Unitization and How Many Wells In One Section / One Spacing Unit in the Bakken? -- North Dakota, USA

A lot of folks have asked me over the past two years, how many wells can "they" put in a spacing unit, or how many wells can "they" put in a section in the Bakken? How about 14 wells in one 2560-acre spacing unit (essentially one well every 180 acres).

In the August, 2011, NDIC hearing dockets, here is one example: 

Case 15373, BR: Dimmick Lake-Bakken; Johnson Corner-Bakken; 12 additional hz wells on a single 2560-spacing unit and increase the stratigraphic definition of the Bakken Pool, McKenzie (this amounts to a well every 180 acres, if you include the two that are already there)

This is case # 15373. Burlington Resources will request that it be allowed to place as many as 12 "additional" wells on a single 2560-acre spacing unit. The 2560-acre spacing unit will be composed of two 1280-acre spacing units that already exist: one in Dimmick oil field, and one in Johnson Corner oil field. Specifically sections 28 and 33 in T151N-R96W; and, sections 4 and 9 in T150N-R96W.

These four sections are contiguous and run north-south.

There are already two producing wells in this (if approved) 2560-acre unit:

• 17680, 463, BR, Denali 31-28H, spudded 10/17/08; Dimmick Lake; 83,000 bbls to date
• 18225, 625, BR, Norman 1-9H, spudded 11/16/09; Johnson Corner; 85,000 bbls to date

Neither of these wells is all that spectacular. The IPs were nice, but not spectacular, and neither well has yet reached 100,000 bbls cumulative production yet.  As of June, 2011, the most recent reporting period, neither well is yet on a pump; both are flowing on their own. Both were taken off-line in May and June, suggesting a work-over, a pump, or something else.

The fields are good fields but they are not in the best Bakken (like the Sanish).

I don't know how unitization plays out but I've been told that before unitizing a field, and preparing the field for secondary and then tertiary enhanced oil recovery (water flooding; CO2 injection), one needs to maximize the number of wells going into the field.

I've talked about this before. It appears that fracturing is effective only to about 500 feet (radius) / 1,000 feet (diameter) with the well bore at the center. A section is a mile square, so to effectively fracture the entire section, one could place three to five horizontal wells. With two wells already there and requesting as many as 12 "additional" wells, one would have as many as 14 wells in this one 2560-acre spacing unit.

Note, that in the August hearings, BR is requesting to unitize the Lost Bridge-Bakken field, even though the producing wells in that field are predominantly CLR's. The Johnson Corner well above (#18225) was originally a CLR well, but is now operated by BR. There is obviously a close working relationship between CLR and BR as we move closer to unitization in the Bakken.

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

Case 15379 is even more peculiar:

15379, QEP: Heart Butte-Bakken, create one 2560-acre unit; 12 hz wells; Dunn, McLean Counties. The 2560-acre spacing unit will be composed of two 1280-acre spacing units that already exist: both are in Heart Butte oil field and all four are under the river, or very near the river. Specifically sections 10, 11, 14, and 15 (forming a square) in T149N-R91W.

This is what is peculiar: according to the GIS map server, there are NO wells in any of these sections. Not even any permits yet. So, 12 wells in an area that has no wells yet. Very strange, indeed.

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

Case 15375 is similar, but there are two wells already there producing:

15375, BR: Pershing-Bakken; North Fork-Bakken; 12 additional hz wells on a single 2560-acre unit; amend the stratigraphic definition of the Bakken pool, McKenzie. The 2560-acre spacing unit will be composed of two 1280-acre spacing units that already exist: one unit is in Pershing oil field; one is in North Fork oil field. The units are sections 4, 9, 16, and 21 in T149N-R96W; these four sections are contiguous, running north-south.

There are already two producing wells in this (if approved) 2560-acre unit:

• 17432, 156, BR, Curtis 1-4H, spudded 12/7/08; Pershing oil field; 84,000 bbls to date
• 17340, 805, BR, Saddle Butte 11-16H, spudded 2/25/09; North Folk; 43,000 bbls to date

Neither has a pump; both continue to flow.  Again, these are nice fields, but nothing spectacular.

