The Man Who Bought 60,000 Oil And Gas Wells -- May 1, 2021

Updates

May 2, 2021: the reader continues with this:

Regarding the Bakken/Permian DSU differences ... both were/are one-square-mile 'squares' with the North Dakota regulators prudently expanding to two-square-mil (1,260 square acres) spacing units in the early years.

That single action - going from 640- to 1,280-acre DSUs  - was arguably one of the most crucial acts in boosting Bakken development.

The Permian still employs 640 square acre units - 'leases' being the common description - throughout the state ... as does Oklahoma, Louisiana, Colorado, and virtually every other state (excepting California) west of the Mississippi.

One interesting fact on this topic is the 'mineral rights' / Land Grants that the US government gave to prospective railroad builders in the late 1800s in efforts to encourage them to build new rail tracks. 

These legacy  mineral rights can be seen with the 'checkerboard' holdings in Texas and Colorado, especially, that company investor presentations usually show. [I believe I saw them at one time in presentations relating to North Dakota, also.]

Just as the little-recognized stripper industry plays a significant role in the oil/gas production world, the entire 'land/landmen' arena is almost completely overlooked, while being an extremely influential component of the industry.

May 2, 2021:  the reader who tipped me off to DGO, sent a follow-up:

That DGO outfit is certainly positioning itself as a premiere stripper, but that barely scratches the surface of what is taking place.

Eastern states, unlike the rest of the country, do not have pre-determined, geometric shaped drilling units. In fact, no DSUs exist at all. As a consequence, once a 640 acre holding is 'cobbled together' with willing mineral rights holders, an operator may get state approval to drill.

The shapes of these units (and the total size of contiguous acreage) is all over the place.

One consequence is that scattered, fragmented pads/holdings have little value to the Big Boys.

Enter DGO who was practically given over a dozen producing unconventional wells, engineering plans for maybe 30 more, and about half dozen developed pads which cost around $1 million each to prepare in Pennsylvania. 

The real value, it seems, with this company is that it offers a great outlet for the Big Boys to continue buying/merging without having to bother with the 'crumbs.' 

This is why EQT bought out CVX's Pennsylvania holdings for $735 million when CVX originally paid around $6-$8 billion for the stuff. EQT turned over the fragmented, unwanted producing pads/wells to DGO for peanuts. 

XTO - and others - are following CVX in leaving Appalachia.

Bottom line, consolidation continues apace. 

One consequence is the enormous benefit that some 'Little Guys' may receive. [Comment: again I am posting this to help understand how different plays, like Appalachia, are developed, compared to the Bakken. I assume the Permian is similar to the Bakken, but the Permian being a much older play, probably has some unique drilling unit issues.

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

Original Post

Brought to my attention by a reader. Quite a story. Link to BBC.

So in 2001, aged 32, Rusty bought an old gas well back in West Virginia for $250,000 (£200,000). He raised the money by remortgaging his home.

"It was a small old well, it had been in production for years, but it was like gold to me," he says. "I spent the next four years still also working in the bank, but any spare time I had I'd fly up to West Virginia to work alongside the one well tender that I had back then."

Fast-forward to today, and Rusty's company, DGO, now owns more than 60,000 gas and oil wells across West Virginia, Pennsylvania, Ohio, Kentucky, Virginia and Tennessee, a region called the Appalachia. Employing 925 people it has annual revenues of more than $500m. Some 90% of its operation is natural gas, with 10% oil.

The company's business model is a very specific one - it doesn't do any drilling to find new oil and gas reserves. Instead it buys up old oil and gas wells that bigger producers no longer want, because the initial large flow levels have fallen to low volumes.

He might feel right at home in North Dakota with the dreaded "Bakken decline."

1920-Acre Standup / Laydown Drilling Units With Longer (3-Section Laterals) -- August 3, 2014

For background to this post, see yesterday's post on the CLR 3-section horizontal in northwestern North Dakota (the edge of the North Dakota Bakken, Divide County).

