Why to Buy This Bakken Pullback? Production and Recovery, Part 4

by: Michael Filloon

« Click here for part 3 «

In the fourth and final segment to this series, I will show how demographics affect the amount of recoverable resource in the Bakken. There can be a huge difference in IP rates and EURs from Ross to the Elm Coulee. Brigham (BEXP), Kodiak (NYSE:KOG) and Whiting (NYSE:WLL) seem to be the best at documenting results. These results show very high IP rates, and new techniques important to EURs, and lowering costs. As other companies get a feel for the play and develop consistency, we will be able to compare and contrast results. Until then, we will piece together information to see which companies are the best ways to play the Bakken.

SM Energy (NYSE:SM) has 204000 net acres with Bakken/Three Forks exposure. It has 2 rigs running with a third added sometime this year. It estimates well costs between $6.5 and $8 million. At the end of 2010, SM announced its Norby/Wilson simul-frac results. These wells were completed to sales around mid-October.

  • Norby 16-20H had a 7 day max sales of 955 Boe/d
  • Norby 9-20H had a 7 day max sales of 1100 Boe/d
  • Wilson 8-20H had a 7 day max sales of 1140 Boe/d

SM is a very good company. It has a conservative management and very good acreages in several different plays in the United States. At this price, SM has value.

Resolute (NYSE:REN) has 33415 net acres in the Bakken. This acreage is divided into three areas.

  1. New Home-23528 Net Acres
  2. Paris-8425 Net Acres
  3. Shep-1423 Net Acres

Five gross wells were drilled in 2010. Four wells are currently producing with one awaiting frac. The New Home prospect is operated by GeoResources (NASDAQ:GEOI) in Williams County. Two wells in this area have results.

  • Carlson 1-11H (640 acre) IP of 685 Bo/d, 238 Bo/d 30 day IP
  • Siirtola 1-28-33H (1280 acre) IP of 840 Bo/d, 245 Bo/d 30 day IP
  • Anderson 1-24-13H (1280 acre) IP of 905 Bo/d, 373 Bo/d 30 day IP

Resolute currently has two wells completed in the Paris prospect of McKenzie County, both operated by Marathon (NYSE:MRO). Marathon has an average 30 day IP of 350 to 700 Bo/d in this area. I would guess these two wells fall somewhere in between. Marathon also estimates EURs of 350 to 500 Mboe/well. Resolute has a good size acreage in the Bakken when compared to its market cap. I like this company based more on its EOR business, than its Bakken holdings. If I were to compare Bakken companies of similar size, I would rather own Kodiak (KOG).

Newfield (NYSE:NFX) has 174000 net acres in the Williston Basin. It has a 5 rig program in place. An estimated 15 wells will be completed in the second quarter of this year. By Bakken standards, Newfield has outperformed much of the competition. Its acreage is broken down to five locations.

  • Catwalk
  • Big Valley
  • Westberg
  • Aquarium/Watford
  • Lost Bear

Newfield's last three wells have an average IP rate of 3700 Boe/d.

  1. Westberg-Well has IP of 4468 Boe/d
  2. Aquarium/Watford #1- IP of 3311 Boe/d
  3. Aquarium/Watford #2- IP of 3417 Boe/d

Newfield is a good company with even better success in the Bakken. Its IP rates are some of the highest in the Williston Basin.

QEP Resources (NYSE:QEP) has 89000 net acres in the Bakken. It estimates well costs of $6.5 to $8.5 million. QEP estimates it will have EURs of 350 to 750 Mboe. It has acreage in Bailey field which has IP rates of 500 to 1000 Bo/d. More important is its Parshall/Sanish field locations which has IP rates of 750 to 3000 Bo/d. It has 3 rigs running and has averaged an IP rate of 1530 Boe/d with long laterals and 998 Boe/d with short laterals.

QEP has modeled its Bakken wells. This model includes:

  • IP of 1370 Boe/d
  • 75% initial decline
  • Terminal decline of 8%
  • Well life of 28.3 years
  • EUR of 610 Mboe
  • 50% of EUR in 5.3 years

No one refutes the Bakken has an incredible amount of resources. These resources could increase significantly through additional locations, better technology and increased experience. EURs vary significantly from one area in the Bakken to another. Some operators have much better IP rates due to location, while others are just better at extracting resource. Until more data is documented we won't know which is true.

Disclosure: I am long BEXP. This is the fourth part in a series of articles examining IP rates and EURs of oil production companies active in the Bakken. This article is not a buy recommendation. Before purchasing stock, I would advise the investor study the company thoroughly. Substantial losses are possible in a very short period of time, and especially with companies linked to commodity pricing. If you have any questions or anything to add, please email me.Sources: Resolute, SM Energy, QEP Resources, GeoResources, Marathon, Newfield.