Monday, January 18, 2016

Tier 1 Drilling Locations In The Bakken -- Commentary -- Not Ready For Prime Time -- Posted October 24, 2017

Part One

I'm purposely "burying" this post. It will be posted "over" an old "draft" that was never posted. It should end up being posted among the January, 2016, posts. I'm posting it here because I don't want to lose my thoughts on this subject, but I don't want to get into a big "philosophical" discussion with readers ... yet. I'm hoping most readers won't see this post.

In other words, my thoughts on this subject are not yet ready for prime time.

This is being posted on October 24, 2017.

There are two links.

The first is to a post with regard to Statoil and Tier 1 drilling locations.

The second link has to do with an e-mail exchange with a reader (see link to Schlumberger below). The reader was citing the 3Q17 Schlumberger earnings call in which Schlumberger seemed to be stating that E&P companies drilling on-shore US (i.e., shale plays) are quickly running out of Tier 1 drilling locations.

This was the e-mail from the reader:
I always read what completion companies have to say each quarter.  SLB's is pretty interesting especially the "business environment" area.  I remember writing to you about how companies were drilling  /  still drilling their brains out in core positions in a lot of plays and that won't go on forever.  There is only so much land.

It looks like Mr. Kibsgaard is referring to maybe the Permian in this light.   I said that was definitely going on in the Bakken and if this happening in already in the Permian and the prices people paid....ouch..where will production go if people have to move from Tier 1 areas?

Schlumberger's (SLB) CEO Paal Kibsgaard on Q3 2017 Results - Earnings Call Transcript
This was my reply:
That's a great question/observation.

Perhaps you are referring to this paragraph in the transcript:
Brent crude which is now in backwardation is seeing faster inventory draws and stocks are already approaching the five year average. In North America land where the E&P companies have added significant CapEx over the past year, the production growth is so far falling short of expectations, driven by supply chain inflation, operational inefficiencies and the need to step out from the Tier 1 acreage. This has led to a moderating investment appetite where the previous pursue to production growth is now being balanced out with an equal focus on generated solid financial returns and operating within cash flow.
1. I say that's a great question / observation for a number of reasons. I was thinking about the very same thing last night, "sweet spots"; Tier 1; core locations, whatever one wants to call them.

2. I'm in the minority on this, but I don't think we will see a tightening of supplies any time soon unless OPEC (namely, Saudi Arabia) continues to cut production / exports.

3. OPEC seems to be talking their book, saying that "demand" will pick up in 2018 - 2022 and that will put pressure on "supply." I'm not convinced. But again, I'm in the minority on this one.

4. I can't speak to the other on-shore, unconventional (shale) plays in the US; I can't speak to the Permian, for example.

5. However, in the Bakken, I'm not a bit worried about operators running out of core drilling locations (Tier 1 locations) at $50 oil.

6. If OPEC is correct, and analysts are correct, that the price of WTI will trend toward $60, then the core drilling locations (Tier 1 locations) will increase.

7. But this is what is really getting me excited. Several things:
a) infill drilling. when the Bakken boom began, everyone thought there would be one well per section. I blogged from the beginning that if you had one well in your drilling unit, you would eventually  have 4, maybe 8, and possibly 16 wells in that drilling unit. I doubt we are even close to an average of four wells in each drilling unit in Tier 1 locations in the Bakken. That's a lot of wells yet to be drilled in Tier 1 locations in the Bakken.

b) it's pretty much accepted that only one of six wells has been drilled in the Bakken. The data suggests that 60,000 wells will have to be drilled; so far 10,000 Bakken wells have been drilled. Obviously, many/most of those 60,000 wells will NOT be Tier 1 wells. But I still doubt the average has reached 4 wells/drilling unit in Tier 1. I still think folks think there will only be 8 wells in a drilling unit in Tier 1 locations. CLR thinks there will be 16 - 32 wells in a drilling unit in the Bakken.

c) But this is the biggest thing that excites me: I think every well completed before 2016 is a candidate for re-fracking. Every well, not just some. Obviously they will re-frack the wells in the Tier 1 locations first. But that's still a lot of wells to re-frack. And if you've noticed, the re-fracked wells are incredible wells. Really incredible.

