Why to Buy This Bakken Pullback? Production and Recovery, Part 3

by: Michael Filloon

The Bakken names have staged a recent comeback. It would seem I would have been better served to have released this article a little earlier, but I believe these names still have upside going forward. In Why to Buy this Bakken Pull Back? Production and Recovery Part 1 and Part 2, I have documented IP rates and EURs to better understand upside in the Bakken. I believe current estimates for the region are low with respect to the number of locations and expected EURs. This will be worked out in time, so buy some shares and wait, as it is what I am doing.

Continental (NYSE:CLR) had 868900 net acres as of March 2011. 68% of this acreage is de-risked and in development mode. Of its 365 MMBoe 2010 proved reserves, 42% were in the North Dakota Bakken. Continental has had very good results. The six month total production of wells drilled since 2009 by Continental is 4145 Mboe. Over this time it has drilled 69 wells. Its six month average production as of January of 2011, is 60 Mboe. This trails Whiting's (NYSE:WLL) 100 Mboe and Brigham's (BEXP) 81 Mboe over the same time frame, while being equal to EOG Resources' (NYSE:EOG) 60 Mboe. Continental is currently focusing on the Eco-Pad technology. There are several of the Bakken players currently using a technology similar to this, as it was initially developed for use on natural gas wells. Continental's Eco-Pad allows the drilling of four wells from a single pad. It believes through dual-zone development, that a potential 8 wells can be drilled per 1280 acre unit: four wells drilled on the Bakken and a possible four wells in the Three Forks. Continental expects this could generate an EUR of 4.1 MMboe. Each well would have a possible EUR of 518 Mboe. Continental has recently completed four Eco-Pad projects.

  1. Glasoe/Raymo had an IP rate of 940 Boe/d
  2. Kennedy/Miles had an IP rate of 1377 Boe/d
  3. Arthur/Hegler #1 had an IP rate of 1088 Boe/d
  4. Bridger/Bonneville had a restricted IP rate of 745 Boe/d

Continental's Montana Bakken has five recent wells producing.

  1. Rognas 2-22H had an IP rate of 1013 Boe/d
  2. Tolksdorf 1-1H had an IP rate of 642 Boe/d
  3. Big Sky 3-35H had an IP rate of 1163 Boe/d
  4. Clayton 3-20H had an IP rate of 1118 Boe/d
  5. Amestoy 1-6H had an IP rate of 836 Boe/d

Continental expects average EURs of 518 Mboe in North Dakota and 430 Mboe in Montana. It believes that 8 wells could be drilled every 1280 acres. This is an aggressive estimate. If Continental were to have 640 acre development, it would have resource potential of 628 MMboe and 1567 locations. If this increases to 320 acre development, resource potential would increase to 1383 MMboe and 3392 locations.

US Energy Corp. (NASDAQ:USEG) has 5500 net acres in the Bakken as a working interest partner with Brigham (BEXP). It also has 6200 net acres as a working interest partner with Zavanna. In the 13 wells it has participated in with Brigham, USEG has seen very good results. These wells are in the Rough Rider with which only one was a Three Forks well. They averaged between 26 and 32 total stages.
These wells also averaged:

  • IP rate of 2554 Boe/d
  • 7 day IP rate of 1614 Boe/d
  • 30 day IP rate of 955 Boe/d
  • 60 day IP rate of 733 Boe/d

Its partnership with Zavanna is waiting completion of four wells. These wells are scheduled to be completed by mid-summer. USEG uses the same 500 to 700 Mboe EURs as Brigham. An EUR of 500 would have an undiscounted payout of 2 years. An EUR of 700 would produce a 1.1 year undiscounted payout.

Abraxas (NASDAQ:AXAS) has 20835 net acres in the Bakken/Three Forks. It has 130 net locations in this play. Abraxas estimates a 4 Bakken/4Three Forks wells per 1280 acre unit. Abraxas recently drilled an operated Three Forks well. Ravin 26-35 1H had an IP of 1705 Boe/d. Abraxas just completed its first middle Bakken (Stenehjem 27-34 1H well) and it was producing 800 Bo/d. Estimated well cost is $8.5 million. Abraxas' expects EURs of 500 Mboe per well. Its Ravin well has produced 41000 Boe in the first 100 days. Of this 30500 Bbls were oil and 5000 Bbls of NGLs.