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

So, I certainly don't understand it. This is what I see:

• BR has a request into unitize a Bakken field, Lost Bridge
• These 2560-acre units are all BR units
• I've been told that before one unitizes a field, one maximizes number of wells in the field
• The producing wells on both 2560-acre units with producing wells are still flowing on their own; no pumps (four wells altogether; all flowing; spudded a couple of years ago)
• The wells are  not that spectacular based on IPs or cumulatives to date, but they continue to flare despite being spudded years ago (albeit only a small amount; most natural gas is collected/sold)

Michael Filloon (SeekingAlpha.com) Discusses KOG and Pure-Play-Bakken Stocks in Light of Market Collapse

Link here.

Like Michael Filloon, I see the "market collapse" as a great buying opportunity for those with a long time horizon.

He has a nice analysis of Whiting's 2Q11 earnings report. If one wants to hear the "emotion" of how good the CEO thinks Whiting's prospects are, one only needs to listen to the conference call. The conference call won't be available forever but the transcript is almost as good.

I accumulate shares in Whiting and KOG (among others in the Bakken) and think that Whiting is one of the more interesting companies in the Bakken in terms of its strategy / business plan for the Bakken.

Historical, Inflation-Adjusted Crude Oil Prices

Link here.

Simply for the "fun of it."

I maintain the link on the "Data Links" page.

A big "thank you" to Greg for bringing this link to my attention.

In the first comment below, Greg expands on some of his thoughts. Note his reference to the Saudi / Libyan issue. Greg and I agree on the "truth" regarding Saudi's ability to make up the Libyan shortfall. You can see one of my many posts on that situation here, but for all such posts, go to the bottom of this blog, and click on the "SaudiPerspective" tag.

Three-Part Series From Michael Filloon (SeekingAlpha.com) on Alberta Bakken vs Williston Bakken; Using Primary Petroleum and Samson Oil and Gas As Comparative Case Studies -- Bakken, North Dakota, USA

Part I
Part II
Part III

Coal: Win-Win for Utility, Customers, Miner -- Not a Bakken Story

I generally don't post stories about coal, and even less so when the stories have to do with out-of-state suppliers and utilities. But this one is interesting enough, that I've included it as an exception. There are several lessons from this story, but I won't go into them. I will simply link the story and a couple of highlights, leaving it up to the reader to look for the lessons. I think it's a great story.

Link here, from the Billings Gazette.

Peabody Energy, which operates several mines in the Powder River Basin in Wyoming, has inked a six-year deal to provide coal to several electrical power plants in Missouri — a deal the buyer says was driven by a need to meet stricter federal environmental regulations.

The basin’s low-sulfur coal will allow Ameren Missouri to defer purchase of costly clean air filtration equipment, which would be paid for by higher rates — an estimated 15 to 20 percent hike by 2017 — charged to customers.

The company said the deal with Peabody is the “backbone” to its strategy to comply with new stringent federal regulations that require lower sulfur dioxide emissions.

Data points:

• A six-year contract for 91 million tons of coal
• Contract is between the largest Powder River Basin producer and the largest Powder River Basin customer
• The contract represents a growing market for low-sulfur Powder River Basin coal
• Ameren Missouri provides electricity for 1.2 million customers in central and eastern Missouri
• St Louis-based Peabody owns three coal mines in Wyoming's section of the Powder River Basin: Rawhide, Caballo, and North Antelope/Rochelle
• The mines produced 140 million tons of coal last year
• The total amount of coal from the entire Powder River Basin produced last year was 428 million tons

The story did not say which railroad, if any, will be transporting the coal, but Warren Buffett purchased Burlington Northern Santa Fe railroad in 2010.

SeekingAlpha Article on the Bakken's Little Sibling: the Alberta Bakken

Link here.

The article includes a nice graphic showing the location of these two siblings.