In addition to the well reported at that post (#25959, CLR, Haffner 1-31H), there appears to be one other CLR-completed 3-section horizontal, very similar (almost identical) to the Haffner, but targeting the Three Forks formation:

• 23798, 349, CLR, Lannister 1-23H1, Leaf, a Three Forks well, TVD ~ 8,500 feet; TD ~24,070, ICO (requesting a stand-up 1920-acre unit); 51 stages; 6.1 millions lbs sand via 4.5 inch HZ liner with OH packers utilizing 51 stages & plug & perf; t6/14; cum 10K 6/14;

1920-acre standup/laydown units:

• Right now it looks like there are only three 1920-acre standup units in this area, as well as a pending 1920-acre laydown unit in a neighboring field by a different operator:

Case No. 22281: Application of Oasis Petroleum North America LLC for an order amending the applicable orders for the Cottonwood-Bakken Pool to establish a 1920- acre spacing unit consisting of Sections 1, 2 and 3, T.160N., R.92W., Burke County, ND, and allow up to sixteen horizontal wells to be drilled thereon, or granting such other relief as may be appropriate. (From the May, 2014, NDIC hearing docket agenda.)

• There are a lot of pending cases requesting 1920-acre units in the Sanish (Whiting) but they appear to be the typical L-shaped units, and neither standup nor laydown.  
• One of the first 3-section horizontal wells, it appears, was a OXY USA well (see comment at this link):

24705, 828, OXY USA, Stag 1-35-23H-142-96, Russian Creek, a Pronghorn well, the primary target "was 13' under the bottom of the Middle Bakken Lower Shale." TVD ~ 10,613 feet; TD ~25,437, 1920-acre unit; 32 stages; 2 millions lbs sand; t5/13; cum 59K 6/14; see bottom of post for the scout ticket

From the August NDIC hearing docket agenda, these are all 1920-acre stand-up units in northwestern North Dakota, Divide County:

Case No. 22845: Application of Continental Resources, Inc. for an order amending the field rules for the Baukol Noonan-Bakken Pool to create and establish a 1920- acre spacing unit comprised of Sections 1, 12 and 13, T.162N., R.96W., Divide County, ND, authorizing the drilling of a total not to exceed seven horizontal wells on said 1920-acre spacing unit, eliminating any tool error requirements and such other relief as is appropriate. 

Case No. 22846: Application of Continental Resources, Inc. for an order amending Order No. 21887 of the Commission for the Kimberly-Bakken Pool to terminate a 1920-acre spacing unit comprised of Sections 30 and 31, T.163N., R.95W. and Section 6, T.162N., R.95W., and create an overlapping 1920-acre spacing unit comprised of Sections 6, 7 and 18, T.162N., R.95W., in the Kimberly and/or Baukol Noonan-Bakken Pool, Divide County, ND, authorizing the drilling of a total not to exceed seven horizontal wells on said overlapping 1920-acre spacing unit, eliminating any tool error requirements, and such other relief as is appropriate. 

Case No. 22847: Application of Continental Resources, Inc. for an order amending the field rules for the Baukol Noonan and/or Noonan-Bakken Pools to create and establish three 1920-acre spacing units comprised of Sections 3, 10 and 15; Sections 13, 24 and 25; and Sections 22, 27 and 34, T.162N., R.95W., Divide County, ND, authorizing the drilling of a total not to exceed seven horizontal wells on each 1920-acre spacing unit, eliminating any tool error requirements and such other relief as is appropriate.

Lesson learned: it appears that CLR (and all Bakken operators) keep pushing the envelope to improve the economics of the wells in the various locations in the Bakken. It looks like CLR felt that slightly longer horizontals in Divide County might be necessary to improve the economics. This is where Teegue et al over at the Bakken discussion group got it wrong early on in the Bakken, complaining about the way the operators and NDIC were permitting the size the size of the spacing units, something I talked about from the very beginning.

*******************************************

A 3-Section Long Horizontal

OXY USA

31-stage frack; 2 million lbs proppant

NDIC File No: 24705   
Well Type: OG     Well Status: A     Status Date: 5/19/2013     Wellbore type: Horizontal
Location: SESW 35-142-96       Latitude: 47.068789     Longitude: -102.812441
Current Operator: OXY USA INC.
Current Well Name: STAG 1-35-23H-142-96
Elevation(s): 2627 KB   2602 GR   2602 GL     Total Depth: 25437     Field: RUSSIAN CREEK
Spud Date(s):  2/5/2013
Casing String(s): 9.625" 2377'   7" 11250'  
Completion Data
   Pool: BAKKEN     Perfs: 11250-25437     Comp: 5/19/2013     Status: AL     Date: 7/30/2013     Spacing: ICO
Cumulative Production Data
   Pool: BAKKEN     Cum Oil: 58870     Cum MCF Gas: 31744     Cum Water: 135470
Production Test Data
   IP Test Date: 5/20/2013     Pool: BAKKEN     IP Oil: 828     IP MCF: 301     IP Water: 2947

