Coffee Table Talk, September 2010

For newbies to the Bakken, "snapshot" comments of the Bakken, September, 2010:

Companies are racing to raise more cash to expedite their drilling programs. Continental Resources (CLR), Brigham Oil (BEXP), and Whiting (WLL) have each announced plans to raise $400 million cash by selling senior notes."

Value of Bakken acreage keeps increasing. Enerplus (ERF) announced yesterday (September 21, 2010) an agreement to buy 46,500 acres in the Fort Berthold Indian Reservation area at an average cost of almost $10,000/acre.

Super-fracking. Drillers are routinely using 30 fracture stages to stimulate a completed well, and there are now reports that some wells have been fractured with 40 stages, which some refer to as "super-fracking." Some opine that we will see 60-stage fracturing before it's all over.

Chokepoint. Slowing down the completion of wells is the fracking schedule. There are simply not enough crews to frack all the wells as they are completed. Some companies have their own dedicated fracking crews. EOG does not frack between November and March.

Water. Fracking requires lots of water. Millions of gallons. There are occasional stories in the local media questioning whether there is enough water. In fact, less than one percent of the Missouri River would supply all the water that is required. And a river flows; it's not a static pool.

Spacing in North Dakota used to be (rule of thumb) 640 acres, or one section. Spacing is now routinely 1280 acres (two sections).

Sophisticated rigs. The rigs are getting more and more sophisticated every year. Two super-sophisticated rigs are now on their way to North Dakota.  Experienced roughnecks are being flown in from Louisiana on a routine basis: two weeks in North Dakota, two weeks back in Louisiana for rest and relaxation. 

Multiple wells in one section. A year ago, we seldom saw more than one well in a section; now Whiting (WLL) is putting up to four or five wells in one section, targeting two formations, the middle Bakken formation and the Three Forks (Sanish) formation. And EOG! EOG will start putting three wells in each Parshall oil field section. That alone is a huge story.

Multi-well pads. At least three companies (Hess, EOG and CLR) are permitting multi-well pads, on which they place two, three, four or six wells. Slawson has a lot of 2-well pads.[We also need to add Samson -- Samson Resources, a privately held company (not SSN) -- to the list. Samson has been granted four (4) multi-well pads this calendar year -- 2010 -- with two wells on each pad.]

24-hour flowback reporting. Some companies have replaced reporting initial production (IP) numbers with 24-hour flowback numbers. All things being equal, the latter methodology results in significantly greater numbers than IPs determined by averaging production over 7 or 30 days.

Long laterals. Most horizontal wells in the Bakken are now 9,000 feet long (two sections, "long laterals"). Occasionally one will still see a 4,500-foot-long "short" lateral. There is talk of "super-long" laterals (three sections, which I personally doubt will happen). In Williston, Subway Restaurants refer to their sandwiches as "long laterals" (foot-long) and "short laterals" (six-inch). Locals prefer white bread; out-of-towners, 9-grain or hearty Italian.

Mergers and buyouts. XOM bought XTO, a player in the Bakken. Hess recently bought American Oil (AEZ). Denbury (DNR) bought Encore (ENC). Some of the deals are completed; some are still in process.

Formations in "the Bakken." Although not universally accepted, many oilmen feel the Bakken formation is a separate formation from the Three Forks (Sanish). Most of the wells are still targeting the middle Bakken but we are seeing more and more TFS wells. In some areas, another formation, the Birdbear, is amenable to horizontal drilling and may contain as much oil as the middle Bakken (lots of controversy on this one). The middle Bakken and TFS horizontal wells are referred to as "unconventional" wells. Along the North Dakota-Canadian border, and a bit east of the Bakken activity, is another formation, the Spearfish, that is being targeted by EOG with conventional wells. In addition, there is occasional interest in conventional wells targeting the Lodgepole formation around Dickinson.

Longevity of the field. Based on current data it will take until 2030 to complete all the wells in the Bakken, and the wells will continue to produce oil until 2100 A. D.

Dual laterals. Oil companies are putting in dual laterals targeting two formations, or even the same formation. McDonald's Restaurant, on Million Dollar Way, Williston, North Dakota, has just installed a second parallel (a "lateral") drive-through due to excessive traffic. Roughnecks will feel right at home driving through McDonald's dual lateral drive-through.

High Cost. Horizontal wells cost about $6 million to complete including a small number of fracturing stages. It is unclear  how much each additional fracture stage costs, but it is probably in the neighborhood of $200,000/stage.

Time. Oil wells can now complete a well (not including fracturing) in about 25 days; some as quickly as 16 days. This is way down from 40 - 45 days in the old days (two years ago). Conventional wells targeting the Spearfish can be completed in three days.

Records. Record number of active rigs in North Dakota (146). Recover amount of oil being produced (#4 in US; 10 million barrels/month).

Takeaway capacity. 80% of oil is transported out of state by pipeline; 10% by railroad; and 10% by trucking it back to Canada to be placed in pipelines. Takeaway capacity meets production unless a pipe is damaged/shut down.

Companies.

• CLR: the face of the Bakken, CEO Harold Hamm; most active rigs in the Bakken
• BEXP: pushing the envelope on fracturing; reports highest 24-hour flowbacks
• WLL: advocated "long laterals" from the beginning; now everyone is doing long laterals
• EOG: the best acreage in the Bakken; "owns" the Sanish, the best oil field in the Bakken
• NFX: Newfield; quiet, but has had some very, very good wells
• HES: the original oil company in ND; big, but not biggest, player in the Bakken
• KOG: company most associated with the Fort Berthold Indian Reservation
• NOG: only Bakken-company that doesn't have any rigs; partners with others
• Slawson: private; very, very good wells
• Anschutz: private; very good wells; they are selling their E&P operatiions
• Fidelity: the E&P arm of Bismarck-based utility, MDU; natural-gas focused utility
• Oasis (OAS): became a significant player in the Bakken when it acquired Fidelity acreage
• Samson Oil and Gas Limited (SSN): Australian company in the Bakken; very small
• Samson Resources: driller, operator; NOT the Samson Oil and Gas Limited (SSN) company
• AEZ: very small cap company that disappointed its shareholders when bought by Hess

Disclaimer and note: all of the information above is just idle chatter among Willistonites talking about the Bakken. They are "general" comments one will hear in Williston. Most knowledgeable sources would agree on most of the statements above. However, some are a bit controversial, but all of them can be linked to a reliable source.