d) I have not blogged this yet, and I may be ahead of my headlights, but I'm beginning to question this whole concept of "Tier 1" locations in the Bakken.
Yes, for various reasons, some areas will be better than other others in the Bakken, but my hunch is that improved technology (especially microseismic activity and geologists' experience) will result in "Tier 1 locations" expanding; the "definition" of Tier 1 is all relative. When they first started drilling in the Bakken, they talked about EURs of 350,000 but now the "Tier 1" locations are expected to have EURs of 750,000 to 1 million bbls. That's huge. That suggests to me that some of the locations not considered Tier 1 before will now become "Tier 1" by the old definition. And one has to remember that the new operators have acquired some acreage for dimes on the dollar as older operators have moved out; or gone bankrupt.
So, I guess SLB is concerned about operators having to expand outside the original Tier 1 locations as those locations get drilled out. Again, I can't speak to the other plays, but I just don't see that happening in the Bakken in the next six months, or even the next five years.

I've said many, many times on the blog that I am inappropriately exuberant about the Bakken. I assume it's only a matter of times before we see folks talking about lack of drilling opportunities in Tier 1 locations, but I don't see that at all, for two simple reasons: a) infill drilling has barely started; we haven't even begun drilling the lower benches of the Three Forks; and, b) re-fracking.
Part Two -- posted October 28, 2017 -- See this post.

There's a lot of discussion coming from readers about what I call the "halo effect." I think I've posted enough examples (see "wells of interest") to prove my point. Frankly, it's getting tedious.

In addition, there's a lot of hand-wringing about communication between horizontal wells in the same formation. I think that's a red herring.

And then, there's a of talk about the impossibility of communication between the first bench of the Three Forks and the middle Bakken. I have posted many examples where communication between these two formations is almost required to explain the production profile of certain wells. Now with this newest post (see link above), I don't know how you can explain it any other way.

But I don't want to get into a discussion among readers on this, so I will let it go for now.

January 18, 2016 -- Suncor Acquires Canadian Oil Sands

 Oil & Gas 360 is reporting: $4.5 Billion Deal Reached: Suncor to Acquire Canadian Oil Sands
The joint announcement, released on January 18, 2015, includes a sweetened transaction value of about US$4.5 billion for COS, inclusive of an estimated about US$1.6 billion in debt.
The transaction is a straight stock-for-stock exchange and each COS shareholder will receive 0.28 SU shares in exchange for each COS share, a 12% increase compared to the initial offer of 0.25 SU shares in exchange for a full COS share.

Once the merger is complete, Suncor will own nearly half the interest in Alberta’s massive Syncrude oil sands project. COS estimates the project will average 2016 gross production of 260 to 301 MBOPD in a guidance document.
Que Sera, Sera

Finally, the RNC shows some .... whatever the word is. The RNC has formally cut ties with NBC which means the previously scheduled debate will go on, but it will not be hosted by NBC. This debate comes after the first round of voting -- Iowa, New Hampshire, South Carolina, and Nevada will have already voted by the time this debate is scheduled to be televised. Interest will be "sky-high" and the NBC folks won't be televising it.

I would go with ESPN: it's owned by Disney, the same company that owns Mickey Mouse and ABC.

Update: CNN will moderate the debate, not NBC. Things in media-land are in bad shape when CNN is considered an "honest broker," and NBC is not. 

Que Sera, Sera Redux

So, under the new regime, how has the French economy fared? Breaking news this past weekend:

France's President Hollande declares state of economic emergency, wants to redefine economic mode. Whatever that means. Probably lost in translation.

The BBC is reporting:
President Francois Hollande has set out a €2bn (£1.5bn) job creation plan in an attempt to lift France out of what he called a state of "economic emergency".

Under a two-year scheme, firms with fewer than 250 staff will get subsidies if they take on a young or unemployed person for six months or more.

In addition, about 500,000 vocational training schemes will be created.

France's unemployment rate is 10.6%, against a European Union average of 9.8% and 4.2% in Germany.

Mr Hollande said money for the plan would come from savings in other areas of public spending.

"These €2bn will be financed without any new taxes of any kind," said President Hollande, who announced the details during an annual speech to business leaders.
Que Sera, Sera, Doris Day

Veeder: Again, A Great Column -- January 18, 2016; Random Update Of Whiting's Chameleon Wells In Banks Oil Field

I loved the photographs. Thank you, Ms Veeder.

Whiting's Chameleon Wells

The first two Chameleon wells were drilled by Newfield. The drilling unit now appears to be controlled by Whiting. These are in the Banks oil field.

There are three pads in this section: a 6-well pad to the northwest; a 5-well pad in the north-center; and the original Newfield 2-well pad in the northeast quadrant.

