Wednesday, August 22, 2012

The Case For Short Laterals


August 24, 2012: here's another short lateral well you can add to the mix:
  • 20636, 5,310, BR, Brazos 24-34H, middle Bakken, Charlson, short lateral, t6/12; cum 5K 6/12; the horizontal leg was drilled in four days; 11 stages (?);  
Original Post
This post may not yet be ready for prime-time. I posted it earlier to get the time-stamp but said I would come back to it later to finish it. So here goes.

The background:
A reader sent me this note, August 17, 2012, as part of a longer note:
My buddy with 13 wells south of Stanley, worked rigs 6 years, heads a large company, very knowledgable, says the oil companies are seriously thinking of going back to one-mile horitzontal versus two-mile horizontals. Short laterals may be more profitable.
(By the way, in that same note, he said he "ran into" former governor Ed Schafer that day. Governor Schafer, as you may recall, is on CLR's board of directors. Mr Schafer said that CLR raised its CAPEX to $1 billion for 2012. CLR is not slowing down; if anything it is getting more aggressive in the Bakken.)

Right now, there is a lot of talk about the cost of completing a Bakken well, upwards of $10 million. This is huge, but it's in line with short laterals costing upwards of $5 million.

But it seems the IPs are getting better which suggests that experience is paying off. I can't say for sure that IPs are getting better but it's my impression. I do know that operators have been raising their EURs, and EURs are based partly on IPs.

Two data points that have changed in the past year:
  • If one can drill a short lateral and get an IP that is comparable to the IP of a long lateral, why not drill short laterals. 
  • The new larger spacing units are making it more effective for short laterals than small spacing units of the past (I have explained that in the past; will explain it again if anyone has questions). 
So, those are the two "things" that have changed in the past year, and will enter into any discussion regarding long vs short laterals.

With that in mind, look back on some earlier posts that are relevant to this discussion. If you take the time to go back to these posts, be sure to check the dates of publication.

From DrillingInfo, what is the benefit of drilling long lateral Bakken wells.

Then, this: EOG bucking the trend with short laterals, a nice analysis by Mike Filloon.

So, all of that as background to something that continues to smolder: long vs short laterals. 

So, keep an eye out for well design changes next year. 

Earlier this week, an interview with Lynn Helms has been getting a lot of attention. This was the interview in which he mentioned that at least 35,000 more wells would be drilled in the Bakken, and one should expect an additional eight to sixteen wells per spacing unit.

There was another component to that interview, or maybe there was another interview, but regardless, Lynn Helms also talked about the expense of the wells, particularly fracking costs. But what caught my eye (as an eternal optimist, inappropriately exuberant about the Bakken, I overlook the costs) was the effectiveness of drilling these days. Look at what Helms had to say:
Drillers are finishing wells at a rate of eight daily, up from less than one a day five years ago, ...

The time needed to drill a well has dropped by two-thirds since 2007 to 20 days, ...

... the "enormous efficiency increase" is due in part to the increased use of diamond-tipped bits and the growing number of so-called walking drill rigs. Those machines are capable of moving between well sites on hydraulic feet without having to be disassembled.
With eight wells on a well pad and zip fracks, one can imagine eight short laterals in record time replacing eight long laterals become the standard for some operators. 

What You Will Be Discussing Thursday Morning; Whiting Has Another Gusher -- 13 Days To Drill; Fifteen (15) New Permits; BR with Two Great Wells;

Jobless Claims
The Economy

"There's still a 100 percent chance the world heads into recession," according to Marc Faber ...

I don't know how one says there's "a 100 percent change that something is going to happen. That's not a "chance." That's a certainty. Oh, well. Semantics. He said this last autumn; apparently there is no "time frame." The prediction appears to be open-ended.

Oil futures

Approaching $100, 7:45 a.m. Pacific Daylight Time, August 23, 2012. By the end of the day, the price dropped over a dollar, and closed in the $97 range.

Bakken Daily Operations Report

Active rigs now down to 190 189, down from 191 yesterday, and 190 this morning; this is a new "low" as we start going down the curve. My hunch: we level off at 175 rigs in North Dakota.

