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The Bakken Shale is emerging as the Williston Basin's new promising oil exploration frontier… Sounds like a headline from the late eighties? It certainly does, but the statement in fact describes a very current trend.

Last week, Continental Resources (NYSE:CLR) hosted an annual meeting for analysts and investors in Oklahoma City. In its remarkably informative presentation covering the Williston Basin operations, the company emphasized that the vast exploration potential of this oil-rich province has been only partially tapped into. In the Bakken Petroleum System (which includes, from top to bottom, the Lodgepole, Bakken, and Three Forks stratigraphic groups) drilling activity to date has targeted almost exclusively the Middle Bakken and upper Three Forks zones. While those two proven intervals have entered the full development mode over large parts of the Basin, the exploration of several other potentially productive intervals is still in its infancy or has not even started.

Continental spoke extensively of its early well test results and the proposed high-density pilots in the deeper Three Forks zones. In addition, one of the speakers briefly mentioned the exploration potential of the Upper Bakken Shale interval, pointing out that another operator has recently demonstrated very encouraging results in this play. The slide from Continental's presentation (shown below) suggests that 17 test wells have been completed in the Upper Bakken Shale since January 2008.

(click to enlarge)
(Source: Continental Resources October 9, 2012 Analyst Day Presentation)

In Continental's remark the Bakken watchers would immediately recognize a reference to the drilling results by Slawson Exploration in the Mondak field that were recently made public. Slawson's announcement is significant for the Bakken play and may be a precursor to a whole new dimension of exploration activity in the area. These results are worth a brief discussion.

Slawson Exploration Upper Bakken Shale Drilling Results

On September 27, Slawson Exploration (the operator) and its 10% working interest partner PetroShale (AQOGF.PK) announced the initial results from their first four test wells in the Mondak field. These four horizontal test wells are noteworthy for having been drilled and completed in the Upper Bakken Shale itself (as opposed to the vast majority of the industry's development activity which has targeted the Middle Bakken dolomite, a reservoir rock sandwiched between the low permeability source rocks, the Upper Bakken Shale and Lower Bakken Shale).

Slawson is a private E&P company with a significant, long-time presence in the Williston Basin. Slawson's Mondak play acreage (40,000 acres) is located along the southern edge of Elm Coulee field and straddles the southeastern corner of Richland County in Montana and southwestern corner of McKenzie County in North Dakota. The four wells bracket most of the acreage from East to West and North to South and reconfirm the success of the original five un-stimulated wells drilled by Slawson between 1994 and 2007 in the Mondak play. Prior to the announcement, the results had been on a confidential status for competitive reasons. In addition to the four wells on production, two more wells have been drilled and are awaiting flow back or completion.

Each of the four wells was fracture stimulated with different techniques. The preferred completion formula to date, used in the well called "Culverin," showed a 24-hour initial production rate of 476 bo/d flowing, and after 90 days Culverin was producing 200 bo/d on pump.

Well NameIP Rates (24-hr Bo/d)
Arrowhead316 (on pump)
Dart312 (on pump)
Culverin476 (flowing rate)
Cleaver296 (flowing rate)
LassoFlow back test underway
PilumWaiting on completion

The five original Upper Bakken Shale un-stimulated horizontal wells that Slawson drilled adjacent to Mondak from 1994 to 2007 were characterized by modest IPs but very shallow declines. The EURs have averaged a remarkable 730 barrels of oil (these are short - 5,000 foot - laterals), with at least two of those wells expected to exceed one million barrels. While the EURs are high, the net present value is somewhat diminished by the slow pay back: these wells do not have the "flush" production typical of the Middle Bakken wells.

According to the press release, early type curve on the Culverin well (the preferred completion method to date) indicate estimated ultimate recoveries analogous to the five un-stimulated wells drilled earlier (730 Mbo). Slawson expects to be able to complete at least three wells per section, and probably more. Production is 98% oil.

In the press release, Todd Slawson, President of Slawson Exploration, commented:

The first well cost $6 million and now we are under $5 million and still decreasing… The shale wells in the Mondak area will never have flashy IPs but they exhibit very shallow decline curves, hence the high expected EURs and projected recycle ratios of 4.5:1 or greater. As we fine tune the completions we will continue to improve the IPs and economics.

It should be noted that the well cost refers to a one-mile lateral and appears reasonable given the technical complexity of drilling and completing in the narrow shale zone and the play's very early stage of development. According to PetroShale's comment:

With these first five wells we have experimented with completion techniques and micro-seismic data to hone in on the most efficient completion formula. Recent micro seismic test results were very positive and gave us critical data to help fine-tune the completions.

Very notable is the concept of un-stimulated completions that was demonstrated to be successful in the earlier five wells. Putting wells on production without the expensive fracture stimulation could substantially reduce well cost and potentially translate in much higher well density. The press release suggests that Slawson may re-apply this technique in the near future:

As we continue to work our way up the curve on our stimulation techniques we are also anxious to try an innovative idea for un-stimulated wells, which we believe might offer the greatest ultimate recovery and even higher recycle ratios.

