IPs -- Again -- The Bakken, North Dakota, USA

Gary sent in a comment to me that took me back to earlier discussions on IPs.

Before going further, re-read Mike Filloon's comments on IPs with regard to 3Q11 earnings:

When looking over these results, my focus was on 60-day average production for four of Kodiak's most recent Koala wells and 90 day initial production for two of those wells. For those unfamiliar with initial production rates, the further out in days, the more accurate an estimated ultimate recovery. EURs basically are an estimated amount of resource believed to be pulled from the well over its lifetime.

Brigham not only had better IP rates than Whiting  and EOG Resources , but had better long-term rates as well. Because of Brigham's results, its wells are the best suited for comparison to Kodiak's Koala wells. I chose wells that had very high IP rates in Brigham's Roughrider, because of this it had a higher average than Kodiak by more than a thousand Boe/d. When the 60-day IP rate is used for those same wells, Kodiak produces more than a hundred Boe/d, than Brigham's. Those hundred barrels of oil equivalent per day over sixty days produce over six thousand barrels more than some of the best Brigham Roughrider wells.   

Mike opines, and I agree, that the 60-day rate IP is a much better prognosticator of the well's estimated ultimate recovery than a 24-hour flowback rate.

But having said that, some reminders:

When I first started this site (the second time) back in 2009 or 2010, I forget exactly when, I do remember the big discussion seemed to be about IP rates. I'm doing this from memory and am not doing any checking so don't hold it to me, but I believe folks were "accusing" BEXP of inflating their IPs. It took me awhile to figure out what was going on, but it makes sense to me now. That doesn't mean I can explain the IP for an individual well, but in the big picture, I feel I have a good feeling for IPs.

When oil is brought up from the ground, it has to be put somewhere. Well, duh. But if the well wasn't hooked up to a pipeline, or if the pipeline was already at capacity from other contracted production, and there was limited on-site storage capacity, obviously it was difficult to get a real 60-day maximum rate of production.

And that was Continental Resources' argument. They said that they were having trouble getting full production into the pipelines due to lack of capacity. Remember, this was back in 2009/2010 when takeaway capacity was the second-most talked about issue.

So, finally Continental  Resources made an announcement that they, too, would be reporting IPs based on 24-hour production. I don't know if all companies use the same standard for reporting IPs at this point, but for the most part, it appears that companies are using 24-hour flow for the IP number.

Now, back to Mike Filloon's argument (with whom I agree): an IP calculated over the first 60 days has more relevance than a 24-hour flowback rate. However, having said that, we may be back to the original problem. What happens if pipeline capacity is full, and a great well is impacted lack of capacity.

So, one can't simply take 60-day production at face value. With all the CBR oil-loading facilities coming on line, and understanding that it is still cheaper to ship by pipeline, it suggests to me that pipeline capacity is all of a sudden, an issue again.

Okay, so that's just one factor, pipeline capacity.

But are there other factors?

Let's say uncontracted oil is coming on line at a time when the price of oil is depressed and futures suggest that the price of oil could rise over the next six months. Would an operator maximize production during those first 60 days to get bragging rights to a great 60-day IP or would she choke back the well and wait for better prices.

Then throw in the weather. Something tells me some potentially great wells last January and February would have had lousy 60-day production numbers.

Sometimes wells are taken off-line during the first 60 days due to problems with the well that need to be corrected at that time, and cannot wait. Sometimes it's simply a matter of scheduling conflicts. Burlington Resources appears to be routinely shutting in their wells for the first several months after reaching total depth. 

So, again, the 60-day numbers, all things being equal, are better than 24-hour rates, but the "all things being equal" can't be overlooked.

**************

By the way, I used to post wells with high initial production (IP) numbers at this page. I initially posted any well with an IP greater than a 1,000, but that became pretty common, so I moved the threshold to 2,000, and considered moving the threshold to 3,000. It is interesting that I haven't been posting much to that site. Part of the reason is I have simply been forgetting to do it, but also because there just aren't that many wells with IPs of 2,000 or more any more. The threshold is now 2,800 before I will post to "high initial production."

So, without even much reflection one can think of several reasons why 60-day numbers may not be all they suggest. What makes this exciting is this: the important thing is to get the well in and completed. Just as the Bakken is evolving, so each individual well is evolving. At the end of 30 years, each well will have had its own particular story. The well may have been put in during less than optimal conditions; there may have been problems with drilling; there may have been problems with fracking; there may have been a shortage of sand (and that's been a real problem recently); so on, and so on.

But these wells will have work-over rigs come in and optimize what they already have, but even more exciting is re-fracking.