19859, 1,102, Whiting/Newfield, Chameleon State 153-97-16-21-1H, 31 stages, 2.8 million lbs, t7/12; cum 244K 9/20; see bump in production here; see #32764 below;
22621, 1,561/IA, Whiting/Newfield, Chameleon State 153-97-16-21-2H, t7/12; cum 189K 2/20; remains off line 9/20; see bump in production here; see #32764 below;

31112, 2,401, Whiting, Chameleon State 31-16-1H, t10/16; cum 278K 9/20; only 21 days 1/19;
31113, PNC, Whiting, Chameleon State 31-16-1TFH,
31114, PNC, Whiting, Chameleon State 31-16-2TFH,
31115, PNC, Whiting, Chameleon State 31-16-2H,
31116, PNC, Whiting, Chameleon State 31-16-3TFH,

31795, 2,218, Whiting, Chameleon State 21-16-1H, there is some talk that this could be a fairly high-pressure well; t12/15; cum 280K 9/20; off-line 9 - 11/16; back on line 12/19;
31796, 2,186/IA, Whiting, Chameleon State 21-16-1TFH, t12/15; cum 153K 9/19; off-line 9 - 10/2016; not full months lately; remains off line 9/20;
31797, 1,467, Whiting, Chameleon State 21-16-2H, t12/15; cum 274K 7/20; off-line 9 - 11/2016; only 15 days 1/19; full months since; remains off line 9/20;
32007, PNC, Whiting, Chameleon State 21-16-32TFH,  
32008, PNC, Whiting, Chameleon State 21-16-3H,
32009, PNC, Whiting, Chameleon State 21-16-3TFH,

32764, 2,403, Whiting, Chameleon State 31-16HU, Banks, API: 33-053-07649; t10/16; cum 190K 9/20;

Warren Buffett Continues To Buy Phillips 66 -- January 18, 2016

Forbes reported on January 12, 2016:
Warren Buffett continues to build his stake in Phillips 66 PSX, reporting Monday his third purchase filing this month.
Buffett’s company Berkshire Hathaway said it bought 1,645,887 shares of the company on January 7, 2016, at prices ranging from $76.45 to $78.01 per share. This represents a 2.64% increase from the number of shares Buffett owned the day before.
The purchase also shows Buffett’s growing interest in the company. It follows a 107% increase to his holding in the third quarter, a total 0.08% increase January 4 and January 5, 2016, and 1.23% increase January 6, 2016.
His Phillips 66 holding now totals 63,940,380 shares.
There are about 535 million PSX shares outstanding. 64/535 = almost 12%.

I was sure that I had posted this on the blog, but when looking for it, I couldn't find it. This is for the archives. This is not an investment, financial, or travel site; do not make any investment, financial, or travel decisions based on what you read here or think you may have read here. If this important to you, go to the source.

Not only might Warren be getting his oil for free, producers might be paying him as much as 50 cents/bbl to take their product away -- they simply have too much. Bloomberg is reporting:
Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it would pay -$0.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a list price posted on its website.
That’s down from $13.50 a barrel a year ago and $47.60 in January 2014. While the negative price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch.
U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years last week. West Texas Intermediate traded at $29.03 as of 11:13 a.m. in New York.
Enbridge Inc. stopped allowing high-sulfur crudes on its pipeline out of North Dakota in 2011, forcing North Dakota Sour producers to rely on more expensive transport such as trucks and trains, according to Auers.
High-sulfur crude in North Dakota is a small portion of the state’s production, with less than 15,000 barrels a day coming out of the ground.
Add Vodka To The Long List Of Wonderful North Dakota Products

From The Dickinson Press:
Three brothers and a cousin are distilling potato vodka in a still at their Park River family potato farm.
But the vodka being produced and sold at their Moon River Distillery is no moonshine.
Thompson Brothers Vodka is a licensed vodka produced from homegrown products and a vatful of family connections.
Lots of potatoes:
In this case, a potato mash is created by combining potatoes and water, heating the mixture into a mash to convert the starches into sugars. Then, liquid is extracted from the mash, which starts the fermentation process.
The Thompsons use wood- and coal-fired heat in their distillation process, which begins when the "dead yeast" is filtered out through a series of carbon and paper filters.
Then, the liquid moves to a proofing tank, where it is mixed with water to obtain the required 40 percent alcohol content, or 80 proof vodka, for bottling.
It takes 12 pounds of potatoes to make one 750-milliliter bottle of vodka. So, a 100-bottle batch takes 1,200 pounds, or 12 100-pound bags.
Mead next?
They're closer to making honey wine, more commonly called mead. Scott Thompson said he already is experimenting with recipes.
"North Dakota is the No. 1 producer of honey. We're going to try to do something unique, like a holiday release," he said. "Mead takes a while to make, to ferment. It has unique characteristics that lend (it) to being nice for limited releases, such as for holidays."
And this interesting little nugget: 
Scott has 30 years of experience, mostly working in the compressed gas industry.
He and his wife have lived in several parts of the country, including the Gulf Coast, Pacific Northwest and Silicon Valley, where he learned the home brewery trade.
Much, much more at the link. 

