Things on my mind.

The number of active rigs is now up to 87 (January 24, 2010), 20+ more than when I first posted observations about the increase in rigs in North Dakota back in early November. The Grand Forks Herald reports today (January 24, 2010) that there could be 110 - 120 rigs in North Dakota by mid-summer.

My father says that vehicular traffic has increased significantly in  Williston (November 26, 2009).

1. Even the NY Times has noticed that mid-tier companies have been buying up great acreage in the continental US while the majors (like XOM) were ignoring the US, and looking for oil/gas in politically unstable areas overseas. December 15, 2009.

2. Five areas of significant drilling activity: a) Parshall-Sanish north of the reservation, obviously; b) the Van Hook / Big Bend areas inside the reservation, especially Slawson; c) the area immediately around Williston, especially to the west, to include eastern Montana; d) the Highway 50 Corridor: on either side of Highway 50 southeast of Kenmare, and north of Parshall, especially EOG; and e) Ambrose, a ways north of Williston. 

3.  Is EOG asking for 570 more wells in the Parshall? November 25, 2009.

4.  The RS-Feldman well, about 4 miles northwest of Stanley. This appears to be the best Hess well in the Bakken and it may be due to multiple stage fracturing. The presentation by Harold Hamm, November 19, 2009, continues to support my opinion that the increased success in the Bakken is due to multiple fracturing. Some companies are still doing single-stage fracturing -- but I think single-stage fracturing is a thing of the past. Even EOG is studying the "right" number of stages.

5. GeoResources, Inc., announces an aggressive 2010 in North Dakota. GEOI is getting a lot of interesting comments on Yahoo!Finance message boards.

6. Slawson may be the next big story. Look at the results of the the November 3, 2009, North Dakota state land lease auction. In 2007, Slawson had 7 permits in the Williston Basin; in 2008, Slawson had 27 permits; and so far in 2009, Slawson has 25 permits by mid-November. Of the 27 permits granted in 2008, we have yet to hear the outcome of 14 of those permits. The other 13 have resulted in very good wells with IPs ranging from 248 to 2,205 bopd with an average of 791 bopd.

7. There are now 87 active rigs in North Dakota up from a low of "around 33" last autumn, 2008. Many of the big producers say they are still bringing in new rigs for 2009, and certainly for 2010. Harold Hamm, CEO of Continental Resources, says he might have 18 rigs in North Dakota this time next year, a significant increase over the 5 rigs CLR currently has. EOG has stated it could triple the number of rigs they have, from 5 to 15. January 24, 2010.

8. Look at the IPs of the wells reported on November 5, 2009 and the wells that reported on December 14.  Cut the IP in half, and assume that amount will be produced on a daily basis for the first year, and multiply by $70. Then assume that the wells will be productive for seven years (on a declining basis) but subject to re-fracturing. The numbers are staggering. And not all those IPs were exceptional, many well below 1,000 boepd.

9. The companies engaged in fracking are going to be very, very busy: it appears the norm is now 24-stage fracturing, +/- four stages. Some opine that we may soon see 60-stage fracturing. I have to study it again, but it appears the mathematical relationship between fracturing and exposure to oil is exponential. Regardless, it appears that fracturing increases the initial amount of production, delays the need for a pump (albeit a very short period of time), and increases the ultimate total recovery of oil from a well. (My hunch: frac stages remain somewhere between 14 and 20.)

10. EOG typically has 70 - 80 wells on the confidential list. It has been opined that EOG could drill between 225 and 250 wells in 2010. And that's just one producer working in the Williston Basin, albeit the one with the most rigs (six now and going to 13 or 14 in 2010).

11. The area around Williston is very, very active. There are two areas: west of Williston, mostly BEXP. And then northeast of Williston, the Spring Brook area. In the Stony Creek field there are 11 wells/permits on the confidential list. The BEXP well on SE edge of Williston reported an IP of 3,394 bbls/day, which BEXP says is their largest IP reported to date.

12. Harold Hamm, CEO of Continental Resources, opines there may be double the amount of recoverable oil in "the Bakken" forecast by the USGS in 2008. CLR's goal is to double its proved reserves in the Bakken over the next five years.

13. North Dakota is #4 in oil production in the United States, surpassing Louisiana. I never thought that would happen, ever. In December, 2006, Mountrail County produced 1,300 barrels of oil per day; this past October (2009), Mountrail County produced almost 100,000 barrels of oil per day. At $60/barrel, 43 wells in Mountrail County produced $100,000,000 worth of oil at the wellhead over a three month time period, ending in October.

