Back To Mike Filloon's Recent Article: Part 2 Of 2 On The Bakken, 2014

Is it even possible to provide just a few blurbs on his excellent article?

Mostly I was curious what he mentioned about efficiencies of pad drilling. So, the word search, "pad" resulted in:

It is not surprising that North Dakota and Montana can see mega-pad type development. It is a surprise how quickly this has occurred.

That was it. It would be interesting to see how pad drilling results in decreased costs. I can think of many; it would be interesting to see a nice breakout. Pad drilling, to the extent it is being used in the Bakken, is truly revolutionary. Someone called the Bakken an ocean of oil, and pad drilling is akin to drilling off-shore.

From Mike:

Continental has stated its Wahpeton pad is progressing as planned, but a more bullish indicator is three additional tests planned near the Nesson Anticline. This includes Lawrence, Mack, and Hartman. These pads will test 8 wells per interval from the middle Bakken to the third bench of the Three Forks.  

I have a post that links to CLR's density well projects. I'm not sure why Mike would say "future wells will produce better as Continental gets more comfortable with pads this size." I don't think the size of the pad matters; there are a dozen other factors, including geology which is probably the most important factor (location, location, location) -- though Mike differs on this (I see his point).

This was striking, the decreasing well costs (though I approach published costs with caution). In 2014, Hess' well cost averaged $13.4 million; in 2013, $7.8 million. So, in round figures, from $14 million to $8 million. Not trivial, if accurate.

CLR's average well cost was said to have been $9.2 million in 2012; $8 million in 2013; and is estimated to be $7.5 million this calendar year.

Well design and water:

Well design will be a popular topic in 2014. Some operators have decided to stick with what has worked, while others are testing out new and different completion methods. Slickwater fracs have been used more in west McKenzie and Williams counties. I covered this frequently last year, and it has shown promise. Slickwater fracs have always provided good results, but well costs pushed operators to other completion styles. Early in development, there were water shortages throughout North Dakota. Back then, there weren't enough industrial water permits in play to sell to the oil companies, which increased water costs significantly. Since then, a large number of agricultural water permits have been converted to industrial. This has made water much more affordable, and easily obtained near the well site.

I believe the water shortage was logistical. Certainly there is more than enough water available in the Bakken; water is not an issue in North Dakota. Unless you want it to be.

Mike touches on depletion rates when he talks about Halcon:

It was initially thought these well weren't economic. In reality, they model differently with a much lower rate of depletion. Halcon has improved this design, which has helped increase recoveries. 

The extensive verbiage Mike gives to Oasis is significant.

Mike likes EOG's completion technique, something I've blogged about many, many time. EOG is operating on all cylinders.

For investors only. Mike says:

It is not necessarily the operators with the best acreage, but the acreage with the most upside. Operators in central to northeast McKenzie County could see as many locations as the best parts of the play. Keep in mind, EURs will not be as good on a per well basis. I would stick with names levered to these areas. This includes Oasis, Whiting, Triangle, and Emerald. Whiting has further upside as it is using an optimal well design and one that still can improve. Emerald's slickwater fracs have also outperformed and seem well suited to this specific area. Triangle and Oasis have further upside as its integrated model provides cost containment.

There was one Wall Street darling not mentioned in that list of four. I've always thought Whiting and Oasis were the most interesting (and that has nothing do with investment advice) plays in the Bakken. EOG has turned out to be a huge surprise. I had to look, I honestly did not remember. I wondered whether I put EOG as the top story for 2013. I did not, but I did opine that EOG was the most interesting operator in 2013. 

Be sure to note Mike's comment regarding KOG, cash flow, takeover remarks, and point of entry.