A HART ENERGY PUBLICATION/AUGUST 2016 Sweet Spots and Proven Frack Recipes Help New Bakken Wells Work at $50
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A HART ENERGY PUBLICATION/AUGUST 2016 Sweet spots and proven frack recipes help new Bakken wells work at $50. BAKKEN AT $50 The oldest U.S. fracked, horizontal, tight-oil play turned 16 in June. Operators are leveraging those years of knowledge about the rock into the sweetest spots with the most proven frack recipes to make new wells work at sub-$50 WTI. ARTICLE BY NISSA DARBONNE PHOTOGRAPHY BY MIEKO MAHI Pioneer Energy Services Corp.'s walking Rig 75 crew drills the newly spud, two-section- lateral Flatland 43- 9-1XH for Whiting Petroleum Corp. in McKenzie County, North Dakota. 42 OilandGasInvestor.com • August 2016 n January—19 months into the oil-price handicap,” however, supply and demand data downturn and while the prompt-month remained “constructive to bullish,” Tudor, IWTI contract fell below $27—North Dako- Pickering, Holt & Co. Inc. analysts reported. ta’s daily oil production was still 91.4% of North Dakota Gov. Jack Dalrymple told the December 2014 all-time high. Further, industry members in May that “any sto- the Williston Basin spot price averaged $21 ryline depicting the end of the Bakken or that month, the state’s drilled-but-uncomplet- a boom gone bust is inaccurate,” The Bak- ed (DUC) inventory was 945 wells and about ken magazine reported. According to Inves- a third as many rigs were drilling as in 2014, tor’s findings, producers were considering at according to state records. second-quarter-end how they would deploy a Strong output persisted into February, price-lift windfall—rather than just managing declining just 4,100 barrels to 91.1% of the for their survival. all-time high. “Some folks needed some mon- ey, so they mobilized some frack crews. They 11 drill days went and got some oil,” Lynn Helms, director If the Bakken still worked for some at $40 of the state’s natural-resources department, told WTI, it looked much better in June at $50. Williston-area community members, according Williston Basin pure-play Oasis Petroleum to Reuters. Inc. had driven its cost structure down to $30 The number finally broke free in April, how- in January, having already recalculated for ever, declining 70,000 barrels to 84.8% of the $60, $50 and $40. It budgeted 2016 capex at all-time high. Greg Hill, Hess Corp. president around $35 WTI. and COO, told Investor recently that this was As the price rises, “you make a decision on inevitable. what you want to do with incremental cash “It’s a one-time reset, if you will. There flow—additional drilling, completing DUCs aren’t as many simultaneous operations going or even paying down debt. We will be think- on. When we (at Hess) had 17 rigs running, ing about all of those things,” said Taylor on any given day we had 8,000 to 9,000 bar- Reid, president and COO of Oasis. rels shut in because someone was fracking next But there was reasonable concern over to us.” whether the price would remain at $50 or Hess’ daily shut-in average has fallen to better. “This time last year,” he said in June, about 1,000 barrels. “There was a kind of hid- “it was around $60, and it didn’t hang in den inventory of crude that was always shut in there as long as we all thought.” If it sticks, for sim-ops that has unwound itself. 2015 pro- though, “I think there will be a bias toward duction picked up because of the sim-op effect. more spending.” I think that confused people. They thought the Oasis’ first-quarter production was 50,315 Bakken should be dropping faster than it was.” barrels of oil equivalent per day (boe/d)— WTI pushed past $50 in June until encoun- about as much as in first-quarter 2015 and up tering the undertow of the surprising Brex- from about 43,000 in the first quarter of 2014. it vote. Amidst that and other noise in the It expects its 2016 average will be between marketplace that “we can neither control nor 46,000 and 49,000. August 2016 • OilandGasInvestor.com 43 t had brought 15 additional wells online How did Oasis do that? Among the dynam- this year and had 83 waiting on comple- ics working in the basin now is that there Ition at the end of the first quarter. Lease are 16 years of understanding the target— operating expenses (LOE) per boe were the dolomitic Middle Bakken that is trapped $6.78, down from $8.62 in first-quarter 2015 between the Upper and Lower Bakken and $10.37 in first-quarter 2014. shales—Reid said. Oasis had been on an