I have done a series of articles around and in Kodiak's (NYSE:KOG) current leaseholds in north McKenzie and southern Williams counties in North Dakota. I have followed Kodiak for quite some time, but recently I became bullish. The bullish change in this company had to do with its more recent Koala wells. The IP rates are good, but more importantly the 60 and 90 day rates are much better than anyone had expected.
When looking at a company's IP rates there are several different time periods to consider. A standard IP rate is generally figured over a 24-hour period. There are significant differences in IP rates of companies, even with wells in very close proximity. Because of this it can be difficult to model these wells for a correct estimated ultimate recovery. There are quite a few variables that can affect 24 hour initial production rates of wells:
- Lateral Length: Whether it is a one or two mile long lateral can significantly effect the amount of resource garnered. More recently companies have been experimenting with lateral lengths of four miles.
- Stages: The more stages the more resource. Many companies are currently doing 2 mile long laterals with 30+ stages. Brigham is using 38 stages on many of its most recent wells.
- Choke: Fluid under pressure in the wellbore travels through a choke. This choke is used to control pressure.
- Time Measured: A 24 hour IP rate can be measured through a full 24 hours, or measured over a shorter period of time (one hour) and multiplied to reach the full 24 hours. By doing this, a company could use the best hour for a much higher IP rate. Each company does this differently, which can effectively skew results especially when modeling EURs.
These are just a few differences that effect initial production, but I am going to cover what I consider to be the variables that are most likely to skew Bakken/Three Forks initial production rates. There is only one real way to know if the 24 hour IP rate is not true and that is time. When an IP rate declines much faster in one well than another, it is obvious when the 24 hour IP rate may not be true. This decline judged against the 30, 60, and/or 90-day rate should provide all the information needed (but the longer the time frame the better). I did a comparison of Kodiak wells versus that of Brigham (BEXP) in Bakken Update: Q3 Results, and found Kodiak Koala wells are outperforming most of Brigham's inventory with the exception of a few its Ross wells, which some believe are the best to date. Since there have been a large number of investors comparing Kodiak (pdf) to Brigham, I thought I would do so again to see how Kodiak stacks up against what was thought of as the best player in the Williston Basin. Kodiak's (estimated) 60 and 90 day IP rate results in the Koala are:
- Koala 9-5-6-12H3: 680 Bo/d and 645 Bo/d
- Koala 9-5-6-5H: 875 Bo/d and 790 Bo/d
- Koala 3-2-11-14H: 890 Bo/d and 860 Bo/d (83 day IP rate)
- Koala 3-2-11-13H: 775 Bo/d and 705 Bo/d
The first well on this list is a Three Forks well, and is an excellent result. To put into perspective how good this result was we will compare Brigham's Three Forks wells (60 and 90 day IP rate):
- Liffrig 29-20 1H: 625 Bo/d and 518 Bo/d
- State 36-1#2H: 487 Bo/d and 438 Bo/d
- Pladson 4-9 1H: 390 Bo/d (41 day IP rate only)
Brigham has a couple Three Forks wells still in confidential status, but this gives an idea of its Three Forks development in Ross and Roughrider prospects. Brigham has done a better job of developing the middle Bakken (pdf) than any other player in the basin. Here are Brigham's top wells (24 hour IP rate of 4000+ Bo/d) and the 60-day and 90-day IP rates for comparison with Kodiak's Koala results:
- Sorenson 29-32 2H: 1163 Bo/d and 962 Bo/d
- Sorenson 29-32 1H: 814 Bo/d and 801 Bo/d
- Clifford Bakke 26-35 1H: 1509 Bo/d and 1300 Bo/d
- Jack Cvancara 19-18 1-H: 1162 Bo/d and 967 Bo/d
- Domaskin 30-31 1-H: 1231 Bo/d and 1034 Bo/d
- Knoshaug 14-11 1-H: 902 Bo/d and 753 Bo/d
- Cvancara 20-17 1-H: 1004 Bo/d and 859 Bo/d
- Lucy Hanson 15-22 1-H: 740 Bo/d (60 day IP rate only)
- Abelmann 23-14 1-H: 829 Bo/d and 730 Bo/d
- Lloyd 34-3 1-H: 855 Bo/d and 562 Bo/d
