CLR 3Q10 Earnings Conference Call

Webcast of conference call here; will only be here for a short period of time.

Some high points from the Q & A portion. I won't post anything on the financials; better to look at the full financial statements yourself.

1. Despite all the talk about adequate pipeline takeaway capacity it is obvious that the pipelines are maxed out. CLR is shipping about 5,000 bbls/day by rail. Rail costs $2 - $3/bbl more than pipeline right now. [That changes over time; it has been as high as $8 - $12/bbl, if I remember correctly.]

2. Interestingly, rail shipment to Cushing gives a better price for the oil. Bakken is very high quality oil and comes close to WTI gold standard for pricing. By rail, it is "pure" Bakken oil. However, by pipeline, the farther it goes, the more the Bakken oil is mixed with other oil that may not be of the same high quality, thus bringing a lower price in the end.

3. Removal of water from well pads is not a problem for most CLR wells. After first two or three months, not much water. Maybe farther north/northwest there is a bigger problem with water. "They" are putting in water, gas, and oil pipeline infrastructure. As an example, last month's (October, 2010) blizzard in North Dakota shut down all truck traffic and oil production had to cease due to water and oil needing to be trucked away where no pipelines.

4. Because CLR got into the Bakken early, the average they pay for royalties is still about 1/6th (83% of their production is at 1/6th royalty. Newer leases are 3/16th; offset by some federal leasing at 1/16).

5. Because of who they are, CLR has better relationships than others when it comes to getting excess oil on  rail. They say they can ship out all the oil they produce; hinting that may not be true for other producers.

6. CLR is deliberately choking down initial production, not because of effect on EUR, but pipeline capacity can't take full production. At one time they thought high IPs might affect EUR, but they don't talk about that any more. Perhaps the very, very high IPs might affect EURs, but CLR hasn't seen any evidence of that. They are choking down first months of production simply because takeaway capacity is maxed out.

7. There was lots of discussion on Eco-Pads. So far, evidence is that the two reservoirs (TFS and MB) are two separate reservoirs in areas they've been in. Side-by-side production comparison from each reservoir will vary from location to location.

8. Much of their oil is hedged this year at $85/bbl; next year $87; following year, $89.

9. I thought I heard Harold Hamm start off the Q & A saying CLR had 22 or 23 rigs in the North Dakota Bakken; last PowerPoint presentation (October, 2010, Conference), the slide shows 21rigs, so possibly CLR has even one or two more rigs than I realized before tonight.

10. CLR has about 178,000 acres in Montana. They spoke briefly about better technology in Montana in 2010 compared to earlier years and production results prove the technology is better.

Re-Fracking

One year ago, October 25, 2009, I posted my "three-legged stool" of energy in North Dakota. One of the legs included horizontal drilling, multi-stage fracture stimulation and re-fracking. (I should have added multi-well pads).

Since that post I had not heard much about re-fracking. Until today.

Over on the Bakken Shale Discussion Group board someone asked how the Hess refrac wells were doing, noting that the HA-Thompson-152-95-1720H-1 and the HA-Dahl-152-95-0607H-1 had been recently re-fracked.

Many numbers rounded for easier tracking; see original source for exact numbers.

HA-Thompson-152-95-1720H-1

• First 30 days: 9,000 bbls
• Second month: 4,700 bbls
• Twelfth month: 2,000 bbls
• Twenty-fourth month: 1,200 bbls
• Twenty-eighth month: Re-frac -- no production
• First month after re-frac: 11,000 bbls (24 days)
• Second month after re-frac: 9,000 bbls
• Third month after re-frac: 7,000 bbls

HA-Dahl-152-95-0607H-1

• First 30 days: 10,000 bbls
• Second month: 7,600 bbls
• Twelfth month: 2,700 bbls
• Twenty-fourth month: 1,700 bbls
• Thirty-second month: 1,600 bbls
• Thirty-third month: Re-frac -- no production
• First month after re-frac: 14,000 bbls (20 days)

Cumulative Figures

HA-Thompson-152-95-1720H-1

• Spud date: December 19, 2007
• First month of production: March, 2008
• Cumulative oil as of end September, 2010: 88,408 bbls
• At $50/bbl, at the wellhead: $4.4 million
• Field: Hawkeye
• Long lateral

HA-Dahl-152-95-0607H-1

• Spud date: October 15, 2007
  
• First month of production: December, 2007
• Cumulative oil as of end September, 2010: 109,070
• At $50/bbl, at the wellhead: $5.5 million
• Field: Hawkeye
• Long lateral

KOG's 3Q10 Financial and Operating Results (Bakken, ND, USA)

Full report here.

