The Million Dollar Way (The Bakken Oil Blog): 04/19/14

Saturday, April 19, 2014

Richard Zeits On CLR's Aggressive Move In The Bakken

It's hard to believe I did not post this link last November. A reader sent it to me. A huge "thank you" to the reader.

Over at SeekingAlpha, last November 13, 2013, Richard Zeits talks about the Bakken and CLR.

I assume I've covered everything in this article over the last few months, so I'm only posting it for archival purposes.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.

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Birthday party in Texas; they will go riding later. This is why I was not blogging much today: soccer, birthday parties, etc.

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The Friday edition of The Wall Street Journal this week had another story on Barnes and Noble, asking what it's survival plan was. While waiting for the birthday party to play out, I drove down a long Texas farm-managed road and found an incredible Tom Thumb grocery store. For Californians, Tom Thumb probably best compare to Ralphs. At half the cost for groceries.

Many (most?) Tom Thumbs have a Starbucks and wi-fi, as did this one. There was limited seating, but the barista sugggested "cafe seating" a few feet away in the store. Wow, theater seating. Leather chairs, large screen flat screen television tuned to Fox News. (I'm listening to Lana Del Rey.) A small Barnes and Noble store-within-a-store, perhaps the size of a small mom-and-pop book store would be perfect. Barnes and Noble needs a survival plan. I can think of many.

Paradise Dark, Lana Del Rey
Interestingly enough, there were no survival plans noted in the linked WSJ article. Just saying.

COP On Eagle Ford; Compare To The Bakken; Papua New Guinea To Ban Fracking? -- CNN Reports Another Big Earthquake

Now, to the back of the envelope

Idle chatter:

a given: 10 - 12 wells / drilling unit in the better Bakken
"Everyone" says the Eagle Ford is better than the Bakken
COP bases their 39% increase in EUR on 5-wells/drilling unit
Repeat: a given -- 10 - 12 wells / drilling unit in the Bakken
for ease of calculating, let's say COP goes to 10-wells / drilling unit in the Eagle Ford
the 2.5 billion boe reserves doubles to 5.0 billion boe (assume wells are about the same in production)

However

Additional note posted at time of original post: readers might want to look at slide 25 of COP's 88-slide presentation, the 4/10/14 "Analyst Meeting," which suggests the 2.5 billion boe EUR might be very, very conservative. On that slide, COP shows that the lower estimate is based on two wells per drilling unit (single later) = 1.8 billion boe. This is called their Lower Eagle Ford 80-Acre Single Layer. [80 acre: 660 feet between horizontal fracks.]

The higher estimate is based on drilling five wells/drilling unit = 2.5 billion boe. That "explains" the press release/San Antonio Express News story below. This is called their Lower Eagle Ford 80-Acre Single Layer High/Low play. ["High/Low" means two "layers" of horizontals in the single Lower Eagle Ford seam.]

However, COP is also evaluating 8 wells per drilling unit in the lowermost layer PLUS an additional four wells per drilling unit in in the upper Eagle Ford/Austin Chalk (40-acre spacing). On top of that, both literally and figuratively, COP is testing a third layer. This is called the Lower Eagle Ford 40-Acre Upper Eagle Ford/Austin Chalk. [40-acre: 350 feet between horizontal fracks.]

My hunch: the 39% increase noted below is just the first of two or three announcements, each with increasing EURs.

By the way, when I first started blogging, I suggested that fracking was effective out to 500' radially at best, and perhaps only 400 feet. In the very small print at slide 25, COP is looking at 350'-interval spacing between fracking horizontals. I must have posted the 500'-effective fracking interval more than three years ago.

Original Post

The San Antonio Express-News is reporting:

ConocoPhillips, one of the largest acreage holders in the Eagle Ford Shale, has boosted its reserve estimates for the South Texas oil-and-gas play by 39 percent — from 1.8 billion barrels of oil to 2.5 billion.