Wells coming off confidential list today, Thursday:
  • 20840, 3,376, Whiting, Maki 41-33XH, Sanish, t2/12; cum 113K 6/12; middle Bakken; 30 stages; 2.6 million pounds; all sand; spudded November 28, vertical total depth on December 4 (6 days); total depth for the lateral reached December 12 (8 days later): 13 days from spud! Gas shows were reported as being very high at times.
  • 20934, drl, Petro-Hunt, Anderson 152-96-35C-26-3H, Clear Creek, s2/12;
  • 21361, 860, MRO, Kay Arnson USA 34-35H, Strandahl, t5/12; cum 13K 6/12;
  • 21669, 133, OXY USA, State Jablosky 1-1-12H-141-95, Simon Butte, t2/12; cum 7K 6/12;
  • 21781, 277, Baytex, Redfield 24-13-157-99H-1NC, Lone Tree, t2/12; cum 37K 6/12;
Wells released from the confidential list yesterday were reported earlier.

In addition, the following producing wells were completed:
  • 22050, 2,806, BR, Kummer 41-30MBH, Blue Buttes, t5/12; cum 15K 6/12;
  • 20447, 1,283, BR, Samuel 34-21H, Haystack, t11/11; cum 34K 6/12;
  • 20162, 906, Hess, EN-Johnson-155-94-2017H, Manitou, t7/12; cum --
Fifteen (15) new permits in the Williston Basin:
  • Operators: BEXP (4),  Samson Resources (4), CLR (2), G3 Operating/Halcon (2), Oasis, Crescent Point Energy, XTO
  • Fields: Dollar Joe (Williams), Gros Ventre (Burke), Temple (Williams), Ambrose (Divide), Cow Creek (Williams), Strandahl (Williams), Good Luck (Williams)
Crescent Point Energy has a permit for a wildcat well in Williams County.

Energy and other links
RBN energy: low prices, inadequate takeaway, hinder development of Canadian natural gas shale
The Minneapolis Federal Reserve President may not have a clue but the head of the US Energy Information Agency understands the Bakken -- CarpeDiem 
SRE adds more natural gas storage capacity; already largest US natural gas storage company
Oil move is under way -- Market Watch
KOG to rally this autumn -- optionMonster

I've just updated Blue Buttes oil field (again). Go to June, 2012, commentary first, and then to original Blue Buttes posting.

Anticipation: Wells/Spacing Unit

For newbies, note this paragraph from a recent report:
[Lynn] Helms said there are currently 210 drilling rigs working the Bakken, and that companies there are drilling nearly 3,000 new wells every year. For now, there is just one well in each "spacing unit," he said. But that will change starting about 18 months from now, he said, when workers will begin drilling anywhere from 6 to 16 additional wells per spacing unit.
That's not entirely correct. Perhaps in the big scheme across the state, there is "about" one well in each spacing unit, but there are already a lot of spacing units with multiple wells in them.

However, this is what caught my attention: one number and one word.

The number: 16.  I knew that we would be seeing eight wells in each spacing unit (in the core Bakken), and I had imagined even more in some cases based on the dockets, but to hear the director be specific, mentioning 16 wells per spacing unit ... well, that's incredible.

The word: additional. As in, "16 additional wells per spacing unit.

It should be noted that some spacing units are 640 acres but the "standard" in the Bakken is now 1280-acres. We may be seeing a trend toward 2560-acre spacing units. I've argued that mineral owners would do better with 2560-acre spacing units, but in a poll at this site, the majority of respondents felt that 1280-acre spacing was better for mineral owners.

I can't find it now, but Helms also said something to the effect despite the decreasing number of rigs in the Bakken, we are now seeing five (or eight; I think it was five) wells being completed each day compared to only one in the past. I will see if I can find the link, the story.


It was also interesting to note that unconventional shale "favors" private land, as opposed to public or federal land. Here's the full quote:
Adam Sieminski, the head of the US Energy Information Administration, also addressed the issue at the hearing, as well as on "Platts Energy Week" on Sunday. In both venues, Sieminski said the US' major shale plays are located primarily on non-federal lands.

"So it's hard for the federal government to show big oil or gas shale-production numbers on its own lands, simply because the geology favors private and state landholdings," he said on the show.

