Monthly Archives: January 2013

Marathon’s Bakken Production is Trending Up

Marathon Oil (MRO) has drilled more than 270 wells in North Dakota’s Bakken Shale since 2007.  The company has approximately 416k net acres in the play, with the vast majority lying in NW Williams and NC Dunn Counties.  MRO has smaller Bakken plays in SW Mountrail, NW McLean and a few non-contiguous chunks in McKenzie (for orientation purposes, check map at bottom of article.  The graph below describes the company’s results from its Bakken program.

Marathon Bakken IP Rates
Marathon_Bakken IP Rates
Source: North Dakota Oil & Gas Division/The Energy Harbinger.

Marathon’s Dunn County acreage is its core asset, but production from the County has been mediocre, at least for Bakken standards, to date.  These wells cost $8.6 million a pop and probably need to recover in the neighborhood of 125 thousand barrels of oil (MBbls) to break-even at current commodity prices.  Below are the production results from several of MRO’s Dunn County wells which have IP rates near the program average of 338 barrels of oil per day (BOPD).

Dunn County Declines
Marathon_Dunn County Declines
Source: North Dakota Oil & Gas Division/The Energy Harbinger.

Oil recovery on the longer life wells is currently in the 120 MBbls to 170 MBbls range, meaning these wells are taking three to four years to recover cost.  Returns from this program aren’t what investors are used to seeing from the Bakken, but they’re economic at current commodity price levels.  Returns are better on its Mountrail and McLean County acreage, where MRO has been drilling more wells recently.  With that said, there’s a reason Marathon is allocating more capital to the Eagle Ford (MRO’s Eagle Ford production is twice that of the Bakken) where its results have been much better.

If there’s a silver lining to Marathon’s Dunn County program, it’s that production is getting notably better as the company has tweaked its completion techniques by using more frac stages.  30-day IP rates have nearly doubled during 2011 and 2012 to 539 BOPD from 277 BOPD during the 2007 to 2010 period.  Additionally, the company has been spacing wells at 420-acre spacing units (with potential for 320-acre spacing) and believes wells will produce for 40-years at this unit size, meaning more wells can be drilled over the life of the program.

The company’s recent results in the Bakken combined with successes in the Eagle Ford speak to its stock trading towards the top of its 52-week range and most recently closed on Wednesday January 23, 2013 at $33.66.

Marathon’s Bakken Acreage Map
Source: Marathon Oil corporate presentation.


The Well Map 1-16-13


We’re drawing near to the date at which The Well Map will take a leap forward in functionality.  Barring any unforeseen delays, there will be a filtering device on the map next week which will allow you to browse wells much more easily.  There are currently around 1,500 wells up on the map, but expect this number to double over the near term as I have hesitated to add new wells until the filter is operational.

The filter is not the end of the changes you’ll be seeing at the well map, as you’ll be getting supportive analytics and eventually more complete production information.  Eventually this data will require a subscription, but for now you’re welcome to enjoy it for free.  The goal is to provide investors, royalty owners, landmen, and buy/sell side shops with extensive production information that’s much more affordable than what you’ll find from the big data shops.

The Well Map is built off of publicly available data (versus from the companies themselves) so the data set is impartial but not perfect.  Because of this, I’ll be doing a lot of work on supportive analytics so that you know how to interpret the data.  For instance, states don’t currently provide the amount of natural gas liquids (NGLs) that are being produced from a given well, so below is a table which describes each hydrocarbon being produced by certain wells in the Eagle Ford of South Texas.

If you’re familiar with the Eagle Ford, you know that each county the formation lies in can produce wildly different hydrocarbon cuts.  So if I was using this table, I wouldn’t focus so much on county averages, but on clusters of wells in each county.  If you’re trying to figure out Marathon’s hydrocarbon cut in its Karnes County prospect, find those wells on the well map and compute an average.  There’s a lot more work to be done on my end to make this easier for users, but for now the table is a start.

Expect another post next week once the filter is up and running.


Source: Corporate presentations of the above companies.

Abraxas Petroleum: Still Searching for its Core Asset

Abraxas Petroleum (AXAS) is a micro-cap e&p company with assets in the Bakken (23.0k net), Eagle Ford (7.3k net), Powder River Basin (17.0k net) and Permian Basin (40.0k net).  Its reserves are trading in the $11 to $12 range, meaning investors haven’t priced much growth into the company.   While AXAS has an impressive leasehold across three proven plays, its acreage isn’t contiguous and production hasn’t been consistent.  With that said, the company has several solid prospects providing room for optimism over the near-term.