For investors, the author points out two companies working the junior sibling:

• Mountainview Energy
• Primary Petroleum

I follow neither but with the recent market correction, "we" may be getting a great opportunity to accumulate some shares in "our" favorite companies.

Also, when you read the article, note Newfield. (I don't own share in any of these companies, but Newfield has been impressing me with their North Dakota Bakken wells.)

Minor Update on Legacy in the Spearfish Formation in Bottineau County -- North Dakota, USA

While I was traveling, I was sent the following update regarding Legacy Oil targeting the Spearfish formation in Bottineau County:

Legacy had a meeting with North Central Electric Co. to get more power lines in the Souris area in July. Legacy has also contacted a gravel company in Arizona to build up 97 miles of road in the Souris area. I've heard that the Fett, Berge and Emery well are doing well. They have shut down the Bliss well because they drilled to deep. The activity is to start in 2012. 

That comment was originally made in reply to my recent entry on EOG and the Spearfish.

EPA Grants A Critical Permit for New Refinery on the Reservation -- Bakken, North Dakota, USA

Updates

August 16, 2011: human interest story on refinery. Indian Country Media Network. If and when the refinery breaks ground, what a great photo op with President Obama!

Original Post

Link here.

Sen. John Hoeven, R-N.D., announced Thursday a proposed oil refinery on the Fort Berthold Reservation has received approval for a key permit from the Environmental Protection Agency.

Data points:

• If built, 1,000 jobs during the two-year construction phase
• Once completed, 65 full-time jobs
• Capacity: be able to process up to 15,000 bbls of oil from the Bakken
• Location: near Makoti

Comment: one of many permits needed; and we haven't even started talking about lawsuits from the Sierra Club. 

A federal district court dismissed a lawsuit by the Sierra Club and other environmental organizations aimed at preventing the US Department of Defense from buying fuels made from Canadian bitumen and heavy oil.

The judge said plaintiffs had legal standing as injured parties based on the effects of climate change but ruled they didn’t show harm from pipeline movements or refining of crude from Canadian oil sands or from DOD purchases of related products.

I wouldn't hold my breath on this one.

New York Times and Natural Gas

This story was in the most recent issue of the Oil and Gas Journal:  Dominion to build West Virginia processing, fractionation plant for Marcellus and Utica shale plays. August 5, 2011.

When I read that story, the first thing I thought of was the New York Times article on companies exploring for and producing natural gas from shale deposits in this country.  So, now Dominion is going to be building a plant in West Virginia to process natural gas, bringing more jobs and more prosperity.

Yup.

By the way, the same thing in Alberta, Canada: another natural gas plant there will be expanding due to demand. 

Pembina Pipeline Corp., Calgary, will expand capacity by 50 MMcfd at one of its gas plants at the Cutbank shallow gas processing complex to meet high plant utilization and strong demand. The complex is in west central Alberta.

On completion of the $26 million (Can.) expansion, the complex will have total raw gas processing capacity of 410 MMcfd, an increase to Pembina of 16%. The Cutbank expansion will occur at the Musreau gas plant, one of the three plants that make up the complex.

Pembina expects the expansion, subject to regulatory and environmental approval, be in service by mid-2012. The company entered into contracts with minimum terms of 5 years with area producers for the entire expansion capacity on a fee-for-service basis.

Yup: "... high plant utilization and strong demand." More jobs, more prosperity, and just a little bit more independence from the Middle East. Great news.

Getting Caught Up -- I Am Posting Several Stand-Alone Posts Today

I will probably post many stand-alone posts today (already have posted many) and again tomorrow, as I get caught up.

Newbies: just keep scrolling down for stories you haven't seen yet, or until you get bored.

Chesapeake Drilling In Hettinger County -- North Dakota, USA

Link here.

Oil drilling activity has begun to creep south in North Dakota as one company has taken interest in Hettinger County.

In July, Chesapeake Exploration, LLC of Oklahoma applied for a 1,280-acre drilling unit to be used for a horizontal well about 5 miles east of New England.

