Bakken Update: The Red Queen Is Just A Fairy Tale Part IV

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 |  Includes: CLR, COP, DNR, HES, MRO, NFX, SM, STO, WLL, XOM
by: Michael Filloon

In the first three parts of this series, I have attempted to show the article, "Is Shale Oil Production From Bakken Headed for a Run With the Red Queen?" is off base with some of its key points. Specific points I disagreed with were:

  1. Presently the estimated breakeven price for the "average" well in the Bakken formation in North Dakota is $80 - $90/Bbl In plain language this means that presently the commercial profitability for new wells is barely positive.
  2. The "average" well now yields around 85 000 Bbls during the first 12 months of production.
  3. There is a huge spread in well productivity, cumulative and decline rates amongst individual wells. I believe Mr. Likvern is mistaken that there are very few "big producers", and believe his study used companies that consistently underperform.

In Part 3 of this series, I focused on well results in 2011 around the Sanish Field in Mountrail County. I used this data to refute the assertion an average Bakken/Three Forks well yields around 85000 barrels of oil in its first 12 months of production. This number was found using Statoil (NYSE:STO), Whiting (NYSE:WLL) and Marathon (NYSE:MRO). Of these three operators both Whiting and Marathon have underperformed its competition. I believe this, coupled with 2010 well results produced a skewed representation of the Bakken/Three Forks. Since 2010, IP rates have improved significantly as companies have started to focus on vertical communication instead of well spacing.

Results from this article are focused in northeast McKenzie County. As with the last article, I will focus on 2011 well production, but only use wells that have at least 360 days of production. So no well will have an IP test date before January of 2011.

2011 Grail, Bear Den, Pembroke Field Well Results
Well OP Days 120 Days 360 Days Lateral Stages Choke Water Proppant Ceramic SR
17722 Helis 531 69802 129015 7865 25 28/64 3017439 2699965 1881864 TF
19323 Helis 397 130107 259259 9400 28 26/64 3522775 3285650 2597810 TF
19104 Helis 461 74771 154916 9186 28/64
19273 (NYSE:XOM) 382 36989 73793 10406 24 24/64 2895577 2622967 Sand MB
19049 (NYSE:SM) 556 73375 147822 9778 20 16/64 2681910 1951589 TF
19110 (NYSE:NFX) 460 73636 127328 9535 29 36/64 2580215 3460000 MB
20538 XOM 378 39540 119249 9657 24 10/64 2057960 2347001 640338 MB
20096 (NYSE:DNR) 413 35499 82762 8977 24 12/64 2555319 3170200 MB
19890 DNR 457 42422 92168 9461 24 18/64 2137315 2391309 MB
19305 DNR 488 47906 97050 9102 24 28/64 1600374 2991800 995500 MB
20354 (NYSE:CLR) 418 44126 98914 9771 24 12/64 2065634 2365540 674990 MB
19326 DNR 453 38979 91645 9022 24 24/64 2356044 2887940 1725460 MB
20097 DNR 392 53410 112229 9393 20 25/64 2513780 3068687 938939 MB
19995 DNR 411 51602 99224 9431 24 20/64 2140865 2887940 MB
20012 DNR 382 45226 96341 9387 19 20/64 2443351 2959860 MB
19390 SM 510 3414 99234 9598 21 30/64 3793761 3179849 MB
19997 SM 548 81041 145168 9320 20 16/64 3030843 3012225 MB
20862 DNR 367 52179 104454 9670 26 24/64 2518639 2845230 MB
19433 DNR 498 51841 101803 8636 20 18/64 1977699 2945305 904362 MB
19434 DNR 502 53939 106870 9965 23 24/64 1603427 2941200 MB
19388 CLR 455 55101 105069 9961 30 20/64 2743873 2850852 782473 TF
19897 CLR 365 42237 139480 9749 30 14/64 2383146 2883075 MB
19586 (NYSE:COP) 538 57676 133949 9696 24 12/64 2160191 2589423 790004 MB
19715 CLR 452 60877 103023 9656 24 2075653 2335510 652141 MB
19712 COP 535 49370 90216 9597 12/64
19487 COP 411 38425 126910 9368 20 28/64 1310296 1684170 552220 MB
18691 NFX 383 107592 189014 5302 26 36/64 1658080 2228638 MB
19312 (NYSE:HES) 390 66022 116733 9342 24/64
19690 COP 363 39663 144893 8989 19 30/64 2466910 2932394 MB
18012 NFX 443 98286 181831 9626 32 48/64 2459729 2863959 MB
19889 DNR 488 49723 150605 9046 12 28/64 2127898 2267142 882000 MB
19096 NFX 527 55977 94335 4054 17 32/64 1156700 179600 MB
19741 Zenergy 383 64895 113357 10076 28 22/64 1749928 2358787 MB
20345 411 79888 142048 9440 35 181/64 3188579 3857420 2297020 MB
20026 Zenergy 400 56740 99181 9438 26 22/64 2076470 2119869 MB
19350 Zenergy 513 59670 115799 9530 25 30/64 2594878 2347297 MB
18980 Zenergy 382 91578 167484 9467 26 48/64 1569113 2244469 MB
19740 CLR 402 54707 133125 9655 30 12/64 2616120 3013222 MB
19797 CLR 435 63901 130017 9446 30 18/64 2507158 2798725 820058 MB
59511 CLR 409 59511 129301 9560 30 14/64 2508921 2472897 MB
Totals 58791 123640
Click to enlarge