Officials with the Houston-based exploration and production company say they expect its Eagle Ford production to top 250,000 barrels of oil equivalent per day by 2017. That’s roughly 100,000 more than the company’s target goal at the end of last year.

“ConocoPhillips’ wells in the Eagle Ford have the highest oil rates per well and are leading the industry in value,” CEO Ryan Lance said. “This is attributable not only to the fact that we are in the best part of the play, but also to our relentless focus on technical innovation and drilling and completion cost efficiencies.”

Much of ConocoPhillips’ Eagle Ford acreage is centered around Karnes and Live Oak counties, some of the play’s most active drilling areas.

COP's data points before this press release (some numbers rounded), although it looks like COP noted the 2.5 billion boe net EUR increase at this time:

1,472,000 boepd x 56% liquids = 82,430 bopd oil (world wide)

9 billion bbls oil equivalent reserves, year-end 2013

Margins:

oil sands: $30 - $40/boe

North American conventional oil: $30 - $40/boe

North American unconventional oil: >$40/boe

North American unconventional where COP operates:

Bakken

Anadarko

Niobrara

Barnett

Permian

Eagle Ford

Average wellhead breakeven price (lowest of all operators): $39

Eagle Ford

221,000 net acres; 96% operated working interest

1.8 billion to 2.5 billion net EUR increase

> 3,000 identified drilling locations

outlook based on 12-rig program

$20 - 25/boe full-cycle F&D cost

Meanwhile, the presentation also has four (4) slides on the Bakken. COP is a huge international oil & gas operator. To devote four slides on the Bakken, seven years into the play is quite phenomenal. Some data points from those four slides:

First of all, COP calls the Bakken their "high-margin play"

620,000 net acres; mostly held by production or mineral fee

600 million boe net EUR

> 1,800 identified gross drilling locations; based on 10-rig program

$20 - 25/boe full cycle F&D cost

COP identifies twelve (12) regions in the North Dakota Bakken

Optimal well spacing and placement (per spacing unit)

Current: 320-acre in Bakken / upper Three Forks (four wells)

Testing tighter spacing: 160-acre in Bakken / Upper Three Forks (8 wells)

Evaluating further upside: additional wells in middle Three Forks (12 wells)

With 8 and 12 wells: 660' fracking intervals

CAPEX efficiencies

CAPEX efficiencies

30% reduction in drilling days

50% reduction in completion cost per unit of proppant

90% of 2014 wells to benefit from multi

Much more at the presentation. Maybe later. By the way, EOG is saying much the same thing about the Eagle Ford that COP is saying.

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Greatest Energy Success Story of the 21st Century

Benefiting from the booming Eagle Ford Shale and Permian Basin, Texas likely will best the oil output of every OPEC country but Saudi Arabia by year-end, says a top exploration official at ConocoPhillips, a key acreage holder in both of those oil-and-gas formations.

The Lone Star State is expected to end 2014 with 3.4 million barrels per day in oil output, which exceeds that of 11 of the dozen OPEC nations, ConocoPhillips Unconventional Reservoirs Technical Manager Greg Leveille said during a keynote speech at the 3rd Annual Eagle Ford Consortium Annual Conference in San Antonio.

In 2009, at the beginning stages of the Eagle Ford’s development, Texas had daily output of 1.1 million barrels, only putting it above the OPEC state of Ecuador.

“What you’re seeing unfold in the Eagle Ford is probably the greatest energy success story of the 21st Century,” Leveille said.

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Earthquakes -- Papua New Guinea To Ban Fracking?

CNN.com is reporting:

An earthquake struck late Saturday off Papua New Guinea's eastern coast with a preliminary magnitude of 7.5, the U.S. Geological Survey said.

The quake struck at 11:27 p.m. (9:27 a.m. ET) and occurred at a depth of 19 miles (32 km), the USGS said.

This is almost getting funny. The big earthquakes are not where they are fracking; the small earthquakes are where they are fracking. Fracking must be relieving the tension of the pent-up tectonic plate movement, small bits at a time. [This has been reported before, and there is science that backs it up. "This is just another inconvenient truth." -- Algore speaking from the front steps of his 35,000-square-foot mansion in Tennessee.]

