IPs and Hess' Six-Well Mult-Pads -- Bakken, North Dakota, USA

After the recent announcement that Hess was granted another set of permits for a six-well multi-pad, someone sent me a comment questioning the wisdom of such based on the history of the lackluster IPs reported by Hess for wells in general, and perhaps these six-well multi-pads in general (although there have been so few of the latter to date, there is not enough data to consider).

Someone then replied to that comment reminding us that Hess continues to emphasize the economics of these six-well multi-pads.

This was my reply:

The big question is whether IPs / 24-hour backflows have any relationship to the total ultimate recovery of a particular well.

We will not know for several years. The oldest wells in the current boom were drilled in 2006, but only recently have they gone to multi-stage fracturing, and I still don't think there is any consensus on optimum number of stages or mix of proppants. And, of course, the geography of every well is different.

CLR, perhaps the "face" of the Bakken, clearly states that "IPs Correlate with Higher EURs." CLR could not be an clearer. That is the title of slide number 37 of the 79-slide presentation by CLR for the Investor Day 2010 Conference.

You can access the presentation at the CLR website. CLR compares the 30-day average production (the IP) with the EUR. However, if the formula for calculating the EUR is based on the initial production and decline rate, obviously "garbage in, garbage out."

I think there are way too many unknowns to say who is correct. Once we have one-year and five-year cumulative production numbers we will have a better idea. The clock for "one-year" and "five-year" has not yet started in my mind. The clock will start when we have enough data to make calculations significant. The clock cannot start until there has been enough time to see what the best mix of proppants and optimum number of frac stages might be. And then, only after we have two to four wells per 640-acre section. 

My gut feeling: the EURs will continue to increase going forward, making much of this discussion moot. Even the 30-day IP is problematic: during a winter blizzard, trucks carrying oil from a well can be completely stopped for 24 hours. If pipeline capacity is lacking, the wells are choked back.