Seeking Alpha
Oil & gas, small-cap, growth at reasonable price, hedge fund analyst
Profile| Send Message|
( followers)  

The Bakken is known throughout the United States as the largest unconventional resource in the country. This shale has gotten more press than any other, but is it deserved? The size of the Bakken is the most interesting, as it covers an area of 200000 square miles. Middle Bakken thickness reaches 130 feet in some areas of the Williston Basin. Below the Bakken is the Three Forks which reaches 270 feet at its thickest point. Much of these areas are de-risked, but we could continue to find new areas that could produce even better numbers. Currently the Bakken is producing 510000 barrels/day. Another plus, is the Bakken's high liquids content, which increases its value. This is consistent through the entire basin, and much of the gas produced is rich. These heavier hydrocarbons also generate more revenue. When it comes to size other formations in the US are smaller, but if comparisons are made on a well to well basis, the results are not as straight forward. In order to properly compare plays on a well to well basis, I will analyze different metrics to help show these differences. This is not an exact science, as there is geology, but also different drilling techniques and completion methods. All of these can effect profitability. Some variables, like frac water disposal rarely cross an investors mind, but can raise costs from $2 to $5 per barrel of oil depending on well locations or even wait times for disposal.

This article covers estimated ultimate recovery or EURs. This is the amount of oil and gas expected to be economically recovered from a reservoir by the end of its producing life. Take these numbers with a grain of salt, as EURs can vary significantly based on operator and the analyst modeling.

Here are different estimates compiled by oil producers in the Bakken. Remember these estimates differ in location, and some estimates are for the upper Three Forks which is a little deeper than the middle Bakken. These estimates are garnered from a combination of the geology in the area, plus the producers' ability to extract the resource. Estimated Ultimate Recovery or EURs are produced through initial production rates and show how much oil equivalent that should come from each location. Here are Kodiak's (KOG) EURs:

  1. Dunn County leasehold: 800-900 Mboe
  2. Koala (NE McKenzie County): 800-900 Mboe
  3. Smokey (South of Koala): 750-850 Mboe
  4. Polar (SE Williams County): Similar to Koala
  5. Grizzly (SW McKenzie County): 350-450 Mboe

Here are Marathon's (NYSE:MRO) EURs:

  1. Hector/Ajax (NE Dunn): 498 Mboe
  2. Aenaes/Myrmidon (SW Mountrail/NW McLean): 577 Mboe

Oasis' (NYSE:OAS) EURs are:

  1. Indian Hills (North to NE McKenzie County): 787 Mboe
  2. Hebron (Richland County): 600 Mboe
  3. Red Bank (West Williams County): 450 Mboe
  4. South Cottonwood (West Mountrail): 675 Mboe
  5. North Cottonwood (SW Burke): 500 Mboe
  6. St. Croix (West Burke): 400 Mboe
  7. Rough Rider: 700 Mbo

WPX Energy (NYSE:WPX) EURs are:

  1. NE Dunn/SW Mountrail/SE McKenzie counties: 725 Mboe

Baytex (NYSE:BTE) EURs are:

  1. South Divide County: 440 Mboe

QEP Resources (NYSE:QEP) EURs are:

  1. Fort Berthold (SW Mountrail): 900 Mboe
  2. SW Williams to N McKenzie: 550-300 Mboe

MDU (NYSE:MDU) EURs are:

  1. Mountrail County: 250-500 Mbo
  2. Richland County: 250-400 Mbo

Enerplus (NYSE:ERF) EURs are:

  1. Fort Berthold (NE McKenzie/N Dunn): 600-800 Mboe

Linn Energy (NASDAQ:LINE) EURs are:

  1. Sanish Bay (SW Mountrail): 500 Mboe
  2. Westberg (NE McKenzie): 500 Mboe

Continental (NYSE:CLR) EURs are:

  1. Average throughout play of 603 Mboe

Whiting (NYSE:WLL) EURs are:

  1. Lewis and Clark (SW McKenzie): 300-500 Mboe
  2. Sanish-Bakken (Mountrail): 950 Mboe
  3. Sanish-Three Forks (Mountrail): 400 Mboe
  4. Hidden Bench (North McKenzie): 600 Mboe
  5. Tarpon (NE McKenzie): 900+ Mboe
  6. Cassandra (SE Williams): 900+ Mboe

