Idle Chatter -- September 30, 2019

Updates

October 1, 2019: first comment brought up here for easier access:

They are definitely experimenting with mass development. The Springer project in OK. Now a mass development in ND. And then some smaller pseudo mass developments. XOM is trying same thing in the Permian.

Impression I get from CLR is that this does not boost the EUR, but that it lowers the cost. That is the major driver. Keep the return the same (or close), while cutting cost.

Doing this sort of mass project requires a fair amount of planning. Sorto of have to build the institutional capability to running this sort of work. also have to have sufficient blocked up acreage to allow it.

I think the jury is still out on this approach. For one thing, it cuts down on flexibility and option value to change design over time. But if the industry does move in this direction, it argues for more consolidation, to block up land.

Original Post

 

I'm writing this note after posting the initial production number for the WPX Lion wells in Mandaree oil field. Again, these are incredible wells. I did not "cherry pick" by running through pages and pages of wells looking for a good well. I'm not even sure how I came across these wells. Again, I was looking for something else, happened to see that Lion well now reported its first full month of production, and was amazed. Most of these wells produced 50,000 bbls of oil in the first full month of production.

And yes, the production will decline over time.

Definition of the ideal well: a well that pays for itself in six months and generates positive cash flow for the next 35 years.

I probably look at more Bakken wells than any other individual who has a blog with only three ads and who used to live in North Dakota and now lives in Texas so I can say with some authority: the Bakken wells are simply incredible; they keep getting better and better; and the Bakken never ceases to amaze me.

For newbies. some interesting data points and reminiscing.

A reminder: I am inappropriately exuberant about the Bakken. There are many, many ways to look at the Bakken. I do not look at it from an investor's point of view. I am looking at it from the view of someone who grew up in Williston, did not understand the oil industry, and from the view of how a small "mom-and-pop" mineral owner might look at the Bakken.

Before anyone else talked about it, I told readers that if "they had one well," they would eventually have two wells, probably four wells, possible eight wells, and possibly many, many more." We're now seeing in excess of twenty wells in a single drilling unit. We're seeing as many as four wells in some 320-acre units. I am talking about "small" mom-and-pop mineral owners, most of whom inherited their mineral acres from their grandparents or parents.

The way minerals are allocated, if that's the right word, in the Bakken has made some folks (again, we're talking small "mom-and-pop" mineral owners) very, very well off even if they owned only a few acres. Folks can participate in tens of wells even if their mineral acres are a mile away from the sited well.

Unlike the stories coming out of the Permian, I am not hearing or reading stories about "density" issues in the Bakken. To the contrary, it seems the operators have spacing figured out pretty well in the Bakken.

The operators know the middle Bakken very, very well. They were just ready to "map out" the entire first bench of the Three Forks when the Saudis opened their taps, flooded the world with oil, trying to crush US shale industry. That was back in 2014 - 2016. That push to "map out" the entire first bench of the Three Forks was put on hold and is still moving slowly due to the low price of oil. The second bench has hardly been touched. I have seen nothing yet to get me excited about the fourth bench.

If the price of oil were to trend high, my hunch is that some operators would look at the Red River formation again, maybe to the extent of competing with current efforts targeting the second bench of the Three Forks.

As noted by the monthly EIA dashboards, the Bakken wells (individually) are so much better than Permian wells.

Day rates for rigs must be plummeting.

Cost of sand must be down by a quite a bit.

Analysts still don't understand shale well. Perhaps none of us do. Still learning.

It seems there are only a handful of operators really busy in the Bakken. They say there are 60 active operators in North Dakota but it seems only a few are really, really active. Continental Resources is one of the really active operators. Based on anecdotal data, it certainly seems Harold Hamm has tweaked his business plan. He seems to be doing several things, all in concert:

• pushing infill / development drilling faster than ever
• concentrating infill / development drilling in a limited number of fields
• using one or two rigs to drill wells one right after another in an increased density project as quickly as possible

The "gold standard" for drilling: drill the vertical in three days; drill the curve in 12 - 24 hours; drill the horizontal in three days.

Completion strategies: drill all the wells out in one pad; don't frack/complete the wells until all wells on that pad are drilled. Some frack immediately after all pad wells are drilled; some wait six to eighteen months to complete the well. The mantra, "the more sand the better," appears to be generally true, but I think there's a lot more to it. 

The CLR Long Creek unit is perhaps the best example of what CLR is now doing, but there are others that are just off the radar scope.

Even if drilling were to stop today in the Bakken, there are tens of thousands of oil wells that would continue to require oil well servicing.

I wonder why some analyst doesn't post the number of frack spreads in the major US shale plays like they post the number of active rigs.