Monthly Archives: March 2013

The Bakken’s Stacked Pay Zones

Continental Resources (CLR) came out with data last winter indicating that at least some of its acreage in the Bakken would be prospective for stacked pay zones. The evidence it provided was results from its Charlotte Unit wells in McKenzie County where the company was producing from three zones, the Middle Bakken, Three Forks 2 and Three Forks 3 (see stratigraphic column below).

Continental_Bakken-Three-Forks-Stratigraphic-Column
Source: Continental Resources Corporate Presentation

As you can see from the picture above, the company’s success in the Three Forks increased its oil in place estimates for the Bakken Petroleum System to 903 billion barrels of oil (BBO) from 507 BBO and recoverable reserves to 32 BBO at a 3.5% recovery factor. CLR has a lot of work to do to prove this assertion and it will be delineating its acreage for multiple Three Forks zone potential.

Producing from the Three Forks is nothing new in the Bakken, but what’s interesting is that CLR is producing from multiple Three Forks (TF) benches which may prove the potential of multiple reservoirs in the Bakken thus more reserves than what has been produced in the Middle Bakken.

I don’t have CLR’s well data organized well enough to show you the results of its TF wells.  Part of the problem is having to dig through well files which are large documents that take a long time to open on North Dakota’s Oil and Gas Division website.  Luckily, some companies give us clues that a well is a Three Forks well by putting “TFH” or Three Forks Horizontal in the well title.

Marathon Oil (MRO) is one of these companies and I have data from 26 of its wells across Mountrail and Dunn Counties, half of which targeted the Bakken and the other half Three Forks. These wells were drilled very close to each other in pairs indicating that the company believes each section is economic for both the Bakken and Three Forks.

Note: When I say the wells were drilled very close, I’m saying same quarter section at minimum with parallel lateral legs.

Cumulative production from Stacked Pay Zones
Marathon Oil_Bakken-Three-Forks-Cumulative-Production
Source: North Dakota Oil and Gas Division / The Energy Harbinger.

I’ve color coded all of the above Bakken wells in green and TF wells in red.  The first two wells, Rhoda 24-31H and Oren USA 31-6 TFH, are a pair of wells which were both drilled very close to each other but in different zones.  What needs to be determined to prove that the Bakken and the Three Forks are separate reservoirs is that the cumulative production will not be effected by the drilling of either well, that is that one well is not draining oil from the other thus resulting in you drilling two wells for the price one.

All of these wells were drilled during 2011 and 2012 and the quick and dirty average cumulative production from them is 97 thousand barrels of oil (MBO) and I usually use 150 MBO as a target for payback from a Bakken well.  This would indicate that these wells are paying back in two to four years which is a solid result and compares well with the company’s historical production in the Bakken.

There’s a lot more to talk about and analyze with regards to this topic and the implications could be large.  For instance, if I have 100 Bakken well locations in my inventory but find out the Three Forks zone is productive in all of those same areas, I now have 200 well locations.  All of the above wells were drilled in clusters across both Dunn and Mountrail County, meaning Marathon either doesn’t think most of its acreage is prospective for multiple zones, it’s capital has been tied up in the Eagle Ford where returns are better or it’s not following the same naming system with all of its TF wells.

I will be looking into the above for MRO as well as where other companies are drilling TFH wells in the Bakken.  When I have more data on CLR, MRO, etc I’ll be writing another article.

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The Well Map Update (3-20-13): Feedback

When I initially started working on The Well Map, I was planning on building a dynamic filter into the free version you see today, before moving it to a new web platform where access would be restricted to paying customers.  Don’t plan on the former being available, however there will be a free demo map with limited well map data points once the new site launches.

The new site is currently under development with an expected launch date of June, 2013.  The map will have multiple filter options for county, operator and well name in addition to ranges for spud date, oil/gas production rates (30-day and cumulative), and oil cut.  There will be other features built into the map too which are designed to make your experience a good one.

Are there any functions I’m  missing that any of you think would be useful?

I’m also working on building in analytics to support the map data, one piece of which will be average NGL cuts where applicable as public data doesn’t break these out at this point.  Are there any other analytical pieces that you think would be helpful?

I appreciate your feedback as me and my team work to complete the first build of this website.

Excerpts from Earnings Transcripts (DVN, NBL, SD, CRZO, MRO, AREX)

I regularly spend time digging through earnings transcripts as I research the various companies and formations I write about.  While it’s currently post earnings season, I thought I’d post a few notes from earnings calls from several companies I’ve recently looked at.  These notes aren’t necessarily the most important points from the call, just ones that interested me.

Devon Energy (DVN)
* D&C six wells in the Cline Shale with “highly variable results.”  Plans to drill 30 more exploration wells in the formation testing various intervals.
* Regarding variability of the Cline results, the company mentioned it’s testing different areas of acreage position and different intervals to see which work best.  It’s confident the play will be economic.

Source: Q4 Earnings transcript (Click here for transcript).