Operations

Rigs and Acreage

• Still a two-rig drilling program in the Williston Basin
• Joint venture with one non-operated rig
• Continues to acquire leasehold position in the Williston Basin
• Purchase of 8,960 acres to date in 2010 averaged $1,600/acre

Four-well pad (three middle Bakken and one TFS well) -- should be completed by year-end

• Two Shields Butte (TSB) 14-21-4H
• TSB 14-21-33-16H3 (Three Forks well)
• TSB 14-21-33-15H
• TSB 14-21-16-2H
• To be connected to oil, gas, and water pipelines

Two-well pad, non-operated with working interest

• Tested both the Bakken and Three Forks
• Bakken: 1,385
• TFS: 1,374 
• Evidence that Bakken and TFS are separate oil-bearing reservoirs

Four-well pad, three miles northwest of four-well pad noted above

• TSB 2-24-12-2H
• Skunk Creek (SC) 2-24-25-15H
• TSB 2-24-12-1H3 (Three Forks well)
• SC 2-24-25-16H3 (Three Forks well)
• Grizzly Federal 1-27H-R
• 10 stages
• Intended for Middle Bakken; landed in Three Forks
• Kept it there, to test TFS potential
• IP: 447
• Confirms productive potential of TFS in this area

Financial

Net income $361,000 3Q10 vs ($9,000) 3Q09
Zero cents/share 3Q in both 2009 and 2010
Net operating cash $8 million 3Q10 vs $5.8 million 3Q09
Cash for operations in 3Q10: $20 million

• $18 million for drilling and completing wells
• $2 million for leasehold acquisitions

Eleven (11) New Permits (Bakken, ND, USA)

Operators: Whiting (3), EOG (3), CLR, BR, KOG, BEXP, and Newfield

Fields: Clear Water, Murphy Creek, Twin Buttes, Hanson, Painted Woods and six (6) wildcats.

More than 50% of new permits today were wildcats. Interesting. No new permits in the "big" fields like the Sanish or the Parshall.

Two of the EOG wells will be on the same pad and are wildcats (the Short Prairie wells in 12-154-104).  This section is next to Painted Woods, and about two miles south of Hebron, almost on the Montana-North Dakota state line.

It is amazing to see how fast Whiting is developing its Lewis and Clark prospect. Among these eleven new permits today, are three Whiting permits that are all in the Lewis and Clark prospect, or the South Heart area (wildcats in Golden Valley and Stark counties). Incredible.

Right now, I am most excited by aggressiveness of CLR and WLL.

The 3Q10 earnings report by EOG suggests just how expensive this area is to develop, and possibly how competitive it is getting in the Bakken, suggesting to me we may see significant changes in the number of companies operating in the Bakken next year or 2012. I could imagine three or four big companies ultimately develop the Bakken, the others being bought up by the few remaining operators.

Speaking of Shellacking --> EOG

Speaking of shellackings -- what was that all about? EOG's third quarter earnings?

EOG has some "'splainin' to do."

Chesapeake, which I think of a natural gas company: earnings more than double, 75 cents vs 30 cents; exceeds Wall Street expectations.

EOG: er, not so good.

Mark Papa: However, because of lower cash flows from weak gas prices, higher frac costs, delays in frac equipment availability and the pattern drilling used to maximize resource plays, we've also reduced our 2011 and 2012 liquids growth targets to better reflect real-world conditions.

I assume Chesapeake had the same issue with "weak gas prices." Delays in frac equipment availability? Chesapeake didn't? Okay?

For a dramatic re-enactment of the shellacking shareholders gave EOG yesterday, click on clip below.


Shareholders Shellacking EOG

Minot Daily News Website Updated: Very, Very Nice

Some time ago I posted my thoughts about the websites of the local and regional media outlets around the state of North Dakota. I can't remember specifically what I wrote then, but I do recall that the Minot Daily News site was one of worst sites. It was absolutely crammed with advertising and clutter; dd not look professional at all.

The Minot Daily News has completely revamped their site. It is unique among news sites. It is extremely easy to navigate and very easy to find information and headline stories. It is not "attractive" in the usual sense, but it is definitely very utilitarian. For me, it makes it a lot easier to read. Without question, it's a huge improvement over the last version.