Nine Huge Bakken Wells Reported; Five More DUCs -- January 17, 2016

January 19, 2016, 7:36 p.m. Central Time: NDIC server seems to be back up for the most part, but still unable to reach "Active Rigs."

January 19, 2016, 8:00 a.m. Central Time: unable to reach the NDIC server. Rest of internet working just fine. 


Tuesday, January 19, 2016
  • 29810, 1,650, Whiting, P Wood 154-98-14-22-15-2H3, Truax, t7/15; cum 87K 11/15;
  • 30407, SI/NC, SM Energy, RJ Federal 4B-15HN, West Ambrose, no production data,
Monday, January 18, 2016
  • 29812, 1,365, Whiting, P Wood 154-98-14-22-15-3H3, Truax, t7/15; cum 75K 11/15;
  • 29863, 2,746, Whiting, P Wood 154-98-14-22-16-2H, Truax, t7/15; cum 108K 11/15;
Sunday, January 17, 2016
  • 29768, SI/NC, Hess, EN-L Cvancara-155-93-2627H-10, Robinson Lake, no production data,
  • 29870, 1,379, Whiting, P Wood 154-98-13-22-15-4H3A, Truax, t7/15; cum 61K 11/15;
  • 30408, SI/NC, SM Energy, DK Federal 4-15HNA, West Ambrose, no production data,
Saturday, January 16, 2016
  • 29263, 1,272, EOG, Parshall 23-3029H, Parshall, t7/15; cum 88K 11/15;
  • 29526, 734, EOG, Parshall 90-3029H, Parshall, t7/15; cum 70K 11/15;
  • 29667, 1,109, CLR, Thronson Federal 9-21H, Alkali Creek, t8/15; cum 71K 11/15;
  • 30403, 2,398, QEP, Kirkland 6-7-1-12BHD, Croff, t7/15; cum 134K 11/15;
  • 30404, 2,396, QEP, Kirkland 6-7-12T2HD, Croff, t7/15; cum 66K 11/15;
  • 30409, SI/NC, SM Energy, Gladys 4-15HS, West Ambrose, no production data,
  • 30667, SI/NC, Hess, EN-L Cvancara-155-93-2627H-11, Robinson Lake, no production data,

Zooming out, we get a better perspective -- how incredibly active this area is, and even with only 12 wells per 1280-acre spacing unit, we are nowhere close to what ultimate density might be:
Note the great fields in this area: Truax, Stockyard Creek, Sand Creek, Charlson. The city of Williston is to the left (to the west). The Missouri River separates Williams County from McKenzie County in this area.

30404, see above, QEP, Kirkland 6-7-12T2HD, Croff:

DateOil RunsMCF Sold

30403, see above, QEP, Kirkland 6-7-1-12BHD, Croff:

DateOil RunsMCF Sold

29667, see above, CLR, Thronson Federal 9-21H, Alkali Creek:

DateOil RunsMCF Sold

29526, see above, EOG, Parshall 90-3029H, Parshall:

DateOil RunsMCF Sold
29263, see above, EOG, Parshall 23-3029H, Parshall:

DateOil RunsMCF Sold

29870, see above, Whiting, P Wood 154-98-13-22-15-4H3A, Truax:

DateOil RunsMCF Sold

29863, see above, Whiting, P Wood 154-98-14-22-16-2H, Truax:

DateOil RunsMCF Sold

29812, see above, Whiting, P Wood 154-98-14-22-15-3H3, Truax:

DateOil RunsMCF Sold

29810, see above, Whiting, P Wood 154-98-14-22-15-2H3, Truax:

DateOil RunsMCF Sold

MDU/Knife River Awarded Its Largest Contract Ever -- January 18, 2016

This is really cool. From an MDU press release:
Knife River Corp., a subsidiary of MDU Resources Group Inc. (NYSE: MDU), has been awarded a $63.4 million contract to reconstruct a portion of Interstate 29 in Sioux City, Iowa. This is the largest contract Knife River has been awarded.