Noble Energy (NBL)
*Plans to test 350k net acreage position in NE Nevada with vertical wells.
*Plans to test 1.8 MM net acreage position in offshore Nicaragua.  (Noble, Niobrara, Nevada, Nicaragua…what’s with that?)
*Will spud exploration well at Karish (follow up from Leviathan 4) in the Eastern Mediterranean.
*Plans to drill 5 to 10 wells in Northern Colorado (North of Wattenberg) where company has 230k net acres (versus 290k net in Wattenberg).
*2013 Drill plan for DJ Basin is to spud 300 wells.

Source: Q4 Earnings transcript (Click here for transcript).

SandRidge Energy (SD)
*90% of rate-of-return (ROR) of a Mississippian Lime well is recovered in its first five years.
*Lowered EUR estimate in Miss Lime to 369 MBOE from 433 MBOE.
*Company projects to move well cost in Miss Lime below $3 million (not including SWD) by end of 2013.
*In 2012, the company produced 10.1 MMBOE (45% oil), a 163% increase compared to 2011.
*2013 plans include D&C 581 horizontal wells and 74 SWD wells in the Lime.
*Agreement with Atlas Pipeline Partners allows for capture of NGLs from Lime.

Source: Q4 Earnings transcript (Click here for transcript).

Carrizo Oil & Gas (CRZO)
*In the Niobrara the company is producing 800 net BOPD on 33 gross wells with five more gross (2.4 net) awaiting completion.
*Plans to test Niobrara down to 80-acre spacing .
*Niobrara wells are 80% oil.
*In Guernsey, Ohio (Utica Shale), CRZO expects 50% to 75% oil cuts with the remainder wet gas (Antero, PDC and Gulfport wells cited).
*50% of the company’s NGL production in the Eagle Ford is ethane; company also makes point that 90% of revenues from Eagle Ford are from oil.

Source: Q4 Earnings transcript (Click here for transcript).

Marathon Oil (MRO)
*70% of Eagle Ford wells will be drilled on pads in 2013.
*D&C costs in the Eagle Ford are now averaging $8.5 million but company expects this to drop to $8.1 million over the near term.
*Bakken wells are being completed at $8.5 to $8.8 million.

Source: Q4 Earnings transcript (Click here for transcript).

Approach Resources (AREX)
*Estimated 2,000 gross drilling locations in the horizontal Wolfcamp play (includes A, B and C benches).
*Average well should be in the 450 MBOE range with D&C costs $5.5 to $6.0 million.
*Expects to recover 85 to 90 MBOE in first year of average well.

Source: Q4 Earnings transcript (Click here for transcript).

Anadarko’s Horizontal Wattenberg Wells are Moneymakers

There’s an old saying in the oil and gas industry that goes something like this, “the best place to find oil is an oil field.”  While it’s exciting to to see what the future holds for newer fields like the Utica and the Tuscaloosa Marine Shale, the Wattenberg field in the DJ Basin (Colorado) is showing us that these old oil fields that have been peppered with vertical wells still contain a lot of recoverable oil and natural gas.  For proof, look no further than Anadarko Petroleum (APC) whose horizontal wells have been delivering fantastic results.

These wells are fairly cheap at $4.5 million a pop and are consistent (see graphs below).  The average well produces 49 thousand barrels of oil (MBO) and 198 million cubic feet of natural gas (MMcf) during its first ten months of production.  Assuming $85 oil, $3 natural gas and a company reported 88% net revenue interest (NRI), these wells are netting more than $4.1 million in their first ten months.

Oil Produced to Date
Anadarko_Niobrara-Oil-EUR
Source: Colorado Oil and Gas Commission/The Energy Harbinger.
Sample Size: 72 wells.

The scatter-plot above shows oil recoveries from 72 of APC’s horizontal wells in the Wattenberg oil field.  Most of these wells are between 5 and 15 months old and have produced between 20 and 60 MBO to date (COGCC’s latest production month reported is December, 2012).  What’s really interesting about this data is that while there’s a few bigger wells and a few smaller wells, nearly every well should be economic and 75% of the wells produced more than 30 MBO in their first ten months.

I’ve calculated a break-even oil production of 60MBO (assuming no natural gas production) at a $4.5 million well cost.  While these wells are still young (notice none in my sample size have produced for more than 25 months) and no long-term data is available, these economics are competitive with any oil play I’ve seen.

Natural Gas Produced to Date
Anadarko_Niobrara-Natural Gas-EUR
Source: Colorado Oil and Gas Commission/The Energy Harbinger.
Sample Size: 72 wells.

I think you have to put Anadarko’s horizontal Wattenberg play in the upper echelon of oil and gas plays.  Not only is it producing a lot of hydrocarbons, but the wells are cheaper than in the Bakken or Eagle Ford and the company is netting a whopping 88% NRI from its wells.  It doesn’t hurt that its working interest averages 96% in each well and the company estimates it has ~4k drill sites with ~300 wells planned for 2013.

I plan to take a look at Noble’s (NBL) Wattenberg wells in fairly short order as they’re the other major player in this field, but I expect the company’s results to be a little shy of APC’s but still strong.

As far as APC’s stock goes, I wouldn’t necessarily recommend buying it as it has skyrocketed over the past year (you could probably do much worse), but maybe start thinking about some of the smaller players in the field like Bill Barrett, Bonanza Creek and PDC.