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Thursday, March 1, 2012

Those Low-IP Baytex Wells -- The Bakken, North Dakota, USA

After looking at a half-dozen Baytex well files, this would be my 30-second Economart talking point:
Baytex is drilling relatively shallow wells (8,500 feet), targeting the Three Forks; drilling short laterals; 16-stage fracs (equivalent to 32 stages for long horizontals); 1.5 million lbs sand (equivalent to 3 million lbs for long horizontals); initial 30-day production about 4,500 bbls; dropping off to 1,000 by end of first year; looking for 50,000 bbls for first year cumulative."
The key metric will be total production at 3 years, and then annual production for the next 5 years after that.  

Interestingly these low-IP wells are in the same ballpark after one year, comparing their short-lateral production with the long-lateral production of other companies. I would assume cost of these wells are somewhat (much?) lower than cost of the high-IP wells.  

Don't take this as gospel; this is early and quick look; and I only looked at most recent wells. I assume mineral rights owners are not real impressed with their returns. But, Baytex wouldn't be drilling so aggressively if they weren't making money on these wells, and 50,000 bbls/year for less expensive, short lateral wells, are nice wells in the aggregate for a company. Especially when these wells will produce for 40 years. Think about that: these wells will pay for themselves in 3 - 5 years (probably closer to 3 years) and then produce for "peanuts" for the next 30 years.  An individual mineral rights owner might not do all that well, but the company, with two to four wells/section after ten years of drilling, is going to have a huge annual production out of a small area. 

8 comments:

  1. I think you are on to something here... I would only add one additional thing to the mix. How many of these wells will nail down the lease on these acres? Perhaps they want to get as many wells in as possible with the money they have to spend. Keep in mind that a producing well holds these acres from being bought by another company, or having to pay a top lease to continue to hold these acres... Dave

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  2. You are absolutely correct, and I've blogged about that before. Getting these wells drilled is most important; the more profitable they are, the better, but getting the wells in is most important. Good point.

    Thank you for taking time to comment.

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    1. Is it fair to summarize your above points, by comparing farming in the Red River Valley to Farming in far western ND? For example, because of the large difference in the surface natural resources between eastern and western ND, the scale - methods of farming in the Red River valley differ greatly from the scale - methods of dry land farming in western ND. Yet, if the proper scale / methods are applied to each, each in their own way can generate a highly profitable operation. I am very naive about geological matters, so I ask if it is not reasonable to expect the Bakken oil formation to also have variations - thus requiring different methods in different sections of the Bakken?

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    2. I think it's even more "local" than that. The western half of the Parshall field is very, very good; the eastern half of the Parshall field has turned out not to be all that great.

      All things being equal, the greatest factors may be a) natural fracturing; b) the skill of the operator and frack team; and, c) luck.

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  3. That's what I call spin. If it were not for the 100% success and public nature of the operator who btw offers a stout dividend and20% growth I would say this is a flawed area and better thrown back into e water for awhile

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    1. We will know in another year or so. From your note, I can't tell which side of the coin you are on: "stout dividend, 20 percent growth; no dry wells" vs "that's what I call spin."

      But, before I looked at the well files, the low IPs were bothersome; the well files suggest something completely different.

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  4. I don't know where Baytex is in relation to Kodiak's Grizzly prospect in southeast McKenzie county, but on their fourth quarter conference call, Kodiak in talking about the eastern portion of the grizzly area said that the area has lower reservoir pressure and as a result they won't see the large IP rates but also probably won't see the steep decline rates that they see in other areas.

    Maybe the shallower depth results in lower pressure.

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    1. You may be correct. That's nice to know -- I did not know that -- it helps explain the lower IPs and not to get too excited about lower IPs in some areas.

      NORTH: Baytex is at the northern edge of the Bakken in North Dakota.

      MDDLE: Southeast McKenzie County is about in the center of the North Dakota Bakken.

      SOUTH: Whiting's wells in southwest North Dakota are in the south end of the North Dakota Bakken.

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