The space needed for drilling a well is 640 acres, but many new rigs apply for more space, which is what Chesapeake did.

Hettinger County Economic Development Director Mark Resner said there hasn’t been production in the county for more than 10 years.

 Chesapeake drilling in Hettinger County, far southwest part of the state. 

This was sent to me by "anonymous" (anon 1?) while I was traveling; and was also sent to me by "Don."

I also noted that Chesapeake acquired more leases in Hettinger County, North Dakota, in the August North Dakota state land lease auction.

Was It "Hope and Change"? -- Here Are Some Examples of Change

This was sent to me by e-mail, and I assume most of you have already seen it making the rounds. But if you haven't, here are a few selected examples: (item; January 2009 price when President sworn in; "today's" price; and percent change/comment) (some numbers rounded):

Average price of gasoline/gallon:  $1.83; $3.44; almost doubled (Source: 1)
Crude oil, per barrel, WTI:  $38.74; $91.38; Up a whopping 136%  (Source: 2)
Gold, London, per ounce:  $850; $1400;  Up 60%; most of us unaffected (Source: 2)

Unemployment: 7.6%; 9.1%; Up astounding 25% despite billions/trillion in stimulus  (Source 3)
Number of unemployed: 11 million; 14 million; Up astounding 25%  (Source: 3)
Number of long-termed unemployed: 2.6 million; 6.4 million; almost tripled (Source: 3)

Real median household income:  $50,000; $49,777; Down a tad)  (Source: 4)

Number of food stamp recipients (qualifications have not changed:  32 million; 43 million; Up 35%; (Source: 5)

Just in, credit rating: AAA; AA+; downgraded first time in US history (Source: everywhere)

Sources:

• 1: US Energy Information Administration
• 2: Wall Street Journal
• 3: Bureau of Labor Statistics, US Government
• 4: Census Bureau
• 5. USDA

I did not independently confirm these numbers, nor the dates when the data was pulled. If anyone wants the entire list, let me know.

No matter how bad things were during other administrations (the FDR depression, the Carter malaise, the Bush debt), the downgrade in the credit rating ranks at the top for a self-imposed debacle. Even the most ardent liberal, Obama supporter, Maureen Dowd, herself, sees how far "we" have fallen.

By the way, the downgrade appears to be completely self-inflicted. Two of the three rating agencies did not downgrade the credit rating of the US. Only one agency did, the S&P folks. Based on their comments, it is clear the downgrade had less to do with the actual numbers than with the way the process was handled. The president clearly stated several times that if a deal was not made, he could not guarantee that Federal obligations would be met (payments made). He was the only person that was consistently and regularly making that comment, and as president, the comments were all on the record, in public speeches, and very clear. No Senator or representative made those comments. In fact, it turns out, there was plenty of cash on hand to cover all obligations for several weeks, but the fact that the President clearly stated he could not guarantee that the US would pay its bills, forced the S&Ps analysts to say that the US cannot be trusted to pay its bills, at least with a AAA rating.   (Yes, there were some Tea Party folks willing to let the country default but mainstream media did not take them seriously; House reps are so far down the food chain their comments did not matter; and they were talking to their base. The man sitting in the office "where the buck stops" said repeatedly he could not guarantee that Social Security checks would go out and everyone knew that was a boldfaced lie. But if the president of the US says he can't guarantee payment of US bills, how can one give his government AAA rating?)

One has to wonder if Tim Geithner, Secretary of the Treasury, helped write those Presidential speeches, or if Geithner knew those comments were baiting the rating agencies. Regardless, one agency, the S&P, took the bait.

Comments are disabled for this post.

Magnum Hunter To Acquire More Acreage in Four (4) North Dakota Counties -- Bakken, North Dakota, USA

Magnum Hunter to acquire more mineral acres, producing wells, and other assets from unspecified seller.

Link here.

