Monday, July 27, 2015

Notes From Mike Filloon's Most Recent Seeking Alpha Article On The Bakken And Mega-Fracks -- July 27, 2015

I type this stuff out to help me remember; much (most) of it is taken directly from article. There will be factual and typographical errors. Readers should read the original article; these notes are only to help me understand the Bakken. The shorthand used is for my use and may be confusing to readers.

Data points from the article:

US holds resilient at 9.5 million bopd; production is a continuing debate between bulls and bears.

Production bulls believe in high-grading and well design.
Production bears believe horizontal production will fall because higher prices are needed.

But: if there are fewer completions and decline rates are high, why hasn't production tanked? Newer well decline rates are very low and cannot be compared to historical averages.

Repeat: Newer well decline rates are very low and cannot be compared to historical averages.

Three-peat: Newer well decline rates are very low and cannot be compared to historical averages.

When oil prices fell, operators moved quickly. Exploratory programs decreased (ceased?) and rigs focused on core acreage.

Core acreage:
  • Bakken: Nesson Anticline
  • Eagle Ford: Gonzales and Karnes
  • Permian: Midland County
Operators took the rigs still under contract, drilled wells as fast as they could, but did not complete them: this left a huge "fracklog" of 4,000 to 5,000 wells. Last year the fracklog was just 400 to 800. In the Bakken alone, the fracklog rose to 925 two months in a row, April and May, 2015.

Filloon says that the US is not alone: production increases continue in Iraq, Saudi Arabia, and the UAE. My comment: on a percentage basis, the increase in Saudi Arabia is very, very small (1%) despite a 5-year, $35 billion program announced in 2012. And much of the Saudi production increase is needed for a) domestic consumption; and, b) for its new refineries, nearing 1 milliion bopd cpacity.

Filloon then lists the usual litany of global bearish factors.

Filloon says the following areas are economic at today's prices:
  • core areas in the Permian, Bakken, Eagle Ford, Powder River Basin, and the Niobrara
Filloon suggests defaults may occur. Operators with no core acreage will have issues.

Filloon then discusses well design improvements. Over the past two years:
  • 9,000-foot, 30-stage laterals
  • three million lbs proppant, 50,000 bbls of fluids
Now, huge frack jobs:
  • 50+ stages, 6+ million pounds of sand
  • 100,000 bbls of frack fluids
  • some jobs are much bigger
  • Other factors:
  • communication: adjacent wells increase production
  • sand heavy fracks are increasing production faster than expected
Get this:
well production from core areas can out-produce marginal areas up to 500%
on average, it is closer to 300% but it depends on the areas used for comparison
Filloon spends a lot of time on the issue of communication.

Filloon gives the EOG experience, which has been previously discussed.

Then CLR, the Salers Federal 3-27H well:
  • 50-stage, long lateral
  • 312,000 bbls of frack fluid
  • 18 million+ lbs of sand plus 1.2 million lbs ceramic
  • of the seven wells on the Salers Federal pad, only three are producing
  • the four that are not producing, are part of the fracklog
  • in nine months: $11 million in revenue at $60/bbl and $3/Mcf
  • 172,950 bo; 207,820 MCF
  • although the Salers Federal 3-27H produced very well, it stimulated production elsewhere
Filloon also noted that there is almost no depletion; the well produced for a whole year and is still producing almost 20,000 bbls/month of crude
  • essentially, we may be seeing re-fracking of portions of neighboring wells
Filloon even suggests there may be communication across source rock; from the middle Bakken to the Three Forks.

Filloon then talks at length about QEP, the Grail field, and the Moberg wells. It is improtant to note that the Moberg is not QEP's newest well design.

Risk: if an operator were to drill too close to another well for the purpose of frackign into a well nearby, it could ruin the reservoir. This could significantly decrease or stop production from all wells effected. The hope is to increase the estimated reserves of the well by re-opening fracks that have closed or opening new fissures.

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