Bakken Update: EOG Big Well Design Winner In The Bakken And Probably Everywhere Else

| About: EOG Resources, (EOG)

Summary

Well design can alter production significantly over the first five years of well life.

Some operators try to keep well costs down, hurting economics significantly.

Results in the Bakken and other plays seem to show that operators will be forced to use Mega-Fracs or suffer in this new lower oil price environment.

EOG is the pioneer of enhanced completions and seems to be far ahead of the competition.

Investing in oil and gas can be a difficult prospect. Operators have a plethora of costs, differing leaseholds and production levels. The oil industry is unique based on valuation. The P/E ratio tells us little, although others use this as a basis for putting dollars to work. Operators are often spurned for debt levels and spending to grow production in the face of large debt payments. Investors have access to operator costs, hedges and other pertinent information. Production and well performance are not as easy to find. This data is placed on state sites and some are very difficult to pull data from. Well performance is a major variable, as it has changed the way we look at oil and gas.

We continue to preach about well design and the importance of its effect on production. There were a significant number of people who believed that unlocking more resource from shale would be impossible. The opposite has occurred as Mega-Fracs or enhanced completion methods have caused a major shift in where we think oil will be in the long term. The industry had thought $80/Bbl. oil would be here soon and now we are just hoping for $60.

(Source: Petrocasa USA)

The image above provides a remedial view of a horizontal and vertical well. Both utilize frac'ing, but horizontals generally provide better economics. Verticals also require a very thick payzone, which usually covers a large number of intervals. This is why we still see vertically frac'ed wells targeting the Wolfbone and Wolfberry plays in Texas. This is not possible in the Bakken where there is only a few hundred feet of thickness including the Three Forks. The source rock needs to be fractured as thoroughly as possible. The more fracturing created, the more resource garnered.

(Source: Fracfocus)

Frac'ing is a much more complex technology than I am showing, but this should provide an idea of how it works. Induced frac's or the cracks made by the operator can interlock with natural fracturing (fractures already present naturally) and produce more oil and gas. Every operator has a different approach. This is why results can vary. It is difficult to know who is doing the best job as production figures are not easily attained. I have used Welldatabase.com for all of my analyses. It can be used to compare operators in the same general area. If the research is done with like geology, we can see who is doing the best job. This hopefully will give us insight into how it will do in the future.

Approximately 2,379 horizontal wells have been completed since 9/1/14 in North Dakota. Although we have seen a marked decrease in completions, some areas are still seeing decent traffic. North Dakota has been hit harder than states like Texas and Oklahoma. This is due to lower taxes and tighter differentials.

(Source: Welldatabase.com)

The heat map shows this activity. The red areas have seen the most crude produced. Operators in North Dakota that do not have better acreage in other states will continue to work its best Bakken acreage. Operators like Continental (NYSE:CLR) have put dollar to work in Oklahoma. EOG Resources (NYSE:EOG) is doing the same in Texas. The map provides the location of the best acreage. Focusing on this core area with northeast McKenzie being the focus, we can identify the most active operators.

Name

Well Count

CUM Gas [MCF]

CUM Oil [BBL]

CUM Water

HESS BAKKEN INVESTMENTS II, LLC (NYSE:HES)

163

27,044,136

15,763,976

3,878,455

BURLINGTON RESOURCES OIL & GAS (NYSE:COP)

136

17,005,010

11,607,458

5,827,160

XTO ENERGY INC. (NYSE:XOM)

118

13,243,808

8,259,651

4,418,433

QEP ENERGY COMPANY (NYSE:QEP)

67

14,572,114

10,014,314

4,809,849

NEWFIELD PRODUCTION COMPANY (NYSE:NFX)

45

7,977,050

3,764,285

1,513,779

PETRO-HUNT, L.L.C.

31

8,117,341

3,648,731

952,205

CONTINENTAL RESOURCES, INC.

28

5,824,109

3,259,706

1,572,202

WHITING OIL AND GAS CORP (NYSE:WLL)

14

7,977,522

2,460,999

962,280

OASIS PETROLEUM NORTH AMERICA (NYSE:OAS)

13

1,319,424

1,186,456

680,151

ENERPLUS RESOURCES USA CORP (NYSE:ERF)

12

4,943,091

3,021,808

945,691

HRC OPERATING, LLC (NYSE:HK)

11

1,935,136

1,880,374

1,409,263

SHD OIL & GAS, LLC

11

782,730

582,756

452,681

ABRAXAS PETROLEUM CORP. (NASDAQ:AXAS)

10

1,561,940

800,104

533,694

WPX ENERGY WILLISTON, LLC (NYSE:WPX)

6

1,150,667

997,070

472,358

EOG RESOURCES, INC.

