Idle Chatter On Pace Of Drilling In The Bakken -- August 14, 2014

Over at the discussion board, a writer asks:

I have been keeping an eye on Whiting's presentations for awhile. Whiting shows the potential for six more middle Bakken wells along with a couple of "new objective wells" (per drilling spacing unit, see page 9 of most recent presentation).

Is this just to keep investors happy or will they actually start drilling some of these so called high density infill wells? After much activity early on, by comparison, there seems to be very little activity in the Sanish field these days. 

This is somewhat of a rhetorical question and regular readers understand the issue and have their own opinions.

However, for newbies, the writer's question raises a number of issues and begs for some kind of response.

Whiting is an E&P company: exploration and production. If Whiting was simply a "production" company (for example, a MLP perhaps) then, yes, it should be maximizing drilling and production. However, they are also an exploration company. As a company, they have a strategic plan and finite resources (money, people, rigs, sand --- for example). The valuation of an E&P company is based on reserves in the ground as well as production. If Whiting announced they would drill their entire inventory this year, and by the end of 2015, they would have no more oil in the ground, their shares would plummet; and they would be out of business in a very short time. Managing their resources is as important as daily production; in fact, from my perspective, managing their resources is more important than daily production.

There are two very interesting "things" happening in the Bakken right now. First, the data now shows that larger amounts of proppant correlate with much better wells. EOG has demonstrated this over the past year -- it's been quite striking. For newbies, in the old days, fracking a well with less than one million pounds of proppant (sand, ceramic, or both) was the norm. Then BEXP (now Statoil) went to 4 million pounds (not many have followed) and then EOG blew open the door (pun intended) by using upwards of 10 million, 12 million, and 14 million pounds of sand. No one has followed EOG's example yet (if others have, I have not yet seen it).

The second "thing": the chokepoint in the Bakken is fracking sand. Almost no one knows this and, to the best of my knowledge, no one is reporting it in such blunt language (Mike Filloon comes closest). But this is a fact: there is a severe shortage of fracking sand in the Bakken. Operators are completing wells with less proppant than they wish because they cannot get enough.

Part of managing its resources includes managing sand allotment when completing Bakken wells. Operators are working furiously to come up with better completion techniques; the Bakken wells have improved immensely since 2000 (Montana) and 2007 (North Dakota) and are going to get better if optimal completion techniques are prescribed. But, right now, sand is the chokepoint.

With regard to Whiting and the Bakken, Whiting is now in a manufacturing phase. Early on, they drilled fast and furious to save leases; to gain experience; to get the cash flow necessary to moving forward. That was the boom. If one defines a boom as continued growth despite severe shortages of resources, the Bakken is still "enjoying" a boom, but in some fields, the Sanish for one, the operators have moved into a manufacturing phase.

It's interesting to look at the number of wells on the confidential list by operator:

• CLR: 306
• Hess: 250
• Statoil: 106
• Oasis: 92
• EOG: 29
• Whiting: 66

EOG has a fair amount of acreage in the Bakken, comparable to the others in that short list. EOG also has some of the most prolific wells in the Bakken. They are also blowing the doors off the formations with 10, 12, 14 million pounds of sand. But look at that: where CLR has more than 300 wells on the confidential list, EOG has a paltry 29. For me that speaks volumes.

Oh, one last thought. When I first started the blog, I was looking at the Bakken from the viewpoint of someone who had no mineral rights. Over time, I realized what I was missing. Everyone following the Bakken follows it for different reasons: surface owners see it one way; mineral owners see it another way; operators see it differently; investors in equities see the Bakken in a different light. Even among mineral owners, there is a difference of opinion how fast the Bakken should be developed. Some mineral owners tell me they wish "their well" had been drilled a couple years later when the technology was better -- compare some of those early short lateral wells with minimal fracking to the long lateral wells they are now completing with "heavy" fracking and slickwater.

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Anyone not connecting these dots, is not paying attention:

• President Obama is on track to have more golfing rounds than Tiger Woods. 

• President Obama's SecDef: the world is exploding everywhere. 

• President Obama says "nyet" to Mr Maliki for urgent request to save his country.

• Mayhem in St Louis. 

• "The boy should be in school." SecState on photograph of 7-y/o holding up severed head.

• Phoning it in. 

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A Note for the Granddaugters

Among several books I read during the past month in southern California (or at least parts of books) included a couple of biographies on Mary Colter; a biography on Fred Harvey (more on him later); and a most interesting book on the Celts: The Discovery of Middle Earth: Mapping the Last World of the Celts, Graham Robb, c. 2013.

I also added two new bird sightings to my "bird journal," such as it is: the juniper titmouse (Grand Canyon) and a small bluish bird, possibly a blue grosbeak, but not sure, since it was the first time I had seen this particular bird. We saw it in the marshes along the creek in the Red Rock State Park, south of Sedona, Arizona. That state park's visitor center had a special exhibit on the riparian biome. The first time I ever heard of the riparian biome was when reading about the Bakken (one such link here). It was a new biome for both our older granddaughter and me. Fascinating.