Abraxas (NASDAQ:AXAS) EURs are:

  1. North Fork/Nesson (E McKenzie): 500 Mboe

Samson (NYSEMKT:SSN) EURs are:

  1. North Stockyard (South Williams): 400 Mboe
  2. Roosevelt Bakken (Roosevelt County): 300 Mboe
  3. Roosevelt Three Forks (Roosevelt County): 200 Mboe

GeoResources (NASDAQ:GEOI) EURs are:

  1. NW Williams County: 350-500 Mboe
  2. E Richland/E Roosevelt counties: 350-500 Mboe
  3. Mountrail County: 400-600 Mboe

EOG Resources (NYSE:EOG) EURs are:

  1. Parshall Bakken: 816 Mboe

GMX Resource (GMXR) EURs are:

  1. Lewis and Clark Three Forks: 500 Mboe
  2. Billings Nose (Elm Coulee/S McKenzie): 200-250 Mboe
  3. Bakken: 500 Mboe

Magnum Hunter (NYSE:MHR) EURs are:

  1. E Divide and W Burke counties: 350 Mboe

Denbury (NYSE:DNR) EURs are:

  1. Bakken average: 575 Mboe

IP rates are used to find EURs. The total number of days a well is in production is important. A well that is choked back more will produce less in the first 24 hours. After 90 days of production the rates generated from both wells level off. Longer term production rates reduce the level of error, and are more appropriate in determining estimated ultimate recovery. The only way to be sure as to the accuracy of EURs, is to study each company's results to get a baseline. The area of these wells is also important, as various geological differences could affect longer term numbers. Drilling and completion techniques can also change IP rates. Length of laterals, number of stages, and amount of sand and/or proppant can all effect estimated ultimate recoveries. Realize that a poor outcome in an area does not mean the whole field will underperform, it may just be due to a producer's learning curve.

An example of how 60 and 90-day IP rates can influence the price of a stock, is Kodiak. When this company gave its initial EURs in Koala, there was some doubt to its validity. When two Koala wells were completed in April, it produced good results.

  1. Koala 9-5-6-5H: IP rate of 3042 Boe/d
  2. Koala 9-5-6-12H3: IP rate of 2327 Boe/d

The initial production of these two wells was nowhere near the best wells in the play. Brigham (STO) and Newfield (NFX) had already completed several wells with IP rates north of 4000 Boe/d. These wells had productive 30 day IP rates:

  1. Koala 9-5-6-5H: 30 day IP rate of 1377 Boe/d
  2. Koala 9-5-6-12H3: 30 day IP rate of 1072 Boe/d

The 90 day IP rate was significant. Not only did it show a slow rate of depletion, but it was done with just 24 stages. The 90 day IP rates were:

  1. Koala 9-5-6-5H: 90-day IP rate of 1103 Boe/d
  2. Koala 9-5-6-12H3: 90-day IP rate of 980 Boe/d

These 90-day IP rates suggest the Bakken well has an EUR of 1000 Mboe and the Three Forks well at approximately 800 Mboe. Kodiak's stock eventually pushed above $10/share on these results, with the belief its recent acquisitions in its Polar Prospect will have comparable results. It is conceivable that an increase of stages from 24 to 30 could increase production significantly. A very good IP rate was expected from the upper Three Forks given the Koala Prospect is in a area where the Three Forks is the thickest. This area and southwest Mountrail County are the deepest part of the Williston Basin, but it is not the thickest part of the middle Bakken.

The thickness of the middle Bakken can vary significantly from one county to the next. It is believed the thickest portion is in Alger Field. More interesting is southeast Divide County. Divide's middle Bakken thickness also rivals the thickest middle Bakken thickness in the basin. Continental has been working this area with good results from recent pad drilling.

In summary, make sure to study multiple well results before buying stock. Look for differences in drilling, completion, and geology. An oil producer can have excellent results and not see stock price appreciation, but results that are much better than expected will push a stock higher.

Source: Bakken Update: Williston Basin Estimated Ultimate Recoveries And What They Tell Us