Data points:

• Property, producing wells, leases within four (4) North Dakota counties
• 15,500 gross acres (by my calculations, about 7,750 additional net acres)
• Gross production from these properties, currently: 833 boepd
• Total proved reserves in this property: 2.6 million bbls (estimate)
• Magnum Hunter currently owns 47% working interest in these oil and gas properties
• At closing, Magnum Hunter will own 97% working interest in these properties
• Total purchase price: $57 million ($55 million in cash; $2 million in Magnum Hunter common stock)
• The Seller is a private seller and was not identified in the link above (RigZone.com)

EOG To Increase Asset Sale to $1.6 Billion, From $1 Billion -- Needs Cash to Pay for Oil Services Cost

Link here, from RigZone.com.

EOG Resources Chief Executive Mark Pappa said Friday the oil and gas explorer is increasing the amount of cash it hopes to raise by selling assets this year in order to offset rising oilfield service costs.

The assets being sold "are primarily mature long-lived domestic gas properties and other acreage," Pappa told investors during a conference call to discuss EOG's second-quarter results. Those properties are scattered in east Texas, the mid-continent and in the Gulf of Mexico.

See EOG at earnings central for additional information. 

Monterey Oil Shale May Be Next Oil Shale Play -- California

Link here.

California's Monterey shale oil play could become the next wave of U.S. exploration and production as high oil prices, and the sale of non-core assets by major oil and gas operators, has opened the door for smaller oil and gas companies to pursue the play.

Early last month, the U.S. Energy Information Administration (EIA) estimated in its report, Review of Emerging Resources: U.S. Shale Gas and Shale Oil Plays, that the Monterey/Santos play in southern California holds 15.4 billion barrels of shale resources; the Bakken and Eagle Ford are the next largest shale oil plays at approximately 3.6 billion barrels and 3.4 billion barrels of oil respectively. The Monterey shale is the primary source rock for the conventional oil reservoirs found in the Santa Maria and San Joaquin basins in southern California.

As "we" all know, the Bakken probably holds appreciably more than 3.6 billion barrels of oil.

Two years ago when I was visiting California, I did not see a lot of oil activity. This year I see a lot of work over rigs, and I see a lot of older pumpers moving that weren't pumping two years ago.

NIce Human Interest Story on Environment and Black Elk Energy in the Gulf of Mexico

Link here.

In the last 12 months Black Elk has doubled in size- twice. Currently this successful independent is producing 20,000 boe/d. Not only has the company grown rapidly since 2007, but Black Elk just won an award for the Best Places to Work from Houston Business Journal.

As someone who has worked in the offshore environment for the majority of his career and is an avid scuba diver, Hoffman operates his company in an environmentally responsible manner. When Hoffman started Black Elk Energy, his awareness of the tremendous ecosystems that form on platforms over 50 years increased dramatically as he viewed diver video taken during normal regulatory inspections. These ecosystems are home to precious fish and marine life, including some endangered species. Understanding the beauty under the water and impending destruction that faced these marine habitats, Hoffman's passion to make a difference took a new turn. Thus he started the "Save the Blue" initiative to protect and preserve ecosystems in the Gulf of Mexico.

"It's been documented that each platform has 10-30,000 fish and mammals that use the ecosystem as a habitat," Hoffman says. "Is it right that we should destroy these ecosystems, because of outdated regulations that call for the removal of structures and pipelines? The Endangered Species Act of 1973 prohibits me from disturbing or destroying these ecosystems. It further states that if endangered animals and mammals utilize that habitat, it is protected under the law as well. One law says I have to remove the platform, and another says I can't touch it. Therein lays the conflict and the need to make a change."

By the way, this law is very, very stringent. Whale researchers are not allowed to introduce noise underwater to see how whales respond because the noise can be said to harass the whales. Source: Thousand-Mile Song: Whale Music in a Sea of Sound, David Rothenberg, c. 2010 (paperback).

So, this is exactly what Hoffman is up against: it is clear that marine animals utilize manmade structures such as oil platforms and pipelines, but once utilized one law says the structures can't be touched, whereas another law says the structures must be monitored, or maintained, or fixed. Damned if you do, damned if you don't.