14. Reports that there is yet another formation, the Birdbear, amenable to horizontal drilling are intriguing, but statements saying this is a "new" formation are incorrect. This formation has produced oil, albeit not much, for decades. Incidentally, WLL re-entered an old well that was producing from the Birdbear Formation; exited with a horizontal and ended up with a 2,000 boepd IP in the Bakken (December 8, 2009).


Updated: January 24, 2010.

Welcome to the "new" Million Dollar Way

If  you've bookmarked this page, it will still be fine, but I have updated the welcome page. January 16, 2010.

Trends in the North Dakota oil industry was updated Veterans' Day, November 11, 2009.

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Multiple-stage frac'ing and targeting the Three Forks Sanish remain the big stories in the Williston Oil Basin. Just announced: 1) Encore plans 22-stage frac in a Three Forks Sanish horizontal; and, 2) Whiting plans a 24-stage frac in a Three Forks Sanish horizontal.

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The purpose of this site is educational only. It is an attempt to provide an overview of "the Bakken" and to direct folks to the news stories coming out of the North Dakota oil industry. It is very, very superficial in scope. I probably understand about 1 percent of all that goes on in the industry (if that much). I have a poor memory and often make simple mistakes, but will correct them when I become aware of them. I find myself making more typographical errors as the years go by.

I grew up in Williston, in the heart of the Williston Oil Basin (WOB) and have followed the oil industry my entire life, in a very general way. I invest in publicly traded companies through the stock market, but my investments in WOB are trivial compared to my overall investment portfolio. I own no mineral rights, and have no inside information regarding the WOB. I do talk with people who live there and occasionally receive information second- and third-hand. I do not subscribe to any newsletters or the North Dakota Industrial Commission website tools, although I may do that sometime in the future (subscriptions are relatively inexpensive).

I enjoy following the activity in the WOB, but am not sure that investing in the oil companies in the WOB is the best way to go; there are many other opportunities in the stock market that might be better. At the current time, of the Williston Oil Basin-related companies, I am invested in the following: MDU, BR (COP), CLR, NOG, ENB, EPD, EEP, BNI, SLB. I trade in and out of these companies with others in the WOB. I would never recommend any companies because everyone's investment styles are different. I am often accused of being too exuberant about the WOB, and I admit it. I find the oil activity in North Dakota very interesting. It's easy to be negative about things in life, so I tend to over-compensate in some areas by being too optimistic when it comes to the oil industry.

I am definitely a novice at all this, so if something I say doesn't seem correct, it may not be. There are many ways on the web to cross-check "facts."


The largest continuous oil reservoir in the continental United States.

NEWS

The excitement continues. Even minor players are announcing major plans for 2010. Another example is GeoResources, Inc. Posted November 12, 2009.

North Dakota reports record oil lease auction. North Dakota holds an auction to lease a portion of state lands every three months. The most recent auction resulted in a record $72 million for the state; the previous high was $30 million in 1980 (but adjusted for inflation, about $80 million). Average lease was $1000/acre with highest rate paid in prolific Mountrail county, about $3000/acre. By the way, almost all the money goes for public schools. Comment: producers don't pay top dollar for leases just to lose them; this record auction suggests a very, very active 2010 drilling program in North Dakota. November 6, 2009.

Buffett Buys Burlington: Although BNI is a national (perhaps, better said, a regional) railroad, it has a significant presence in North Dakota. Today (November 3, 2009) Warren Buffett announced he will buy what he already doesn't own of BNI. November, 3, 2009.

BEXP announces another great well. Meanwhile, BEXP announces another great well (with first day production of 1,776 barrels of oil equivalent), this time northwest of Williston, pretty much at the extreme of their acreage. Although the well is in a designated oil field (the Bull Butte), it might as well be a wildcat as remote and lonely as it is. We've gotten spoiled in the Bakken oil patch. We are no longer surprised by wells producing greater than a thousand barrels the first day; they only hit the headlines when they approach 4,000 barrels. Oh, well. By the way, this was a 28-stage fracture stimulation. November, 2009.

Denbury buys Encore. Denbury announced a couple days ago that it was buying Encore and that was the top news story almost everywhere; it was certainly the top news story in the oil patch. Denbury becomes one of the largest independent oil exploration and producing companies overnight by buying Encore, whose main base is in North Dakota.
Denbury's assets are primarily located in Mississippi; Denbury now goes nationwide on the shoulders of the Bakken and the Three Forks Sanish. If you think "the Bakken" is over-hyped, check out "monster wells." Remember, the list of monster wells is only the tip of the iceberg, as they say. November, 2009.