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The President's Cavalier Approach To The Law

The president signs a bill barring terrorists from entering the US as diplomats. Then he says: I've signed the law, but I have the option of following it in the future.

It's hard for me to believe that thinking US citizens still support this president. I assume rational US citizens have quit listening to his speeches a long time ago.

For Investors Only: Nighthawk Energy In The D-J; At Market Cap, 250,000 Net Acres At $860/Acre

Seeking Alpha is reporting:

Nighthawk has focused on Colorado's Eastern Plains which has good and low-cost infrastructure. The company's interest is localized in particular sweet spots of the Mississippian play, based on the traditional exploration. Nighthawk's Mississippian play is analogous to the Mississippi Lime play of Oklahoma that SandRidge Energy kicked off with a few horizontal wells in 2009. The Mississippi lime has been very attractive to operators because of the relatively shallow targets and smallish completion jobs that keeps well costs down and profits up.

Nighthawk has been trying to do the leasing as quietly as possible for competitive reasons, and has amassed about 250,000 net mineral acres (100% controlling interest) of mineral rights in eastern Colorado, primarily in Lincoln County.

In Nighthawk's area:

Here are some important facts about the area surrounding Nighthawk's core properties:

1) In July 2011, ConocoPhillips bought 46,000 acres of mineral rights in Adams, Arapahoe, Douglas and Elbert counties which are neighboring Nighthawk's Lincoln county. In 2012, ConocoPhillips also signed a $137 million deal with the Colorado State Land Board to lease state-owned mineral rights (21,048 acres) under the old Lowry bombing range in eastern Arapahoe County.

According to Matthew Meagher, whose firm specializes in selling oil and gas properties nationwide: "It was the toughest oil and gas lease I've ever seen in my life, and ConocoPhillips accepted it." In addition to the upfront $137 million payment, the land board also required ConocoPhillips to pay a 20% royalty payment, as its share of the value of the oil and natural gas produced from the range. This is obviously high by industry standards and underscores the company's strong interest in this oil-bearing area.

2) In May 2013, a new oil gusher was reported in Nighthawk's core area. According to the Denver-based Rocky Mountain Oil Journal, a horizontal well in Cheyenne county, the Pronghorn State #16-15-48-1H, owned by Chama Oil & Minerals LLC has reportedly tested up to 2,000 bopd. Yes, you read that right. This was a gusher with 100% light oil.

By comparison, the Jake well drilled in 2009 in northern Colorado by EOG Resources initially produced about 1,558 bopd. That was the well that kicked off Colorado's booming Niobrara play. Noble Energy's Gemini well in central Weld County initially yielded 1,100 bopd.

3) Nighthawk's Lincoln County experienced an oil boom during 2013 with an unusually high number of new drilling permits being issued. According to John Dewitt, Lincoln County Land Use Administrator, his office saw a surge in applications for well permits last year that it had not seen previously.

Mr. Dewitt said:"Lincoln County issued 107 drilling permits during 2013. At the start of last year, we had a little more than a hundred active or producing wells, so that more than doubles the number of oil wells we have."

As of the first week of January 2014, there are a total of 182 oil wells in Lincoln County. "That's 182 wells that are active, producing or capable of producing oil," DeWitt said.

Market cap: $215 million/250,000 net acres = $860/acre.

Cornerstone Will Be Reporting A Well In Clayton Oil Field Monday

Clayton is a 4-section oil field, just a bit northeast of the Cottonwood oil field in northeast Burke County.

Cornerstone will be reporting this well on Monday:

25995, conf, Cornerstone, Anderson B-2413-6191, Clayton, no production data

The only other Bakken well in this small field:

20110, 507, Rim Operating/Prime Exploratory, Gunnison 41-23H, t10/11; cum 45K 2/14;

The Gunnison well was fracked with 16 stages; 1.7 million lbs (mostly sand, some ceramic); gas peaked at 524 units;

There is another unremarkable Bakken well just to the south, as well as two unremarkable Madison wells.