Based on the successful test results of these initial wells, Slawson and PetroShale are moving to a three rig, three wells per month program in the fourth quarter of 2012.

While Slawson is the only Bakken operator with extensive experience drilling the Upper Bakken Shale (with close to 40 wells completed to date), it is not the only one actively targeting the play. Fidelity Exploration & Production, a subsidiary of MDU Resources (NYSE:MDU), is actively drilling in the Upper Bakken Shale in the Mondak area and other operators are now aware of the opportunity and, according to PetroShale, are assembling land positions within the Upper Bakken Shale trend in the Elm Coulee-Billings Nose section of the Bakken. Other companies with acreage in the immediate vicinity of Slawson's operations include SM Energy (NYSE:SM), Continental, Whiting (NYSE:WLL), and ExxonMobil (NYSE:XOM).

Notably, a press release by Earthstone Energy (NYSEMKT:ESTE), which dates back to 2010, reported that Exxon Mobil has completed Mondak Federal #11X-14H well targeting the Bakken Shale in McKenzie County with initial production of 532 boe/d (Earthstone has 8.4% working interest in the well). The press release contained little detail.

Implications For The Industry

The concept of horizontal drilling into the Upper and Lower Shale members of the Bakken Formation is certainly not new and, at least in theory, has a tremendous appeal. The Bakken Shale zones are powerful source rocks with rich organic content still remaining in place (total organic content in the Bakken shale intervals is often as high as 10% by weight). PetroShale quotes Dr. Steve Sonnenberg of the Colorado School of Mines suggesting that "90 to 95% of the oil has not migrated from the shale source rock intervals." (Oil and gas produced out of the Middle Bakken and Three Forks are the hydrocarbons that have migrated from the Bakken Shale source, as shown on the diagram below).

(click to enlarge)
(Source: MDU Resources September 18, 2012 Presentation)

PetroShale also mentions a petrochemical analysis of a recent core from the same Upper Bakken Shale trend which "indicated upwards of 30 million barrels of oil in place per section." Interestingly, the 730 Mboe EUR per well demonstrated by the older un-stimulated wells indicate very effective recovery rates, upward of 10% of the original oil in place, based on my quick estimate, which would be very high even by the "standards" of the more permeable Middle Bakken interval. A precise placement of the wellbore within the most oil-saturated section of the shale zone may partially explain the high recovery rate.

The success of the drilling in the more permeable reservoir rock sections, the Middle Bakken and the Three Forks, has overshadowed the industry's earlier efforts to "crack the code" on the super-tight Bakken Shale source rock. Slawson's demonstrated success may give the exploration effort in the shale zones a new impulse. It would be incorrect however to immediately extrapolate Slawson's early results in the Mondak onto the entire Bakken Formation. There are certainly some unique aspects to the Upper Bakken member in the Mondak that may make it particularly productive. The Upper Bakken in this area is relatively thick, about 30 feet and, based on the core samples, has very strong oil shows. The absence of the Middle Bakken member ("pinch-out") and the above-average tightness of the overlying Lodgepole and the underlying Three Forks formations may help preserve high oil saturations in the shale zone (see the map below).

(click to enlarge)
(Source: MDU Resources September 18, 2012 Presentation)

Many questions regarding the transferability of the Mondak's success remain open:

  • Is Mondak area just a sweet spot with unique characteristics that are absent in the vast majority of the Bakken Shale?
  • Do the shale intervals already contribute to the productivity of the wells completed in the Middle Bakken and Three Forks (i.e., do the fracture completions effectively stimulate the shale zones)?
  • Can the shale intervals be economic and competitive with drilling in other adjacent intervals?

Producing oil from the Bakken Shale over a significant portion of the play is still a very remote possibility. However the sheer magnitude of this opportunity captures imagination.

In conclusion, I should note that the Bakken Shale is just one of many untapped exploration opportunities still existing in the Williston Basin. Some of those opportunities, while less familiar than the Middle Bakken and Three Forks, have recently come to the forefront of the industry activity. I intend to cover some of those plays in my follow up notes.

My Bakken-focused stock index includes:

  • Continental Resources
  • EOG Energy (NYSE:EOG)
  • Kodiak Oil & Gas (NYSE:KOG)
  • Newfield Exploration (NYSE:NFX)
  • WPX Energy (NYSE:WPX)
  • Oasis Petroleum (NYSE:OAS)
  • QEP Resources (NYSE:QEP)
  • Whiting Petroleum
  • Enerplus (NYSE:ERF)
  • SM Energy
  • Northern Oil & Gas (NYSEMKT:NOG)
  • Triangle Petroleum (NYSEMKT:TPLM)

Disclaimer: This article is not an investment recommendation and does not provide a view on the value or price direction of any security. Any analysis presented in this article is illustrative in nature, is based on an incomplete set of information and has limitations to its accuracy, and is not meant to be relied upon for investment decisions. Please consult a qualified investment advisor.

Source: Bakken Shale: The New Exploration Frontier In The Bakken