Sieminski reiterated that his agency "does not make policy judgments" on questions such as which political party deserves more credit for fostering the shale boom. But he did praise the oil industry for making investing the necessary capital.
Yup. So many story lines, but I will leave it at that. 

Apple's Pullback Putting a Damper on the Market: Ya Think?

Earlier today I saw a story in which the writer said that Apple's pullback in share price puts a damper on the overall market. Wow. I sometimes wonder about these folks. It makes bloggers look like Pulitzer Prize writers.

Apple has been on a tear, and it would be crazy to think that at some point there would not be some profit taking.

So, moments ago I checked to see how more AAPL had fallen today. Wow! It rose almost $13 during regular hours; and held those gains after hours, rising just a big. Apple is about $5 off its all-time high. Meanwhile, I see Microsoft fall about half a percent today.

Yup: Apple's pullback is putting a damper on the market.

Let's see what CarpeDiem has to say right now.  Wow!

Update of Active Rigs in North Dakota By Operator

Active rigs in North Dakota are down to 191 (11:45 a.m. Pacific Daylight Time, August 22, 2012).

From the NDIC site, the breakdown at the moment:

Abraxas: 1
Baytex: 2
BEXP:  16
BR:  9
CLR:  14
Cornerstone: 1
Crescent Point Energy: 2
Denbury Onshore: 4
Enerplus (ERF): 2
Environmentally Clean: 1
EOG: 7
Fidelity:  4
G3 Operating (Halcon): 2
GMX Resources: 1
Helis: 3
Hess:  17
Hunt: 2
KOG: 8
Legacy: 1
Liberty Resources: 1
Marathon (MRO):  6
Murex: 2
Newfield: 2
North Plains: 2
Oasis:  8
Petro-Hunt: 12
QEP: 4
Samson Resources: 4
Sequel: 1
Sinclair: 1
Slawson: 4
SM Energy:  4
Triangle: 2
True: 1
Whiting:  17
WPX: 6
XTO:  7
Zavanna: 1
Zenergy:  4

From the NDIC site. I did not proofread or double check these numbers.

One can compare these numbers with a breakdown on February 3, 2011.

New Motel In Belfield, Southwest North Dakota

From the Dickinson Press, another developer from Minnesota:
New Leaf Hospitality, a hotel developer in Big Lake, MN.

The proposed hotel would be a 90-room, three-story wood frame building on the corner of Highway 85 and Highway 10 in Belfield.
Notes for the Granddaughters

Don sent me this link from the Rapid City Journal. When I was your age (my granddaughters' age), I watched my grandfather shear sheep on his farm near Newell / Rapid City, South Dakota.

I had not given sheep shearing any thought recently until this article. Thank you. Great memories.

Human Interest: Calgary Herald Looks At The Williston Basin Bakken

Link here.
Even though Enerplus committed another $50 million to fund its Bakken operations, it cut its "two least efficient operated drilling rigs" and will run just two for the remainder of the year. It also raised its production forecast for the second time in three months on growing volumes from Fort Berthold and expects to average 83,500 barrels of oil equivalent a day in 2012.

The $2.8-billion TSX-listed company acknowledged it's managing spending in the rest of its operations in North America to offset higher Bakken spending. It is not as if all the spending in the Bakken is even its idea.

Enerplus said its "non-operated activity has also increased significantly as our partners are drilling more than we originally anticipated."

As producers climb over each other to get a piece of the windfall more than 3,000 wells will be drilled in North Dakota this year.
The linked story if full of updated data.

Update on Alberta Bakken from the Calgary Herald

Things are slow today. Thank goodness for readers sending me links.

Things are so slow, I was updating Keystone XL sites and deficit problems for Los Angeles, Greece, and the US.

So, it was nice to get this link from a reader: DeeThree update in the Alberta Bakken.
In a report late last year, research firm Wood Mackenzie said the tight oil play that straddles the Alberta-Montana border could contain a recoverable 2.6 billion barrels of oil.

DeeThree added Tuesday it had purchased 5,700 hectares of Crown land prospective for Alberta Bakken in the second quarter and now has a total of 10,100 hectares.

The company said it has two drilling rigs operating on the lands, where its two most recently completed wells tested at 808 boe/d over nine days and 630 boe/d over eight days.
The article is a great opportunity to remind newbies that the Alberta Bakken is west of the Williston Basin Bakken, and is not part of "the Bakken" that most readers associate with this blog.