Petro-Hunt In Stockyard Creek

For newbies, I am absolutely fascinated with Stockyard Creek. Multiple operators are working this very, very small field east of Williston. Petro-Hunt has recently caught my interest for a number of reasons.

On Monday, Petro-Hunt will report a huge well in Stockyard Creek.

24811, conf, Petro-Hunt, State of North Dakota 154-99-16B-2H, Stockyard Creek:

Date	Oil Runs	MCF Sold
2-2014	13551	0
1-2014	18702	0
12-2013	10143	0

With the challenges that appear to face Samson Oil & Gas, one could argue that the company is at a tipping point. Petro-Hunt is probably watching with interest.

News From All Over: April 19, 2014

Three Stories

Federal judge disses Minnesota

Sand boxes in Wisconsin

Residents blame sand for boom

In case the first link breaks, here's the article regarding Minnesota an the federal judge:

A federal judge has blocked restrictions set by the state of Minnesota that tried to limit businesses in North Dakota and other states from building coal-fired power plants and selling the electricity in Minnesota.

The ruling issued Friday found that Minnesota's Next Generation Energy Act, which barred new out-of-state fossil fuel power plants from transporting energy into Minnesota, violated the commerce clause of the U.S. Constitution.

The law was passed to regulate carbon dioxide emissions and the creation of fossil fuel energy production by barring any utility in Minnesota from importing energy from an out-of-state fossil-fuel-powered plant built after Jan. 1, 2007.

“In this case, North Dakota operators propose to build new, coal-fired power-generating plants without offsetting emission reductions. Prevailing winds will carry those toxic emissions directly into Minnesota. That shameful practice should not be permitted by either the state or federal government.”-- the nutty governor.

The Bismarck Tribune/Bakken.com

Bakken.com is reporting:

The technological breakthroughs of the past half-decade have made the plains near Odessa and Midland, Texas, — long considered past their prime — some of the most coveted land in the nation. Pioneer Natural Resources, an Irving-based independent producer that has been active in the region for decades, estimates the Permian Basin holds 50 billion barrels of oil in stacked stone wedges.

“We have six Bakkens sitting on top of each other,” Pioneer CEO Scott Sheffield said recently, referring to North Dakota’s prolific Bakken Shale.

But the same North American oil patches that have lifted Pioneer and other independent oil producers to an unprecedented status in the energy industry haven’t come up gushers for major integrated oil companies like Royal Dutch Shell and BP. While big companies dominate the deep waters of the Gulf of Mexico and frontiers overseas, their smaller counterparts have claimed the most lucrative territory in the Bakken, the Permian and the Eagle Ford Shale in South Texas.

Throughout the 1980s and 1990s, Pioneer amassed hundreds of thousands of acres in West Texas. Only in recent years, however, have producers begun to corral wells closer together, sometimes as close as 350 feet, to tap into the separate layers of oil. Pioneer alone is pumping from 7,000 wells.

After research last year, including 3-D seismic scanning and a small program to fracture the elusive formations called “stacked intervals,” Pioneer plans to spend $2.2 billion to set up 16 horizontal rigs in the play this year. It will be more expensive than drilling vertically, but the economics make sense, Sheffield said.

The Wall Street Journal

Top story: US weapons flow to Syrian rebels

Obama extends review of Keystone pipeline project (LOL)

Reagonatti: Italy cuts income taxes in effort to boost economy; first time in more than a decade, giving up to 80 euros/month in extra cash to three-quarters of the workforce

The Los Angeles Times

An excellent article on UC admission squeeze for California students; some of this might surprise you

The Dickinson Press

Lead story on SLB and BHI -- earnings report; North Dakota connection

ND congressional leaders frustrated, disappointed over fact that Obama delayed keystone XL decision again (it could be worse; he could have denied it)

FAA administrator to visit Grand Forks, Williston, next week