What's not to love: a) oil back to a new, higher trading range; b) the major oil companies losing money or reporting lower earnings (forestalls talk of windfall profits tax, driving Congress nuts); and, c) a well in the Bakken at almost 5,000 boepd on initial production -- a new record (reported this week). At $50/barrel, that is $250,000 a day. That's more than a million dollars a week. If I'm wrong on my math, someone will correct me. Yes, the Bakken has severe production declines but let's see what this well is doing a year from now. October, 2009.

The Grenora "barnburner." And, I'm still waiting to hear how the "barnburner" up by Grenora is doing. October, 2009.

And now, another monster well, the Chandler James, in production for one full year, producing at a rate of 35,000 barrels/month, which at $50/barrel, is $19 million/year. Yeah, I'm excited. October, 2009.

Now, about the blog.

The "old" Million Dollar Way was very eclectic: literature, music, "the Bakken," energy in general, and personal musings. Ninety-nine percent of visitors to the site visited only Bakken-related sites, and even then, only one or two specific pages. So, this site will, at least for the time being, concentrate on "the Bakken," more correctly the North Dakota oil industry. I have an emotional interest in "the Bakken." I wear my heart on my sleeve when it comes to "the Bakken." This is where I grew up. I have no background or connection with the oil industry. I own no mineral rights.

I am an investor, but my investments in "the Bakken" are trivial compared to my overall investments. I am more emotionally attached to "the Bakken" than interested in investments. I have no inside information. I do not subscribe to any premium services regarding "the Bakken." I no longer live in North Dakota, but I visit at least once a year and see first-hand what is going on. My information comes primarily from the NDIC website and the internet in general.

Occasionally I will get input third-hand or fourth-hand from someone I know still living in the Williston area. (Williston, North Dakota, USA, is at the center of the Williston Oil Basin, home of "the Bakken.") Bottom line: I'm pretty much a novice at all this. I know I will make many mistakes on this website but will correct them when brought to my attention.

I would not use my site to make investment decisions, although it may be one of several data points to lead you in certain directions. Much of what I write can look factual, when in fact it is opinion or my general understanding of the issue. Over time, I assume this site will evolve, based on reader feedback. As expected, it was hard not to have op-ed pieces, and some have already been added.

The site's name. The friends of the "old" Million Dollar Way know that the name of the site has nothing to do with money -- at least not directly in terms of me or investing. When I was growing up, the road leading out of Williston was known as the "Million Dollar Way" because of the automobile dealerships and businesses related to the oil industry.

The "Million Dollar Way" was my road out of town to an exciting life. This "Million Dollar Way" site is a new road leading me to new destinations.

Profile of Williston, North Dakota, USA.
North Dakota: Most Economically Stable State, November 2, 2009
The Oil Drum's Assessment of the Bakken, November 2, 2009

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This blog seems to be optimized for Firefox/MacOS. I find errors in formatting when I check the blog on Internet Explorer browsers; perhaps they are older versions of Internet Explorer.

Last updated: November 8, 2009.

ND Oil: Trends

Note: 53 wells come off the confidential list in January, 2010.
Note: 55 wells come off the confidential list in Febraury, 2010.
Note: 65 wells come off the confidential list in March, 2010.
Note: Skipping ahead -- 49 wells come off the list in June, 2010.
It has been opined that the increase in wells coming off the confidential list early in 2010 was due to number of EOG wells that would have been reported earlier, but were delayed due to delay in fracking.

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I am an eternal optimist so take the following with the proverbial grain of salt. I'm getting the feeling that 2010 could be a watershed year for the oil industry in North Dakota, the perfect storm one might say, but in this case, a very, very good storm, for these reasons:

a. Oil prices seem to be trending higher, but in an orderly fashion. Meanwhile, analysts predict demand for oil will outpace supply in 2010. More recent update from EIA, January 14, 2010.

b. The oil companies will continue to define the geology and the extent of the basin.  Particularly noteworthy is the "far east field" -- the Clear Water field bordering Ward County -- which EOG is aggressively pursuing. As of early January, 2010, EOG has 50 of 54 wells/permits in this field of 101 sections (the prolific Parshall field has 162 sections). [Note: both fields could be expanded over time. The Parshall field could be extended north and east. EOG is not the only producer interested in the Clear Water field; Hess was granted two permits in the Clear Water on December 16, 2009.

c. North Dakota had a record-breaking land lease auction, November, 2009. Producers and developers did not lease this land to watch the prairie grass grow.

d. All major producers in the Bakken have announced a) an increase in their capital expenditure program; and, b) an increase in the number of rigs they will be operating.

e. Although a lot of consolidation that resulted from slump in oil prices in 2008 seems to be ending, there are still significant deals being made. The relationship between NOG (publicly traded) seems to be growing with Slawson (not publicly traded).

