produce about 600 bbls/month.]
  • 10106, 127, Petro-Hunt, Dorothy Osadchuk D 1, s3/81, t5/83; cum 450K 6/16; Madison
  • 10189, 90, Encore, Federal 5-27, s5/83, t7/83; cum 316K 6/16; Madison
  • 13871, PA/162 (Duperow); 152 (Madison); Petro-Hunt, Fritz 5, s10/95, t12/95; cum 104K 6/14, Madison, Duperow
All of these wells were drilled by an operator other than Petro-Hunt. Petro-Hunt acquired these wells after they were drilled (I did not check to see when).

So, would one rather own 10 acres on 1280-acre spacing with a 1-million-bbl-Bakken well, or 10 acres on a 160-acre spacing with a 1-million-bbl-Madison well? Wow.

10 comments:

  1. Your point is well taken. The size of the spacing unit is a big deal. Especially to the mineral owner with a royalty interest.

    It's well and good that companies plan multiple wells in the large spacing units but if the density of wells needs to be high, then why don't the companies ask for smaller spacing units? It's just a question.

    It is obvious that large spacing units give the operator more flexibility than smaller spacing units. To use an extreme example, if a spacing unit comprised od an entire township, then the operator would need only one well to keep the land leased under the guise of the secondary term of the leases when the lease is "held by production".

    A few years back, I didn't think anything about this but I now believe large spacing units are an economic/lease strategy of some maybe a of the operators.

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  2. One needs a large spacing unit to make these very expensive ($10 million) wells economic. Without the large spacing units (at least 640 acres, and preferably the 1280-acre spacing), one could argue that the boom might not be occurring.

    But for the small mineral owner (10 acres, for example), some of the old legacy wells could be very, very good.

    And one has to remember, the majority of Madison wells were nowhere this good as the examples above. The good Madison wells are in specific, delineated areas; the Bakken wells will be throughout the basin, though some better than others.

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  3. And, ip's in the 2k to 3k range are actually fairly routine even tho the methods of calculation are somewhat vague and probably in many instances designed to hype a stock price rather than convey important info such as eur. By far the most important and as yet unestablished metric is the validated characteristic decline curve. Need few more years of production history to pin decline curve down.

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  4. Well, if the short and/or long lateral wells are only "draining" 500' give or take feet from the horizontal wellbore thus the need for increased density and if each of these wells have eur of 600k to 1m bbl, then how are these wells not economic? Smaller spacing units would seem to be a no brainer. I realize oil cos get almost all that they ask for when it comes to spacing and if multiple wells are drilled, then it averages out. The advantage is to the oil co to manage the timIng of the developmental drilling which could stretch out years or even decades.

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  5. I won't argue with you but operators much smarter than I argue that higher IPs correlate directly with EURs. (BEXP, I believe was the first to say that, and at least one other operator has agreed. I forget whom, but I can guess.)

    The payback period is also important with regard to these very expensive wells. The cash flow is incredible and they need to get these wells paid for as quickly as possible, especially if "you" a small company without deep pockets.

    I would argue with you about the "decline curve" being the most important metric. I think the most important metric is EUR and that metric is only important to a driller that can stay in business, and thus the need to recover the costs as quickly as possible.

    I know I am being naive, but the methods of calculation for IPs no longer bother me. The methods were of concern a couple years ago, but now "everyone" is pretty much measuring the same way: 24-hour production; 30-day; 60-day; etc. (But yes, you are correct, some small companies are really exaggerating the IPs by maxing out flow over 8 hours and multiplying by three.)

    Bottom line: we've come a long way in two years with regard to IPs. IPs used to be a huge discussion on discussion boards, but I don't see those discussions any more. Folks have moved on.

    Oh, that reminds me. It's not the "dubious" methods of calculating IPs that have resulted in 2,000 and 3,000 IPs: it's 30+ stage stimulations with 4 million lbs of sand AND ceramics.

    Oh, regarding "hyping" IPs to "hype" stock price: some companies with the best IPS are private (Anschutz was best example, until they sold out; Slawson is currently one of the best examples; Petro-Hunt is another example (it's not listed) but it's probably a wholly owned subsidiary of a publicly traded company. But, you can rightfully argue that even private companies always appreciate venture capital and high IPs help out.

    Another bottom line: --- oh, I'll quit ... I've gone on too long already ....

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  6. Replies to comments are again out of order.

    With regard to 1280-acre spacing vs smaller spacing units, I think you've answered your own question.

    Fracking is only effective 500 feet out (radially). It's easy to do the math.

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  7. Is there a reason why well 3-0706H, Round Prairie, Williams county was not reported by EOG today. It was scheduled to come off the confidential list 1/8/2012.

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  8. Wow, that's a good question. I don't know.

    That is well/file permit # 20069.

    In addition, #20191, Whiting's Littlefield 41-12XH, was to come off the confidential list 1/9/12 (today) also and was not reported.

    Another one, #20596, Kodiak's Smokey 15-22-34-15H, was supposed to come off conf list today.

    And #20669, Hess, EN-Person-156-94-1102H-2 was supposed to come off yesterday.

    And #20845, BEXP's Art 6-7 1H, was due to come off today.

    There's at least one more, but I will quit there. Hopefully they will be there tomorrow.

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  9. Lessors ( oil companies wish to have large spacing units so as to hold all the mineral acres possible by production. It is economically logical for them, no other reason.

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    Replies
    1. That would be true, but they have to "prove" / justify their spacing unit requests to the regulatory agency.

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