The statistics from northeast McKenzie County were better than I expected. These results were better than wells in southwest Mountrail County. These results are independent of lateral length, and I would guess that if this was taken into consideration we would see Mountrail County's results improve significantly. The table above spans a very large area. From north to south there are 30 miles separating wells, and 19 miles east to west. All of these wells are on or west of the Nesson Anticline. All of these wells began producing in 2011. Below I listed other notable wells in northeast McKenzie County that did not fall within the guidelines used for the wells above.

Notable N.E. McKenzie County Wells
Well OP Days 120 Days Total Production Lateral Stages Choke Water Proppant Ceramic SR
20589 WLL 317 138974 251459 9413 30 52/64 1325088 1993820 MB
19680 Helis 333 87864 167032 9144 28 26/64 3308506 2674660 TF
19898 Helis 317 109006 198517 9456 27 26/64 3380144 3330826 3330826 TF
21465 Helis 98 108899 9350 29 28/64 3397516 3532991 3532991 TF
22198 NFX 106 67951 9936 32 12/64 2658819 3779287 MB
Click to enlarge

Northeast McKenzie County has areas every bit as good as Mountrail County. 20589 is one of the best wells here, if not the best well in the Basin. It is notable that Whiting produced this result while using lower amounts of water and proppant. The Helis results are some of the best Three Forks results, and more importantly better than the majority of middle Bakken results as well. Newfield continues to be one of the best operators in the Basin and has found ways to get the most from its wells. It has had problems keeping costs in check, but given the results this was warranted.

In summary, northeast McKenzie County has 2011 production close to that of Mountrail County. The data provided in this article used in concert with part 3 of this series shows a very large area with average first year production of over 120000 barrels of oil. This area runs from 12 miles north of Sanish Field southwest to Banks Field. These two fields are roughly 40 miles apart. This area stretches from Banks Field to the southeast ending another 40 miles to Bear Den Field. To the northeast of Bear Den Field there are 20 miles, and from Van Hook back to Alger Field another 20 miles. This is an area of significant size. Moreover, the almost the entire area has at the most one well per 640 acres. This is not the only very good area in the Bakken, but it does give an idea of the work yet to be done. For every 640 acres a conservative estimate (without including the Red River, and bottom 3 benches of the Three Forks) would be 4 middle Bakken and 4 upper Three Forks wells. If we presume one well has been completed in each and every 640 acres, 7 wells are yet to be drilled. Since the majority of wells drilled in this area have been from the middle Bakken, we will assume this is the case throughout. The average middle Bakken well in this area produced roughly 120000 barrels of oil in the first year. The average upper Three Forks well is 90000 barrels. The middle Bakken, per mile, would produce another 360000 barrels of oil and the upper Three Forks would produce 360000 as well. These 720000 barrels of oil at $80/barrel would produce revenues of $57600000. It is significant as middle Bakken wells are paying back in around one year using these parameters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. 120 Days- Total barrels of oil produced in the first 120 days.360 Days- Total barrels of oil produced in the first 360 days.Lateral- Measured in feet.Water- Measured in gallons.Proppant- Measured in pounds.SR- Source Rock (Either Middle Bakken or Upper Three Forks)