f. Several major producers or exploration companies have recently concluded new share offerings: KOG, BEXP, NOG, raising cash for their 2009-2010 program. These companies are not raising cash just to invest in money market funds.

g. Current data suggests 20+ stage fracturing will become the norm in the Bakken.

h. It appears that more companies are drilling 1280-acre spacing wells.  Even EOG, historically drilling short laterals, now has applications in for long lateral wells.

i. Time to complete a well has decreased significantly, which will result in at least two things: a) more wells being drilled in a calendar year; and b) less cost to drill.

j. The US has adjusted to an unemployment rate of 10%.  The strength of the dollar has increased, and oil continues to rise in price (January, 2010).

k. Could the choke point for increasing oil production and getting oil out of the state be the pipelines? Although still lagging, the pipeline capacity to get the oil out of North Dakota has increased remarkably, and EOG's rail head to ship oil out by tanker went operational December 31,2009, about two months ahead of schedule. [Nice overview posted here, dated November 16, 2009.]

l. If an eco-pad with four wells on it actually works out, it's going to be quite a story. Can you imagine initial production (IP) numbers based on an Eco-Pad with eight (8) laterals versus a single well with a single lateral?

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I think the biggest trend in "the Bakken" right now is multi-stage fracturing. Examples abound but the history of Hess may be as good as any and better than most. It's hard to believe that only a year ago there was not a lot of talk about the number of stages of fracturing. All of a sudden, it seems, the number of stages of fracturing has become a hot topic of discussion. A few months ago, Halliburton announced a huge ($20 million) expansion in its complex east of Williston. And shortly after that, BEXP announced that 20-stage fracturing will become the standard.

This site says we will soon see 32-stage fracturing, and it will not be long before operators/drillers could see 60-stage fracturing.

It also appears that producers are studying the best time to actually accomplish the fracturing. The timing may depend more on the finances/availability of frack crews/price of oil rather than simply fracturing immediately after the well has reached total depth. There were suggestions/rumors on message boards that EOG was studying the timing of fracturing. EOG has stated it is researching the optimum number of fracturing stages.

There may be a good example of this trend line. The Charlson 44-33H came off the confidential list today. Its IP was under 300 bopd, and yet two months later, its average daily production is over 500 bopd. So, the questions: when did they do the frac; and how many stages?

The Bakken Blog posts a wonderful review of multi-stage fracturing. Posted November 6, 2009.

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This may or may not be important in the future as a trend (cost and time to drill a horizontal Bakken well), but I don't want to lose the link. If you scroll to the top of that link, Slawson reports that it has put in a horizontal well in 16 days and for less than $3 million. The rule of thumb for a horizontal well in North Dakota: 30 days (it used to be 45 days) and $4 - 6 million.  [Note: since this was posted a long time ago, NOG and Slawson have strengthened their relationship.]

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The trend in prices paid for oil leases from the state of North Dakota can be found by clicking here. North Dakota state holds an auction every three months. The November 3, 2009, auction hit a record ($71 million vs $30 million in 1980).


Original post: November 5, 2009. Updated: January 12, 2010.  Reviewed: January 23, 2010.

Bakken: Encore / Denbury

For investors: archived.

NEWS

November 12, 2020: reacquires its Northeast Jackson Dome (NEJD) Pipeline System and its 860mile Free State Pipeline in eastern Mississippi after coming out of bankruptcy September 18, 2020. Link here. 

October 29, 2018: Right in my back yard. A Plano company -- just down the road from us -- will Houston upstream company for $1.7 billion.  Denbury Resources will acquire Penn Virginia Corp, an upstream company focused on the Eagle Ford shale.

June 19, 2018: appears to be the leader in North Dakota in EOR-CO2 in legacy oil fields.

September 21, 2015: Denbury suspends dividend. Shares up about 5.7%, slightly over $3/share.

January 18, 2014: Barron's on DNR.

The first 20% of an oil well's production gushes out, thanks to natural pressure. That eventually drops, and you can push out another 20% by flooding the well with water. When that's finished, you can do carbon-dioxide flooding, a highly effective technique that is Denbury's specialty. Carbon dioxide is an unusual gas. It loves oil. Denbury injects highly pressurized CO2 into a well. It finds the oil, bonds to it, and pushes it out. 

The biggest user of this oil-recovery procedure is Occidental Petroleum. The next largest, and the purest play, is Denbury, which produces 72,000 barrels of oil equivalent a day.

