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Halcon Resources (HK): Williston Basin, A Game Changer

|Includes: Halcón Resources Corporation (HKRS)

As Halcon Resources focuses more on onshore oil and gas production, the Bakken formation in Williston basin has become the core of the company's U.S. operation. In Williston Basin, Halcon has two main production plays; namely Fort Berthold and William County. The Bakken formation in Williston basin contributes 10% of total U.S. oil production. After witnessing production improvement of 20% to 60% by using modern drilling techniques in the Bakken wells of these two plays, Halcon is guiding towards projected production growth of more than 40% in 2014.

Halcon started drilling and completing wells with increasing stage densities by using more Ceramic proppant volume per stage, and that is the key reason for the better production. Proppant is considered to be sand that mixes with the water or fluid used in hydraulic fracture drilling. Ceramic proppants fill the fractures inside the well rock formation and create an efficient channel through which the amount of hydrocarbon recovery will increase. Additionally, the company is using slick water as a fluid in the area during drilling activity. Slick water increases the flow of the fluid used inside the well during drilling, improving the future production rate in the wells. Using these techniques, the total production in the third quarter grew by approximately 40% quarter-over-quarter, in line with the company's projected growth of more than 40% next year.

During the third quarter, Halcon spud three slick water Bakken wells in the Fort Berthold area. In South Fort Berthold, it completed drilling two wells and the 60-day average production accounted for 1,542 barrels of oil equivalent per day, or boepd. The average production is as much as 58% higher than the average Bakken wells. Another Bakken well drilled with slick water in North Fort Berthold produced 2,820 boepd, a 20% improvement over the average Bakken wells in this area.

Apart from improved production rate, usage of ceramic proppant and slick water has reduced the drilling time as well. In Fort Berthold, the average time from initial spudding to total depth decreased by 15% to 17.7 days, whereas in William County, it decreased by 17% to 17.1 days quarter-over-quarter. With the reduced drilling and completion days, Halcon is expected to reduce its drilling cost per day of $700,000 in the Bakken shale.

This ongoing drilling process with ceramic proppant and slick water in the Bakken shale has substantially reduced the rig inventory for next year. Halcon is now operating on average five to six rigs in the area, but in 2014, the company plans to operate an average of four to five rigs in the play. These initiatives will help the company to meet its future guidance of reducing "drilling and completion cost" in all areas by 14% to approximately $950 million in 2014.

Down spacing: Growth Continues

Production from the North Dakota Bakken formation has already grown this year and will grow by 19% in 2014. One technique applied by Halcon in its North Dakota Bakken formation is down spacing. Down spacing changes the standard spacing between two wells bores. When an oil and gas-producing company cannot collect the available hydrocarbons beneath the well, the down spacing technique comes into play. This drill spacing and density regulation is set by the North Dakota Industrial Commission.

Earlier, Halcon tested three 660-foot Bakken down space wells in North Fort Berthold and achieved comparatively better results than other Bakken wells in the play. These three wells produced 2,665 boepd on average.

To continue with this success, in November, Halcon asked permission for further down spacing in William County, Dunn, McKenzie, and Mountrail. The authorization is expected near the line or in the existing 1,280-acre spacing comprising the 2,560 acres. The company is planning to test the down spacing technique in William County during the first quarter of 2014. The new application of proposed down spacing should increase productivity of its reserves, as the ongoing production from tested wells are promising.

Another major oil producer, Kodiak Oil and Gas (NYSE:KOG) also started investing in the down spacing technique, to increase its reserve production in William County. The company has a net acreage of 196,000 in the Williston basin. This year, Kodiak brought two down spacing pilot testing programs in Polar and Smokey and it is on to a full production cycle. The company has drilled 12 wells in a 1,280-acre spacing unit. The average 24-hour test of initial production from the 12 wells in Polar is 2,549 boepd and the 30-day average production accounts for 977 boepd. These Polar wells have reached a 120-day average of 618 boepd in December.

Kodiak also started drilling in the east of Polar area. This 1,280 acre down spacing unit will allow the company to drill eight wells in the Three Fork formation and eight wells in the Middle Bakken formation. These wells are expected to be completed by the summer of 2014.

Apart from Kodiak Oil and Gas, Continental Resources (NYSE:CLR) finished its Hawkinson density project with 14 wells. In initial pilot testing, the combined production from the 11 new wells was 13,400 boepd and the combined production from the existing three wells was 1,450 boepd. These 14 wells are spaced 1,320 feet inter well in the same zone, offsetting 660 feet in the adjacent zone. In 2014, it plans three more density pilot programs with 18 new wells to be drilled. This pilot testing project will be in Hartman, Mac, and Lawrence. Continental has also initiated three other high-density programs in North Dakota, and the result is expected in 2014.

Conclusion

Halcon's total production with an applied modern technique in Williston Basin is impressive. Usage of slick water and ceramic proppant in the play has achieved better results, and the performance should continue in the coming years. Moreover, reduced drilling days helped the company save on operating costs and strengthen its bottom line.

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