Continental Boosts Bakken Outlook

On the heels of favorable well results in McKenzie County, North Dakota, Continental Resources Inc. raised its original oil in place (OOIP) estimate for the Bakken shale—not just by a few percent, but by a full 57%. Hart Energy Research believes this development bodes well not only for the company but for other Bakken acreage holders as well.

On December 3, 2012, the company reported that its Charlotte 3-22H well yielded a 24-hour initial production (IP) rate of 953 barrels of oil equivalent (BOE) per day. This well tapped into the third bench of the Three Forks formation and was completed nearly six months after the Charlotte 2-22H, which had targeted the second bench of the Three Forks and yielded a 24-hour IP rate of 1,396 BOE per day. Management reported that the 1,280-acre Charlotte Unit, in the northern edge of McKenzie County, is the first property in the Bakken to produce at three separate formations (Middle Bakken and the two previously mentioned Three Forks layers).

As a result, Continental raised its late-2010 OOIP estimate of 577 billion BOE to 903 billion, believing more of its acreage will, as in the Charlotte Unit, show potential in multiple, stacked shale formations. While the company has not yet revised its previous estimate of 24 billion BOE of recoverable resources, management noted “there may be upside” to that number.

The well results also vindicate the company’s choice of acreage in the Bakken. Unlike leading Bakken operators Whiting Petroleum Corp. and EOG Resources Inc., which hold large positions in top-producing Mountrail County, North Dakota, Continental Resources has major positions in McKenzie, Divide, Williams and Richland counties.

Already a leading Bakken acreage holder in early 2012 with 946,000 acres, Harold Hamm’s Continental Resources further consolidated its position in the play with a $650-million purchase of 119,218 Bakken net acres from Samson Resources Co., a privately held independent. The deal, which closed on December 20, shows that Continental Resources is doubling down on its existing locations: All of that acreage is in Divide and Williams counties; 70% of it is already operated by the company, and Continental believes the acreage is prospective for deeper Three Forks benches.

Also on December 20, the company’s management revised its 2013 guidance for drilling and capital expenditures to reflect closing of the Samson acquisition. Its 2013 operating capex (excluding acquisition-related items) is now guided at $3.6 billion, compared to the $3-billion 2012 burn rate.Net well completions are now guided at 309, compared with 300 in the November 7 guidance and 286 estimated for 2012.

As a result, yearly production growth is now projected at 35% to 40% for 2013, compared with the previous guidance of 30% to 35%. Going further, the company’s goal is to triple its oil and gas production to 300,000 BOE daily by 2017; this goal compares with a third-quarter 2012 combined production rate just above 100,000 per day.

The company also expects to achieve efficiency improvements in 2013. Executives mentioned in its third-quarter earnings call that spud-to-spud well costs had come in 25% below first-quarter 2012 levels, and projected that Bakken well costs—which represent more than half of 2013 anticipated operating capital expenditures—would fall from the current $9.2 million to $8.2 million, thanks to pad-drilling techniques and more slack in completion-crew availability.

Hart Energy’s North American Shale Quarterly service, which maintains acreage positions, well projections and production forecasts for top-tier players in 17 North American shale plays, has identified operators whose expected ultimate recovery volumes could see upside based on Continental’s well test results. These include Hess Corp. and ExxonMobil Corp., which have substantial acreage positions surrounding the Charlotte Unit.