Update
It should be noted that EOG has canceled all Scandia-named well permits or let them expire. There are no Scandia wells being drilled by EOG, and it's my impression that EOG has blown off the Spearfish for the time being.
Since the original post was posted, several exciting developments have occurred in the Spearfish formation in Bottineau County, northern North Dakota, along the Canadian border. Surge Energy (Canada) has made a huge investment in the area and two large acquisitions. Read the post below for history / archival purposes, but click on the "Spearfish" label at the bottom of the blog to go to newer posts and find out how much is going on in the Spearfish/Bottineau County. -- April 8, 2011
Original Post
I was one of the most excited about this new formation, but after some disappointing wells, there was some chatter that EOG was re-thinking its strategy on going after the Spearfish wells along the North Dakota border with Canada.
More evidence the EOG might be throwing in the towel: in today's NDIC daily activity report, it was noted that EOG canceled permit 18720, Scandia 2-26H, Lot 1 26-164N-78W, Bottineau County.
[Update: see comments below. I thought it strange that EOG would go to the bother of canceling one permit even if they were putting the Spearfish on the back burner. It is very, very seldom that one sees a single canceled permit like this in the daily activity reports.]
According to Legacy Oil and Gas presentation of January, 2011, EOG has drilled ten (10) Spearfish wells in this area.
I THINK IT IS SMOKE AND MIRRORS. IF YOU LOOK AT HOW THEY WORKED IN THE BAAKEN, YOU GET AN IDEA OF HOW THEY SET UP A FIELD. I BELIEVE AT ONE POINT EOG SAID IT WAS PULLING OUT OF THE BAAKEN. THEN THEY GOT CHEEP LEASES. NOW THEY ARE ONE OF THE BIGGEST PRODUCERS. IF YOU LOOK AT 164-78 IT IS VERY SMALL, ABOUT 12 SECTIONS. BESIDES THIER PRODUCING WELLS THEY HAVE 14 PERMITS IN THESE 6 SECTIONS. I WOULD LISTEN TO LYNN HELMS.
ReplyDeleteYou are correct (about how small 164-78 is). I have posted all those permits at:
ReplyDeletehttp://milliondollarway.blogspot.com/2010/07/eog-scandia-bottineau-county.html
There were at least two 3-wells pads permitted in this small area.
I can't argue with your point. I am very perplexed; across the border in Canada, the media presented a very rosy picture of EOG/Spearfish wells, but to date that has not been duplicated on this side of the border. It may just be a matter of time.
After the shellacking EOG took in the 3Q10 with regard to earnings, it's possible that someone at EOG said to concentrate on better producers, and it's clear better producers are elsewhere right now.
By the way, I did think it strange that they canceled a permit; it certainly fits with your "smoke and mirrors" theory. Permits cost them nothing to hold; and if they were pulling out completely, why not just cancel them all, if there's some advantage to canceling (none that I can think of except for bookkeeping purposes, which is trivial).
So, we'll watch. I certainly appreciate you calling me out on this. It will be very interesting to follow.
Having said all that, it should be noted that EOG did have a dry hole a little bit south, and a little bit east, targeting the Spearfish.
ReplyDeletehttp://groups.google.com/group/bakken-shale-discussion/browse_thread/thread/034ca253f4dc08fe#
With as good as the Bakken is, it probably isn't worth it right now to drill dry holes.
During Jan 13 spacing hearing for the spearfish well in 11-164-78 eog testified that the cost of this well through completion was 2.5M $. This is compared with a planned/forecast cost of 1 M $ largly based on actual costs of the eog canada wells just a few miles to the north.
ReplyDeleteAlso, for the well in section 11, eog forecast the eur to be 25k barrels. In a previous hearing on one of the other eog spearfish wells in 164-78, eur was estimated as 75k barrels.
So, actual costs are more than double the forecast and production is about one third of that previously forecast. Not a good receipe for success unless the price of crude goes way up from where it is.
EOG was asked by dmr about drilling plans and stated no plans to drill "this year".
As to the permit of the well in section 26 being cancelled, that permit expired automatically after 1 year as the permit was granted last Jan when the program started. I expect the other permits will expire this summer when they are also one year old.
There is oil in the spearfish but lower drilling costs, different completion method(s)that will result in more recvery or much higher oil prices or a combination are needed in order for these wells to be economic. I assume eog and potential partners are looking at these factors in deciding how to go forward but for the near term, I do not see more drilling unless something changes on the cost or revenue side(s).
To add to the problems, there are infrastructure issues including access to a pipeline, availibility of facility electric power at the wells (24 wells per section were planned) and road maintenance. Granted, these should have been anticipated going in but it is not clear that they were taken into account adequately by eog.
Back in April EOG issued a number of positive press releases and investor presentations for the spearfish based on the first two wells in 164-78. I suspect that Mr Helms was basing his sept comments on this early information. This later turned out to be overly optimistic based on the decline curve of these two wells as well as the poor results of the 5 other wells drilled a bit to the south. Also, as recently as July, eog was moving forward as that is the time frame of the last group of permits.
Thank you for this background. It seems to explain everything that seems to be going on in this area. It is interesting that EOG could not replicate in North Dakota their experience in Saskatchewan.
ReplyDeleteThe only thing that confuses me is that NDIC states whether permits are canceled or expired (I believe I'm correct on this). In the January 24, 2011, daily activity report, it states that the permit was canceled, which led me to believe that EOG had to take action to cancel a permit. Had it expired at the end of the one year period, I would have assumed the daily activity report would have state "expired." There have been errors on the daily activity report; regardless it's a small point in the big scheme of things.
But since permits do automatically expire at one year, I thought it unusual for a permit to be canceled.
Thank you for that background information.
You are probably aware that Legacy Oil and Gas continues to look at this area. According to Legacy's most recent corporate presentation, EOG has drilled 10 wells in the Bottineau/Spearfish; I assume that's accurate, but I haven't been able to find any corroborating data.