In the Eagle Ford, AXAS completed its Cobra #1H well in McMullen County (see map below) in March, 2012 which had an estimated 25-day IP rate of 889 BOEPD (96% liquids).  The well has produced 113 thousand barrels of oil equivalent (BOE) (91% oil and liquids) as of October, 2012 and should pay for itself within its first year of production.  This well is the first of a ten well program in Abraxas’ WyCross prospect where it operates 999 net acres which projects to 19 net drilling locations at 90-acre spacing.  The Cobra well is not an outlier in the area as evidenced by multiple Comstock (CRK) and Carrizo (CRZO) wells which have had strong results to date.  Consequentially, AXAS should see increased production from the Eagle Ford throughout 2013.

The company’s largest prospect in the Eagle Ford is its Jourdantan Prospect in Atascosa County where it operates 4,399 net acres.  The lone Jourdantan result I’ve seen for the company is its Grass Farm Unit #1H well (see map below) which produced an estimated 120 BOEPD (91% oil and liquids) during its first 30 days.  This well was completed in September, 2011 and has produced only 31 MBOE as of October, 2012.  EOG Resources (EOG) and Murphy Oil (MUR) have both drilled wells in this area with similar results from which we can extrapolate that the Atascosa acreage might not be economic.  The company is currently testing this acreage to see if it’s prospective for economic quantities of hydrocarbons at the Buda and Austin Chalk intervals.


In North Dakota’s Bakken Shale, Abraxas has 23,320 net acres, 3,314 of which lie in its North Fork Prospect (McKenzie County) where its results have been strong to date.  Its Stenehjem 27-34-1H and Ravin 26-35-1H wells produced 571 BOEPD (78% oil) and 488 BOEPD (79% oil), respectively, during their first 31 days.  Continental Resources (CLR) has achieved similar results from its nearby wells which makes me confident in saying that I expect wells from this prospect to payout within two to three years assuming $8.7 drilling and completion (D&C) costs.  So while North Fork clearly isn’t analogous to Kodiak’s (KOG) Koala prospect in Northern McKenzie, it’s economic and a nice cash flow piece for the company.  It recently completed a third well here and is drilling and completing three others.

Outside of McKenzie, AXAS has a checkerboard of Bakken acreage across several counties in North Dakota and Montana, with 9,179 net acres on the unproven Montana side.  It also has 2,681 net acres in Divide and Williams Counties which may be economic depending upon where they’re located.  Outside of that there’s not much to talk about, with the good news being I don’t believe the company spent much on the acreage.

Source: Chesapeake corporate presentation.

I’ve talked about a couple nice cash flow pieces, but in my view Abraxas  is still looking for an asset that will provide long-term growth.  Its 17,800 net acres in Wyoming’s Powder River Basin (PRB) (see map above) is an asset that has the potential to be that piece.  The negatives on the play are that it’s expensive ($7 million per well) and gassy but it contains a lot of hydrocarbons.  AXAS speaks highly of its lone result in the PRB, Hedgehog State 16-2H, completed in South-Central Campbell County which produced at an average 30-day rate of 422 BOEPD (35% oil).  This well is North of Chesapeake’s (CHK) leasehold and offset by EOG’s.  EOG’s average 30-day rate in Campbell County is approximately 587 BOEPD (41% oil), similar to AXAS’ Hedgehog result.

The economics of the PRB are helped by the NGL cut which Abraxas estimates is around 10-12% of total production.  Even so, I don’t see this play being very economic with $7 million D&C costs.  The company has a second acreage block in Eastern Converse/Western Niobrara Counties and it’s worth noting that CHK’s results in Niobrara County have not been economic.

The company has begun production in the Permian Basin at its Spires Ranch Prospect in Nolan County, TX.  This has the potential to be a nice ancillary asset for AXAS, but I don’t believe it has a large growth engine in its portfolio at present, justifying its low valuation.  With that said, it has plenty of exploration upside and recently revealed a 20k net acre stealth play in Alberta, Canada.

Abraxas is a good operator, as evidenced by its production results which have been on par with offset operators.  The company has done a good job of acquiring acreage on the cheap, unfortunately, a lot of it hasn’t been economic and to that end  it’s due for some good luck.  The company should grow production over the near-term from its Wycross and North Fork Prospects, but the long-term remains a question.  I like Abraxas but it’s a risky play, as you’re really buying a wildcatter with a lot of exploration risk.  If you’re looking for that kind of risk in your portfolio, you could do much worse.