This quarter, the Plano, Texas-based company will pay its first-ever dividend, of 25 cents. Next year, that dividend will grow to between 50 cents and 60 cents a share, giving the stock a yield of about 3%. At a recent $16.46 a share, the stock trades at 4.5 times free cash flow, well below the industry average of 6.8. Closing the gap could push the shares up at least 20%, to $20, not including the dividend.

January 3, 2014: The Dickinson Press, for some reason, ran a story today suggesting that DNR will begin waterflooding in southwestern North Dakota around 2020, but needs to lay a CO2 pipeline first. Not sure why the story was printed at this time. Don updates DNR's plans for southwestern North Dakota:

One year ago this field was supposed to have CO2 in 2018. DNR is currently laying the pipeline for CO2 from Belle Creek, MT, to Baker, MT. I believe the injection in the Baker, Montana, field is to start in 2015. There are also fields northwest and southeast of Baker. 

DNR's plans were delayed somewhat because the company decided in late 2013 to transition to a "dividend company" rather than a growth company. In 2014 DRN will start paying dividends and are slowing down the growth pace. This meant that the field in North Dakota got pushed back two years (to 2020).

December 9, 2013: Denbury's management decides not to convert to a master limited partnership. Share price slumps. Motley Fool talks about that decision early in November, 2013.

October 2, 2013: Denbury presentation transcript.

January 15, 2013: Denbury buys COP's Red River field in the Williston Basin.

July 19, 2012: Denbury completion designs paying dividends.

May 1, 2012: Denbury to buy Gulf Coast Thompson oil field.  $360 million in cash; 17 million bbls conventional reserves; CO2 flood could generate antoher 30 - 60 million bbls -- flooding could require a capital cost of $8 - $10 / bbl. Currently producing 2,200 bopd; OOIP 650 million bbls in place.

August 31, 2011: Motley Fool feels DNR undervalued at $16.

July 11, 2011: Vanguard Natural acquires rest of Encore Energy Partners, LP. This should be the end of "Encore" name in the Bakken. Much of Encore net acreage acquired by Denbury Onshore last year. 

January 15, 2011: Recently completed wells, corporate presentation, December, 2010.

December 10, 2010: Investopedia update on DNR.

August 5, 2010: Did Encore Just 'UP' Their EUR By 3.5 Times?

June 10, 2010: Denbury Moving West!

April 11, 2010: Update.

April 11, 2010: Corporate Presentation, April 8, 2010

November 13, 2009: Very minor news but just to note: Encore assumed operator status for eight (8) wells previously operated by Ranch Oil Company. These are "old" wells and probably don't add much to the bottom line, but it's eight more wells. Could they be candidates for re-work? Fracturing? See Daily Activity Report dated November 13, 2009.

November 8, 2009: Encore just announced plans for a 22-stage frac of a Three Forks Sanish well. It also announced plans to add another rig to the Williston Basin before the end of 2009.  

As other producers are doing, Encore is re-fracing their wells to increase production. The economics are significant: the average development cost is $5/net bbl of reserves.

I continue to opine that re-fracing is going to be the story of the decade in the Williston Oil Basin, and the $20 million Halliburton expansion east of Williston is just the beginning.

Charlson

This is an interesting observation. The Charlson 44-33H (Encore) came off the confidential list on 5 Nov 09 and reported an IP of 283 bopd.

However, during its second full month, the well produced 15,793 barrels of oil, which works out to 509 barrels per day on average.

My guess: the IP was calculated before fracking. It is one-section (640-acre) spacing. When a WLL well comes in at 1,000 bopd "everyone" is happy, but generally a WLL well is two-section spacing. By those standards, a one-section well with 500 bopd is pretty good.

Other comments: the Charlson seems to be a mediocre field but it is dotted with lots of activity. The Charlson is directly west of the Sanish/Parshall oil fields, on the other side of the river. The few wells for which I have information, all reported around 400 bopd on initial production. But those wells were among the first drilled in the current boom (2007-2008) and probably were not frac'd or only one-stage frac'ing.

A 500-bopd * $60/barrel *365 = $11 million in the first year vs $4 - $6 million cost of the well.

CLR: outstanding 3rd quarter earnings

Continental Resources reports outstanding 3rd quarter results.

CLR announced that the company doubled its operating earnings and net income for the third quarter.

CLR will expedite its drilling program and increased its 2009 (current year) capital expenditures from $390 million to $415 million.

CLR will exit 2009 with 12 operated drilling rigs, compared with the previous target of six. That's incredible, doubling the number of its rigs from six to 12.

Average daily production the most recent quarter was 37,384 boepd vs 33,297 boepd last year, same quarter.

33,297 *$50 *365 = $608 million/year.

37,384 *$70 * 365 = $955 million/year.

Oh, by the way, CLR has 59 wells on the confidential list.