“Improving I-29 through the heart of Sioux City is a great project for us and for the 40,000-plus people who travel that stretch of highway every day,” said David C. Barney, president and CEO of Knife River. “Our Iowa team is looking forward to enhancing the durability and safety of an important section of roadway.”

Knife River will reconstruct the northbound lanes of I-29 from exit 147A to north of exit 149, alongside downtown Sioux City. The two-year project will begin this spring, with completion planned for fall 2017. In addition to working as the general contractor, Knife River will supply the concrete, asphalt and aggregate base for the 2.5-mile project. Much of the road base — about 100,000 tons of material — will be made from recycled concrete.
This is really quite neat. MDU/Knife River did an outstanding job on the "Bakken highway system" to include the two bypasses around Alexander and Watford City (I think they did both of them). One wonders to what extent the Bakken raised the bar for Knife River, allowing them to compete and win the I-29 contract.

Now, it gives me renewed hope that I-98 will become a reality. 

A Future Phyllis Spector?

Canadian Rig Count Increases By Significant Number Relative To US Drop -- January 18, 2016

A reader noted that the number of active rigs in Canada jumped by 61 this past week compared to a continuing drop off of oil and natural gas rigs in the United States. My "not-ready-for-prime-time" reply:
If there is a logical reason for the sharp increase in the Canadian rigs (not due to political subsidies, supports, tax breaks, etc), one might think it has to do with the type of oil being produced. 
US refineries along the Texas/Louisiana coast were all optimized for heavy oil from Canada -- that conversion was done years ago in anticipation of the Keystone XL. Those refineries are now saturated with light oil, which they cannot process without a good addition of heavy oil.
It's very possible that what we are seeing with the increase in Canadian rigs makes "logistical" sense: the light oil glut in the US will result in rigs coming down in the US (light oil) and rigs increasing in Canada (heavy oil).
Also, there is some increased interest in Bakken wells and Spearfish wells just north of North Dakota in Canada. 
It is also much cheaper, relative to the US, to drill in Canada now. The Canadian dollar is near an all-time low at 70 cents US.
And then look at this forecast five days ago: Canadian dollar will drop to 59 cents US in 2016, a Canadian investment banker in Canada forecasts. The banker's new forecast doesn't see the loonie above 65 cents US at any time between the end of 2016 and the two years that follow.

It is also possible Canada will announce two rate cuts this year. 

Update On Four Newfield Pads In Sand Creek Oil Field -- January 18, 2016

See this post for background.

An update of four neighboring Newfield multi-well pads in Sand Creek oil field. Three of the pads are 3-wells pads; one well is a 4-well pad.

Pad A remains on line; only a few days off-line for any of the wells: SW 16-153-96, all horizontals run north; wells #27526, #27527, and #27528. The production from #27527 is perhaps the best:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare

Pad B remains on line; a few days off-line for any of the wells : SE 16-153-96, all horizontals run north; wells #25074, #25073, and #25072. The production from #25072 is perhaps the best:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare

Pad C, this is perhaps the most "sporadic" of the four pads; NE 21-153-96, all horizontals run south; wells #28765, #28766, and #28767. Production from #28765 is typical of the three wells on this pad, even down to exactly only 12 bbls produced in the 30-days production in March, 2015, in all three wells. 

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare

Pad D, three of the four wells were off-line April/May, 2015, but since then all have been on-line. This pad is perhaps the best of the four: NW 22-153-96, all horizontals run south; wells #29268, #29113, #29114, and #29115. The one well of these four that has never been off-line is #29115; in April/May, 2015, when the sister wells off off-line, this well produced slightly less than 3,000 bbls in April and slightly more than 7,000 bbls the following month. All four wells took a huge jump in production in July, 2015. Production from #29114 is typical of the other wells on this pad:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare


It should be noted that these four Newfield pads will soon have a new neighbor. One section to the east, in section 15-153-96, XTO has a rig on a 4-well pad:
  • 31223, conf, XTO, Harley Federal 24X-15F,
  • 31224, conf, XTO, Harley Federal 24X-15B,
  • 31225, conf, XTO, Harley Federal 24X-15E,
  • 31226, ROS, XTO, Harley Federal 24X-15A, 
The wells are all sited on a north-south line even though most horizontals in this area run north/south.