For Investors Only -- Forbes: Innovators Among the Oil Services Companies -- The List Includes China Oilfield Services

For investors, a nice summary in Rigzone of Forbes research identifying innovators among oil services companies.

A recent issue of Forbes magazine carried an article by three business school professors who have studied the world's most innovative companies for the past eight years, which is the subject of their book, The Innovator's DNA. The professors' efforts were directed to trying to identify those companies that are consistently innovative and to determine the particular skills that set their managers apart from the rest of the corporate world.

What the professors observed is that there is a significant stock market premium assigned to companies identified as the most innovative companies.  [Not surprising.]

Included in the group of leading innovative oilfield service companies are the two largest companies in the industry – Schlumberger and Halliburton – and two of the leading drilling equipment companies – FMC Technologies and Cameron International. The remaining two companies among this cadre were foreign companies – China Oilfield Services and Tenaris SA. 

I used to hold shares in Tenaris but sold Tenaris to buy shares in a pure-Bakken play company some time ago. I forget how I first learned about Tenaris; interesting to see it on the "short" list of innovative oil services companies.

Active Drilling Rigs in North Dakota Back to 184 -- Flirting With A New Record -- Bakken, North Dakota, USA

184 ties previous record, but I think we're getting close to a new record.

Link here (dynamic -- could drop below 184 when you get there). 

SSN Reported and Posted 2Q11 Earnings and Operational Update at SSN Website

Link here.

The financial highlights:

• Samson’s oil production increased by 63% over the prior quarter following the successful completion to two wells in the North Stockyard field.
• Revenue increased by 57% and because of the timing of the actual receipt of cash, receipts of US$1.5million (A$1.4million) from the sale of oil and gas for the current quarter, was up 11.2% from March quarter.
• Samson’s realized prices for both natural gas and oil increased by 5.7% and 8.0% respectively.
• Samson has recorded a closing cash balance for the quarter of US$58.4 million (A$54.4 million).
• During the quarter the debt facility was repaid. The company is now debt free with significant cash resources.

Repaid its debt facility: now debt-free. Production up 63%.

Links for SSN and other Bakken companies at "Earnings Central."

Oil Pipeline in US Mid-Continent and Texas -- Reuters

Reuters has posted an update / summary of the oil pipeline projects in US mid-continent and Texas.

GMXR, DNR, DBLE, EOG, KOG, and ENB Report Earnings -- Bakken, North Dakota, USA

Earnings for 2Q11 continue to come out. I may have posted some of these earlier, but so as not miss any, GMXR, DRN, DBLE, EOG, KOT, and ENB have all reported and can be found at "Earnings Central."

CLR and WMB Post Earnings: Updated at "Earnings Central" -- Bakken, North Dakota, USA

I've linked the earnings results for Continental Resources and Williams Companies at "Earnings Central" at the sidebar at the right.

All Bakken companies are reporting outstanding numbers, but when one considers how bad the quarter was with regard to weather, flooding, and bad roads, their numbers are even more remarkable.

Share prices were collateral damage due to the huge sell-off this past week when indications for weaker economy than expected going forward. Investors don't offer get such great opportunities to buy shares that are on sale.

WMB, by the way, is now paying 3 percent.

For Serious Bakken Investors: Another Bakken Blog / Subscription Site

Updates

December 8, 2013: checking in on the link below, this date -- "the site is coming soon." 
 

Original Post

Brett Narloch wrote to tell me he provides investment information regarding the Bakken. There is a free blog site as well as a subscription service.

Website: http://bakkentrader.com/

I have no relationship with this new company, and am simply passing the information on to readers who might be interested. I only received this news this morning.

Fracking Backlog Still a Problem -- Bakken, North Dakota, USA

Two of the three wells that came off the confidential list yesterday were placed in DRL status, most likely waiting to be fracked.  Wells released from confidential status are reported here. Periodically I go back to that list and update DRL if the IPs are reported.