In the fourth part of this series, I will continue to try to circle Kodiak's (NYSE:KOG) Polar and Koala prospects. This is a prime area, and although not all de-risked, there are some very positive production indicators in this area, which is probably why Kodiak mortgaged its company to add all of this new acreage. It is just an opinion, but Kodiak could be the next Brigham (BEXP). I am not comparing these two companies generally, but specifically. By this I mean with Brigham sold it is the new pure play outperformer in the Bakken. This legitimately provides Kodiak with the most upside. To be fair, Kodiak has spent more money in the past few months than anyone could have estimated. The pressure is not on the workers drilling or completing the wells, but the management. In a few months, Kodiak has doubled in size. The pressure is now on management.
As I have said in the other articles, Koala and Polar could be in the deepest part of the Williston Basin. It seems the middle Bakken is well known and documented through much of the Basin, but the question mark seems to the Three Forks. When I speak of the Three Forks, I mean the different (separated) layers. Continental (NYSE:CLR) recently reported there are four benches (layers) to the Three Forks. We use to think under the best case scenario there would be four middle Bakken and four Three Forks wells. In areas where all of these pay zones are commercial, we could see four in each for 20 total locations (that is if the middle Bakken is just four as it could by five). This is all speculation, but if Continental is correct we could see higher resource potential. Remember this is all an estimate of just a small portion of the Williston Basin, so do not take it as gospel. In the Charlotte well area, Continental estimates an increase of 50% in reserves.
To the west of Koala, Continental and Burlington (NYSE:COP) both have seen better than average results when compared to other areas on the Williston Basin. On average these wells are double that of other wells completed in other areas. This is a few miles to the south of Twin Valley Field. This field has the highest IP rate in the Basin. Banks Field shows the importance of a good operator. There several good companies here, and by comparing IP rates in a very close vicinity helps to show how different this production can be:
- A. Johnson 12-1H (Zenergy): IP rate of 1234 Bo/d
- Nordeng 24-13H (Zenergy): IP rate of 1355 Bo/d
- Wahpeton 1-16H (Continental): IP rate of 322 Bo/d
- Steele 1-24H (Continental):IP rate of 743 Bo/d
- Flatland 9-9H (North Plains Energy): IP rate of 929 Bo/d
- Gunderson 15-22 1H (Brigham): IP rate of 2746 Bo/d
The wells used were all completed in 2011. Brigham's well is more than double that of the second best well listed. This may show Brigham is a better operator, or that these companies prefer to hold back production believing the well will have better long term production. Several other big players have wells either being drilled or completed in Banks:
- Hess (NYSE:HES)
It will be interesting to see if these wells will be as good as Kodiak's last Koala wells.
To the east of Banks Field is Westberg. This seems to be the center of Newfield's (NYSE:NFX) northeast McKenzie acreage. This has been a very productive Field and it borders Whiting's (NYSE:WLL) Tarpon prospect. Its Tarpon Federal 21-4H had an IP rate of 7009 Boe/d. The most recent Westberg wells produced:
- Wisness Federal 152-96-4-2H (Newfield): IP rate of 3731 Bo/d
- HA-Rolfsrud 152-96-170H-1 (Hess): IP rate of 584 Bo/d
- HA-Sanford 152-96-1819H-1 (Hess): IP rate of 849 Bo/d
- Harold 1-31H (Newfield): IP rate of 1927 Bo/d
- Wahus 1-12 (Newfield): IP rate of 1676 Bo/d
- Devils Backbone 21-14H (Burlington): IP rate of 2338 Bo/d
- Mazama 44-21H (Burlington): IP rate of 2884 Bo/d
- Phantom Ship 24-22H (Burlington): IP rate of 1885 Bo/d
- Clear Creek Federal 1-25H (Newfield): IP rate of 1670 Bo/d
- Clear Creek Federal 1-26H (Newfield): IP rate of 2166 Bo/d
These wells began producing in June of last year or later. Hess' wells have a much lower production than Newfield and Burlington. Newfield's Wisness Federal well was the best of this group, but most importantly it was completed on one section or 640 acre spacing and 26 frac stages. It is obvious there is something special in this area.
In summary, it looks like the very good acreage to the west of Koala, extends from the Fort Berthold Reservation area. Burlington's Crater Lake 21-14H had an IP rate of 1883 Bo/d in Hawkeye Field. These types of results are being seen in middle Bakken wells completed in 2011 throughout this portion of the play. More importantly are the Three Forks results, which is just beginning to be de-risked in northern McKenzie County. If we continue to see results like that of the Koala wells, the value of this acreage will increase precipitously. The Three Forks reportedly reaches thicknesses of 270 feet. Continental believes it is possible to complete multiple benches of the Three Forks at the same time. If this is done, the total resource per location could double or even triple. Remember we are very early in this play, and Kodiak now has a significant inventory. With infrastructure in place, it will be able to focus on increasing production.
Disclosure: I am long KOG. This is the fourth part in a series of articles analyzing Kodiak Oil and Gas' acreage in the Polar and Kodiak prospects. It is not a buy recommendation. Boe/d=Barrels of oil equivalent per dayBo/d=Barrels of oil per dayEUR=Estimated ultimate recoveryIP rate=Initial production rate