Enbridge: Its Economic Moat Has Widened

Enbridge's economic moat widens: Morningstar at SeekingAlpha (a twofer)

I posted the above at my "What you will be talking about Wednesday morning," but it is too important to be buried. This is an incredible story, and posted by Morningstar, no less. 

This is not an investment site. I post articles on the Bakken for education, information, entertainment. But I generally post more stories on companies that have impressed me for various reasons; I actually invest in very few companies I mention.

Obviously, CLR gets a lot of posts, drilling one out of every six or seven Bakken wells, either operated or non-operated; CLR knows the geology of the Bakken.

WLL gets a lot of posts: I really enjoy following its business model.

I love watching the head-to-head competition between OAS and KOG, as it plays out in Wall Street.

When I started the blog, two subjects did not interest me: natural gas and pipelines. Then ONEOK came along and all of a sudden I'm really interested in natural gas. I've never invested in ONEOK but it's probably an opportunity I missed. I love following that company; it saw an opportunity in North Dakota and took it.

Pipelines interested me even less, I suppose; I don't remember. Oh, now I remember: my interest in the natural gas story started with that infamous article in the New York Times, but I digress.

Back to pipelines. I don't recall when I got really interested in pipelines. I know I had not planned to post the TransCanada Keystone XL story when it first came out -- that the pipeline was being proposed. I had planned to completely ignore it; I think I even said that when I posted the first link regarding Keystone XL. I had no clue that this would become the biggest story following the 2010 spill in the gulf.

I had never invested in TransCanada (Keystone XL) either. I had accumulated shares in Enbridge, however, long before the Keystone XL debacle. I bought shares in Enbridge for the same reason I bought shares in Burlington Northern Railroad thirty years ago: I saw both of those companies operating in North Dakota and saw them grow, literally in front of my eyes.

So, I continue to accumulate Enbridge shares. But that's not why I'm posting the link to the Morningstar/SeekingAlpha article.  I'm posting that link simply because it provides a lot of information regarding pipelines and the Bakken.

It's a great article. The Keystone XL debacle has worked out very, very well for Enbridge.

Let's see if I can find one thing in the article that stands out:
Processing plants are traditionally constructed near liquids-rich gas fields, such as the Granite Wash play in Texas and Oklahoma and part of the Horn River in northeastern British Columbia. Enbridge has been expanding its processing plant business and building off its success with the Aux Sable processing plant, which removes NGLs off the gas stream that flows down the 50% Enbridge-owned Alliance Pipeline. The Alliance Pipeline transports liquids-rich natural gas from northeastern British Columbia to Aux Sable. Once the liquids are removed, the natural gas stream from the Alliance Pipeline is of sufficient quality for use in local gas distribution networks or storage facilities that feed these networks.
That was probably one of the most mundane paragraphs in the entire article, and it didn't even mention the Bakken.  This is why I posted it:

Earlier this week Don suggested that we might see a buildout of natural gas processing plants along the natural gas pipeline network; that's why I posted the wiki map of natural gas pipelines across the US.

The second reason I posted that particular paragraph: it didn't mention the Bakken. Next time around, I wouldn't be surprised to see Enbridge build a processing plant in North Dakota.

"$1 million is real cash" -- North Dakota regulator

Did anyone else catch that? Even though I agree with the decision to delay granting the $1 million to N-Flex,  the quote "$1 million is real cash" really bothers me. It will be comforting to others. Harold Hamm must have said "what?"when he heard that quote. Harold Hamm is drilling 20 wells a month and each well is costing him upwards of $10 million. The royalties pouring into North Dakota state coffers are staggering, measured in billions, not millions. $1 million may be "a lot of cash" for some, but for the oil and gas industry it's nothing. That kind of thinking bothers me because it suggests the state still does not have the folks with the vision and leadership ability to take North Dakota to the next level. It appears that they feel more comfortable shipping its natural resources out of state for further processing. But as noted, that will be comforting to others. Maybe we don't want the state to go to the next level. But maybe that was what the Federal Reserve president from Minneapolis was suggesting: North Dakota needs to re-invest through local diversification. Just rambling.