Kodiak Koala wells are being compared with Brigham's best wells in the Williston Basin. More interesting is the upside to these wells. Kodiak completed its wells with a smaller number of stages (24) and had a much lower 24 hour IP rate, although its 60 and 90 day IP rates are much more competitive. Here are the location, 24 hour IP rates and number of stages (pdf) used in completion for the Brigham wells listed above:
- Sorenson 29-32 2H (Ross): 27 stages and 4661 Bo/d
- Sorenson 29-32 1H (Ross): 38 stages and 4335 Bo/d
- Clifford Bakke 26-35 1H (Ross): 38 stages and 4438 Bo/d
- Jack Cvancara 19-18 1-H (Ross): 36 stages and 4357 Bo/d
- Domaskin 30-31 1-H (Ross): 38 stages and 4106 Bo/d
- Knoshaug 14-11 1-H (Roughrider): 36 stages and 3761 Bo/d
- Cvancara 20-17 1-H (Ross): 36 stages and 3909 Bo/d
- Lucy Hanson 15-22 1-H (Roughrider): 36 stages and 3771 Bo/d
- Abelmann 23-14 1-H (Roughrider): 33 stages and 3734 Bo/d
- Lloyd 34-3 1-H (Roughrider): 31 stages and 3240 Bo/d
Kodiak's Koala wells compare with Brigham in number of stages (pdf) and 24-hour IP rate:
- Koala 9-5-6-12H3: 24 stages and 1919 Bo/d
- Koala 9-5-6-5H: 24 stages and 2526 Bo/d
- Koala 3-2-11-14H: 24 stages and 2816 Bo/d
- Koala 3-2-11-13H: 24 stages and 2514 Bo/d
The number of stages used in the Williston Basin have varied significantly from one well to another. 30+ stages are the norm, but there are still a few players using less. Oasis (NYSE:OAS) states it costs approximately $120000/stage. It also estimates 12000 to 15000 additional barrels of oil are produced for each additional stage. Due to this, Oasis is increasing its number of stages from 28 to 36. It has more than 90 days of production data, which has shown production increases of 20% to 30%. Five of Oasis' wells in South Cottonwood saw production increases over 60-day IP rates. Three were 28-stage wells and produced 44000 barrels of oil over the first 60 days. The other two were completed with 36 stages and saw on average, 62000 barrels of oil. Because of this it would not be surprising to see the same type of increases in Koala wells. Using a 25% production increase in Kodiak's Koala 3-2-11-14H, this would raise its 60-day IP rate to 1113 Bo/d. This would make this well better on a 60- day initial production basis of all but five Brigham wells, and quite a bit better than Cvancara 20-17 1-H, which had a 24-hour initial production rate of 3909 barrels of oil. Kodiak's Koala 3-2-11-13H would still have four less stages than Cvancara 20-17- 1-H. These additional four stages could realistically create another 10% to 15% increase in production.
It is difficult to judge whether Kodiak's acreage is better than Brigham's, although its results provide a good argument. Koala's Three Forks wells add more upside as Koala 9-5-6-12H3 produced better on a 60 and 90 day initial production than any Brigham Three Forks well. The combination of its very good middle Bakken pay zone, which seems to be close to Ross like production, and its Three Forks production which could be the best in the Basin given its initial results. If its Polar prospect is as good as Koala, it will have close to 56000 net acres. There are further catalysts for this area, as Whiting (NYSE:WLL) had the highest 24 hour IP rate in the Basin. Newfield (NYSE:NFX) was also seeing large numbers in this area before its announcement of increasing well costs. Continental's (NYSE:CLR) third-quarter announcement that the second bench of the Three Forks could be a commercial pay zone, also has been creating optimism. Kodiak believes its Dunn County acreage is as good as (if not better than) Koala, which increases the total to 90000 net acres of acreage with EURs of 800000 to 900000 Boe. This is more than twice the size of Brigham's Ross, Parshall, and Sanish acreage. As companies like EOG Resources (NYSE:EOG), QEP Resources (NYSE:QEP), Burlington (NYSE:COP), and XTO (NYSE:XOM) continue to de-risk acreage near its Dunn County leasehold we will get a better idea of production expectations. In my opinion, given the upside to the Three Forks in Koala and Polar, this acreage could be as good as any area in the Bakken/Three Fork's.
Disclosure: I am long KOG.
Disclaimer: This article is a direct comparison of Kodiak's most recent Koala wells with Brigham's Ross and Roughrider leasehold. It is not a buy recommendation. Many of the numbers in this article are company estimates and may not be correct.