6

1,755,604

907,568

848,977

MARATHON OIL COMPANY (NYSE:MRO)

5

658,063

539,332

145,783

WHITE BUTTE OIL OPERATIONS, LLC

3

282,715

193,554

73,082

SINCLAIR OIL & GAS COMPANY

2

146,276

93,766

92,873

SLAWSON EXPLORATION COMPANY, INC.

1

152,685

113,297

41,483

(Source: Welldatabase.com)

Hess is the most active, followed by Conoco and Exxon. QEP Resources has been busy, but it has some of the best acreage. Continental's numbers are down, but it is focusing on better STACK/SCOOP leasehold. EOG Resources also has decreased its number of completions.

(Source: Welldatabase.com)

I tightened the search to northeast McKenzie and southwest Mountrail counties. This is some of the best geology in North Dakota. 119 locations were identified using the same time frame. Most have been drilled and completed on pads, which aids in decreasing costs.

(Source: Welldatabase.com)

Hess was the completions leader. It was followed by Continental and Petro-Hunt.

(Source: Welldatabase.com)

Cumulative barrels of oil equivalent also show Hess as the leader by a wide margin. Continental and Petro-Hunt are second and third.

Name

Well Count

CUM Gas

CUM Oil

CUM Water

HESS BAKKEN INVESTMENTS II, LLC

57

11,084,321

6,083,838

1,127,764

CONTINENTAL RESOURCES, INC.

23

3,917,475

2,710,253

1,508,772

PETRO-HUNT, L.L.C.

17

5,180,781

2,494,401

606,009

XTO ENERGY INC.

12

1,327,668

785,946

201,489

ENERPLUS RESOURCES USA CORPORATION

6

2,844,874

1,615,228

333,543

BURLINGTON RESOURCES OIL & GAS COMPANY LP

3

498,303

352,308

88,296

EOG RESOURCES, INC.

1

624,323

310,638

89,239

(Source: Welldatabase.com)

When looking at all operators with completions, it is important to identify production on a per well basis. Hess has larger cumulative production numbers, but how does that relate by location? It is also important to see how each operator's wells model going forward. If we break down the average per well hyperbolic decline, we get an idea how all of these locations will perform over a specific time frame.

The table below provides the current average recoveries for all the wells analyzed. Using a hyperbolic decline extending production three years a EUR was developed. This provided a 5-year EUR. Each operator had differing start times, so this varied from 50 to 62 months. The EURs did provide some interesting results:

Operator

EUR (BO)

Total Months

Recovered Oil

Months Produced

Remaining Recoveries

Remaining Months

HES

220,700

59

134,789

23

85,911

36

CLR

365,185

60

169,674

24

195,512

36

Petro-Hunt

304,504

62

179,552

25

124,951

37

XOM

184,260

59

108,976

23

75,284

36

ERF

484,192

57

344,088

21

140,104

36

COP

181,459

59

140,428

23

41,032

36

EOG

567,286

50

408,610

14

158,676

36

(Source: Welldatabase.com)

The data is only for oil production and does not include natural gas. The results had COP, XOM and HES at the lower end. Results from CLR and Petro-Hunt were in the middle, with EOG and ERF outperforming. It is important to note that EOG only had one well and COP just three, so it isn't necessarily a good interpretation of overall results. It is also important to note this comparison is not over the same number of lateral feet. If specific operators run short (one mile) versus long (two mile) laterals, it will affect production and costs significantly. It also included middle Bakken and Three Forks locations. The Three Forks generally underperforms the Bakken by 20%. This could change the number as well.

The results generated show the productivity of Bakken wells in northeast McKenzie County. There are some major differences in production by operator. Enhanced completions have a significant number of changing variables and every operator does it differently. Some on the basis of cost and others production. We have covered EOG's outperformance before and continue to think it is one of the best operators in the US. The difference in production based on differing well design is significant. In our opinion, it will be the difference between some operators outperforming and others going out of business.

Disclosure: I am/we are long EOG, XOM, COP, HES, NFX, MRO.

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.

Additional disclosure: This article is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Well data is provided by Welldatabase. Accordingly, the publication of articles should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. This information is provided for guidance and information purposes only. This information is not intended to provide investment, tax, or legal advice. The information contained herein has been compiled from sources deemed reliable and it is accurate to the best of our knowledge and belief. However, I cannot guarantee its accuracy, completeness, and validity and cannot be held liable for any errors or omissions. All information contained herein should be independently verified and confirmed. Hartstreet LLC does not accept any liability for any loss or damage whatsoever caused in reliance upon such information. Readers are advised that the material contained herein should be used solely for informational purposes. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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