Monthly Production Data

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	6-2014	30	2722	2647	7207	1054	1054	0
BAKKEN	5-2014	31	3196	3670	7729	1205	1205	0
BAKKEN	4-2014	29	2612	2503	7446	1065	1065	0
BAKKEN	3-2014	31	3183	3051	8313	1250	1250	0
BAKKEN	2-2014	28	3175	3044	8402	852	852	0
BAKKEN	1-2014	31	3654	3986	9009	655	655	0
BAKKEN	12-2013	31	3805	3546	8969	3218	3218	0
BAKKEN	11-2013	30	4031	4204	9315	4346	4346	0
BAKKEN	10-2013	30	4346	4118	10167	5080	5080	0
BAKKEN	9-2013	30	4663	4955	11074	3835	3835	0
BAKKEN	8-2013	31	5464	5261	13070	2951	2951	0
BAKKEN	7-2013	31	4129	4029	6649	1091	1091	0
BAKKEN	6-2013	30	7096	7307	13931	2560	2560	0
BAKKEN	5-2013	12	6794	6150	14189	2582	2582	0

Bakken101: A Three-Section-Long Middle Bakken Well At The Edge Of The Basin -- August 2, 2014

Updates

November 6, 2015: something I had not thought about until a reader brought it to my attention -- by usual Bakken standards, these are relatively shallow wells; note that TD for this 3-section long well as 23,432 feet; a two-section long well in deeper parts of the Basin can be upwards of 21,000 feet TD. Shallow depths may be one of the reasons SM Energy is finding it economical to drill in Divide County.

December 2, 2014: this well has been updated --

• 25959, 732, CLR, Haffner 1-31H, Noonan, middle Bakken; 1920-acre; 50 stages; 7 million lbs, a true 3-section lateral (full sections 19/30/31 - 162-95); TD = 23,432 feet; background gases "poor"; t3/14; cum 104K 9/15; 

Original Post

A reader suggested I take a look at this well. First, the reader's comments:

A Canadian O&G map indicates the Nesson Anticline extends north along the Noonan/Baukol Noonan boundary line up thru the Kimberly Field and a few miles into southern Saskatchewan.

This is up in the far northeast corner of Divide County, North Dakota, near the town of Noonan. This is at the northern edge of the North Dakota Bakken where, due to the "bowl shape" phenomenon of the Bakken in North Dakota, the vertical depth of wells are shallower than other Bakken wells in North Dakota.

This is the scout ticket (comments and observations follow the scout ticket)(updated from original post)

NDIC File No: 25959    
Well Type: OG     Well Status: A     Status Date: 2/16/2014     Wellbore type: Horizontal
Location: SWSE 31-162-95      Latitude: 48.808577     Longitude: -103.054688
Current Operator: CONTINENTAL RESOURCES, INC.
Current Well Name: HAFFNER 1-31H 

Total Depth: 23432     Field: NOONAN
Spud Date(s):  8/23/2013
Completion Data
   Pool: BAKKEN     Perfs: 8817-23432     Comp: 2/16/2014     Status: AL     Date: 4/17/2014     Spacing: ICO (requested: 1920 acre)
Cumulative Production Data
   Pool: BAKKEN     Cum Oil: 61569     Cum MCF Gas: 81393     Cum Water: 96225
Production Test Data
   IP Test Date: 3/30/2014     Pool: BAKKEN     IP Oil: 732     IP MCF: 710     IP Water: 1395

Monthly Production Data

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	9-2014	23	3311	3469	5307	4313	2482	1831
BAKKEN	8-2014	31	6690	7172	9942	12818	6896	5922
BAKKEN	7-2014	30	11153	10637	15447	21086	340	20746
BAKKEN	6-2014	25	13703	13996	16164	17444	0	17444
BAKKEN	5-2014	20	16874	17268	20311	15259	0	15259
BAKKEN	4-2014	12	5378	5223	10179	5410	0	5410
BAKKEN	3-2014	16	4228	3592	11698	5021	0	5021
BAKKEN	2-2014	4	232	0	7177	42	0	42
BAKKEN	1-2014	0	0	0	0	0	0

Some observations:

• for a CLR well, this is a pretty good IP; maybe slightly above average; but considering it's location, at the edge of the northern North Dakota Bakken, this is a superb IP (when one sees a CLR IP of this caliber and then, especially where it's located, one needs to ask "why?")
• for a CLR well, and then especially considering this well is a middle Bakken well at the edge of the northern North Dakota Bakken, the first few months of production is incredible, and again one must ask "what's going on?"