informal “watch list” Oasis, which entered the play in 2007, has in early 2015 among industry speculators in gotten drill days from spud to release down to Houston as to whether it would succumb to an average of 15 for two-mile laterals that are the tumbling WTI. Its stock price fell to less landed some two miles below the surface in than $5 earlier this year. In May, however, it basin center. “We’ve done it in as short as 11 was the JPMorgan research group’s “favored days,” Reid said. Williston pure-play.” That efficiency gain is part of what reduced In late June, shares were trading at about the North Dakota rig count to fewer than 30 $10. Its borrowing base was $1.15 billion this past June from nearly 200 in June of with $100 million drawn. Its next debt matu- 2014. “You’re drilling so many wells per rig, rity is $400 million in February of 2019. Its so you don’t see as many rigs.” Pure-play Bakken free-cash-flow generation in 2015 was $68 Meanwhile, on the completions side, not producer Oasis million. If at as little as $35 WTI, it expects only is Oasis’ cost down about 40%, but aver- Petroleum Inc. to be slightly cash-flow-positive; about 75% age output per well is greater than in the past. has been able to keep production of its expected 2016 oil production is hedged It is drilling and completing only in the sweet- flat while living at more than $50. est spots and has stepped up its frack recipe, within cash flow Of its roughly 485,000 net acres, 91% is generating IPs and estimated ultimate recov- during the down- HBP. What isn’t is mostly on the edges in eries (EURs) that are more than 30% greater cycle, according to Taylor Reid, Montana and along the eastern side of the than in 2014 on a per-lateral-foot basis. president and northern end of the Nesson Anticline in its These fracks are 100% slickwater, which COO. North Cottonwood area where the water cut is less expensive than gel. Stages have grown approaches 60%. to between 36 and 50. Proppant is 4 million “The results of the pilot wells there were pounds for a two-section lateral and is entire- in line with expectations,” Reid said. ly white sand, tailing in with a small amount “They’re just not as high an EUR [estimated of resin-coated sand. ultimate recovery] as in the core. We wouldn’t “The results we’re seeing are the same as drill it in this environment. We could always from wells completed with ceramic,” Reid elect to re-lease the land.” said. And it has tested a 10-million-pound job Oasis had 16 rigs drilling at year-end 2014; and two 20-million-pound jobs, which Reid in late June, two. Its drilling and completion expects to be able to report on later this year. budget for 2016 is $200 million, down from nearly $1.4 billion in 2014. “As of the last ‘More with less’ quarter, we had held production for six con- To distribute the fluid and proppant more secutive quarters at 50,000 boe/d and were evenly among stages, it is using a dissolv- cash-flow-positive starting in the second quar- able diverter. Operators’ mentions of diverting ter of 2015. It’s been a great accomplishment agents have increased since 2014, although to keep production flat, while living within physical and chemical diversion agents have cash flow,” Reid said. been around. Whiting production engineers Sean Vetter (left) and Greg Morehouse visit with a Whiting manager, Ashley McNamee, at the Flatland 43-9-1XH drillsite. 44 OilandGasInvestor.com • August 2016 DIVIDE COUNTY REFRACK rivately held Resource Energy Partners LLC entered the Bakken in November with the $37.5-million acquisition of American Eagle Energy Corp.’s wells in a sweet Pspot in Divide County, where SM Energy Co. was continuing drilling in June. Rather than drilling new wells—although it is participating as nonop in some of SM’s— the operator is refracking American’s wells. “We classify it as Tier 2 and 3 rock,” said Paul Favret, Resource CEO. It has a higher water cut than in the core, but it is becoming economic again. As the Middle Bakken play is 16 years old, “it’s a great candidate for refracking. There are more than 12,000 hori- zontal Bakken and Three Forks wells. We believe approximately 30% to 50% are viable refrack candidates at $50-plus oil.” The wells it is testing this summer are about two-and-a-half years old. Favret’s propri- etary evaluation method for picking candidates had an 88% correlation in EUR improve- Paul Favret ment versus actual EUR improvement in 17 test wells. Resource Energy The refracks are costing about $1.2 million.