Denbury (NYSE:DNR) has 266000 net acres in the Bakken. It currently has 5 rigs running and will increase to 7 by year end. In the first quarter, production was 5728 Boe/d. This will increase to 8700 Boe/d by year end. Denbury estimates 525 Mboe/well. Denbury has several wells in production:

  • Thompson 31-11 SWH had an IP of 1501 Boe/d
  • Thompson 31-11 NWH had an IP of 1605 Boe/d
  • Nelson 41-5H had an IP of 827 Boe/d with 7 of 32 stages pumped
  • Hoffman 149-98-12-1H had an IP of 1894 Boe/d
  • Satter 44-34 SWH had an IP of 2258 Boe/d
  • Christianson 24-9 NEH had an IP of 1017 Boe/d (Restricted)
  • Satter 44-34 NWH had an IP of 2371 Boe/d
  • Sand Creek 21-10 SWH had an IP of 1939 Boe/d

Of these wells three had 30 day IP rates:

  • Thompson 31-11 SWH had a 30 day IP of 645 Boe/d
  • Thompson 31-11 NWH had a 30 day IP of 445 Boe/d
  • Nelson 41-5H had a 30 day IP of 425 Boe/d

Denbury has very good acreage, some of which is in the Sanish. Denbury currently is estimating the ability to drill 3 middle Bakken and 3 Sanish wells in these areas. By the end of this year, Denbury plans to have one-eighth of its production coming from the Bakken. Denbury states its Bakken 3P inventory is 350 million barrels.

GMX Resources (GMXR) has 26087 net acres in the Bakken. It estimates 136 locations with working interest approximately 50%. Its Bakken/Sanish-Three Forks acres have an expected EUR of 500 Mboe. GMXR's Haynesville will receive the bulk of scheduled cap ex, but in 2012 Bakken expenditures increase significantly. It plans only 1.3 net new oil wells this year, and 7 next year in the Bakken. GMXR states it has the potential recovery of 30 MMbbls, which would be 1605 barrels per acre. Wells near or around current GMXR acreage in the Greater Lewis and Clark are:

  • Buckhorn Ranch 31-16H-IP of 1000 Boe/d (8 Frac Stages)
  • Federal 32-4H-IP of 1970 Boe/d (15 Frac Stages)
  • Teddy 44-30TFH-IP of 1874 Boe/d (30 Frac Stages)
  • WLL Froehlich 44-9TFH-IP of 2090 Boe/d (28 Frac Stages)
  • WLL Kubas 11-13TFH-IP of 1953 Boe/d (29 Frac Stages)

Wells near GMXR's Rough Rider South acreage are:

  • Papineau Trust 17-20 1-H (BEXP)-IP of 3042 Boe/d
  • Tjelde 29-32#1-H (BEXP)-IP of 3171 Boe/d
  • Bluefin #1-13H (NYSE:NFX)-IP of 2498 Boe/d
  • Lundin #14-33 (Encore)-IP of 2388 Boe/d
  • Amanda #21-14 (Burlington)-IP of 2526 Boe/d
  • Federal 32-4H (WLL)-IP of 1970 Boe/d
  • Ursus #1-20H (NFX)-IP of 2114 Boe/d

Wells near GMXR's Rough Rider North acreage are:

  • Comford #9-12H (North Plains)-IP of 3128 Boe/d
  • Larsen 3-10 #1H (BEXP)-IP of 3090 Boe/d
  • Thorson #159-9 (Petro-Hunt)-IP of 5820 Boe/d
  • Hodenfield #15-33H (American O&G)-IP of 2661 Boe/d
  • NJOS Federal 56 #11-13H (Oasis)-IP of 2080 Boe/d
  • Bergstrom #15-23 (American O&G)-IP of 3096 Boe/d
  • Heen #26-35 1H (BEXP)-IP of 3791 Boe/d
  • State 36-1 #1-H (BEXP)-IP of 3807 Boe/d
  • Owan-Nehring 27-34 1H (BEXP)-IP of 3362 Boe/d
  • Garvey Federal #1-29 (NFX)-IP of 3816 Boe/d
  • Jackson 35-34 1H (BEXP)-IP of 3540 Boe/d
  • Williston 25-36 #1H (BEXP)-IP of 3394 Boe/d

The Bakken continues to be my favorite shale play in the United States. Its oil dominated resource is well placed in an environment of world demand slowly outstripping supply. The 60 million barrels of oil released to cover lost Libyan supply shows how close these two variables are. Saudi Arabia has the ability to meet this demand, but could take months to come on line. This increased Saudi supply is mostly sour crude, which also creates worry as to refining capacity. Now that OPEC is siding with Iran, the price of oil is headed upward. My estimates have it at $100/barrel, but $110 by year end may be closer to correct.

Disclosure: I am long BEXP.

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