The rest of the story.

First, a clue.

I mentioned that the middle Bakken wells are shallower here than elsewhere in the Bakken. Look at the total depth of this well, almost 23,500 feet. If this is a "relatively shallow" well, then this is a long, long horizontal (compare with a very long EOG well in the Parshall field whose total depth is 24,300 feet. But that EOG well is a very, very "long" because it's vertical depth is likely to be much deeper (and later on, we will see that it is).

So, now we have a CLR well with a surprisingly good IP and even a better early-month production record, located in an area where we would not expect this. Then we have a CLR well that seems to have a "total depth" much greater than one would expect where the vertical depth should be less than average for a Bakken well.

Going to the file report, total vertical depth:

• the vertical depth turns out to be very shallow; the "average" Bakken well tends to run 9,000 to 10,000 (averaging around 9,500 feet, I suppose); this CLR is only 8, 521 feet total vertical depth, about 1,000 feet less than expected for vertical depth

So, now we have a very, very long total depth, but the total vertical depth is less than we would expect.

"Holy guacamole, Batman," what's going on?

Perhaps there are many other examples in the Bakken, but if there are:

• I've not seen any
• I've not seen Filloon, Fitzsimmons, or Zeits talk about them
• I've simply missed them

For newbies: there's a lot of talk about longer, and longer, horizontal laterals, but the fact is, the vast majority of middle Bakken wells have been two sections long, or about 9,000 to 11,000 feet long (horizontally). [Combined with the vertical depth, that gets us to 18,500 to 21,000 feet total depth.]

It turns out this well's total depth is an astounding 23,566 feet (according to the geologist's report; 23,432 feet according to the scout ticket).

Subtracting vertical depth from total depth, one finds the horizontal about 15,000 feet long (significantly longer than the expected 9,000 to 11,000 foot-long horizontal).

It turns out this well's horizontal leg was three sections (sections 19/30/31-T162N-R95W). Again, most Bakken wells are one or two sections (not three sections long).

But there's more.

What about fracking/completion?

For newbies; the standard in the Bakken right now is about 30 stages for a frack for a long (2-section lateral) though the number will vary significantly. Over the years "they've" talked about 40-, 50-, and 60-stage fracks but they are not often seen.

This one was a 50-stage frack, slide and perf, almost 7 million pounds sand frack (NOS), "via 4.5 inch horizontal liner with open hole packers utilizing 50 stages and plug & perf."

CLR is asking for 1920-acre (3-section) spacing; the case is pending.  

Again, maybe this is more common than I realize, but I am not aware of any other full 3-section laterals in the Bakken [see comment below that came in after this was posted]. I don't look at a lot of well files but enough, and again, I haven't seen others talk about these superlong laterals. (Note the tags, "extendedlonglaterals" and "superlonglaterals" where other long horizontals have been discussed.)

One last thing: according to CLR, the purpose of this well was "to drill a Middle Bakken horizontal well in the Norse Prospect. The well bore would be drilled northward, traversing three geographical sections. The well was to be used to assess production potential in the Noonan Field, where production is optimized when well bore placement occurs in a sandstone horizon."

Other data points:

• 26 days from spud to total depth (pretty incredible, I would say)
• contractor: Cyclone Drilling, Inc.; Rig 25

Comments on cost:

• my hunch is that this well did not cost significantly more than other CLR wells
• the amount of sand it more than normally used, but the reason is obvious; the amount of proppant is less than what EOG is using on some of its 2-section wells in the Parshall
• it did not take long to get from spud to total depth
• it appears there were few significant issues while drilling ahead

We'll know what CLR thinks of a 3-section horizontal if we see many more of these. There were a number of 1920-acre spacing requests in the most recent NDIC hearing docket but I did not check the layout of the drilling unit.