Pipeline Capacity

Update on pipeline capacity:

A short article in Oil and Gas Journal points out that due to limited pipeline capacity, CLR is reporting initial production (IP) numbers based on one-day production. According to OGJ, "[t]he company said that its Hendrickson 1-36H well in McKenzie County, ND, set a company operated IP mark of 1,990 boepd on a 7-day test. The well’s best single-day rate was 2,105 boepd. However, the company will report single-day initial production tests for Bakken wells because gas pipeline capacity limits are restricting 7-day rates at some wells, if only in the first few weeks." 

In late 2009, regional analysts opined that with new pipelines and the EOG railhead at Stanley, pipeline capacity would finally accommodate daily production. At the time I stated that if pipeline capacity met requirements, the balance would not last long. The fact that CLR even mentions pipeline capacity issues suggests that we may already be seeing production surpassing infrastructure's capacity to ship oil out of state.  My gut feeling is that it's a local issue: some areas of the Bakken with more imbalance than others.

A few weeks ago I mentioned that companies were starting to go back into Montana. For folks new to the Bakken, it was in 2000 that horizontal drilling opened the Elm Coulee Creek oil field in Montana, and initiated the interest in the Bakken. The Elm Coulee drilling continued through 2006 when the producers moved across the state border and began drilling on the North Dakota side. The OGJ article linked above states that CLR is going back into Montana's Elm Coulee with at least one rig drilling 320-acre spaced wells.  

CLR states that 81% of its 488,500 net acres in North Dakota are undeveloped. For Montana, 60% of CLR's 163,500 net acres are undeveloped.  



Call Me, Blondie

Over-Hyped Bakken? See Wall Street Journal Today

Another article in Wall Street Journal today, February 26, 2010.

I cannot explain the sudden excitement in the media unless "crazy numbers" is circulating among the oil industry experts.

Yesterday we had a Yahoo.com front page story reporting on the nearly quarter billion dollars going to the Native Americans on the Fort Berthold Indian Reservation, and today we have a full page spread on the Bakken in the nation's number one newspaper.

My hunch: the USGS's estimate on the percent recoverable oil in the Bakken was underestimated by a significant amount.

[Some folks won't understand the analogy, but here it is anyway. When Apple Computer, Inc., had only 2 percent penetration in the computer market, most analysts felt Apple would fail as a company; Steve Jobs noted that he could double the company's size and profitability by just getting 4 percent penetration. Apple now has about 5 percent market penetration for computers and Apple's market cap at $180 billion is not all that different from Microsoft's $250 billion market cap. AAPL's P/E is slightly higher at 20, but certainly not that different than MSFT's P/E of 16.

My point is this: if producers are excited over a 2 percent recovery rate (the USGS survey prediction), imagine the excitement if the producers can actually get 4 percent recovery. Four percent recovery ain't much, but it doubles the total amount of production. Just saying.]

Oh, one more thing. Once the wells are drilled, it doesn't cost nearly as much to go back in with a workover rig and fracking crew. The producers are already doing that on some wells. One well to watch will be Hess' RS-Brady well to see if Hess goes back in and re-fracs this well.