Bakken Breakout

Patterson-UTI Drilling Co.’s Rig #180 drilled Continental Resources’ Rollefstad 1-3H in McKenzie County, North Dakota, in July.

This year has witnessed tremendous progress in development of the Williston Basin’s Bakken shale. Once-weak oil prices have recovered enough to support the play’s economics, and honed completion techniques—operators have drastically increased the number of fracture stimulations in wells—have boosted estimated ultimate recoveries (EURs).

The other key to the Bakken’s potential is also being turned: operators are demonstrating that the equally oil-rich Three Forks-Sanish formation, just below the lower Bakken, could be a separate accumulation. This holds promise to add even more barrels to the Bakken’s already mighty resource. Although more than 1,500 horizontal wells have been drilled in the Middle Bakken, only 100 horizontal wells have been punched into Three Forks-Sanish.

According to the North Dakota Industrial Commission, the state’s Williston Basin Bakken production registered at some 132,886 barrels of oil per day in June. Production from the entire basin has increased by about 150,000 barrels per day during the past two years.

The vast Bakken stretches across portions of North Dakota, Montana, Saskatchewan and Manitoba. The U.S. slice of the pie is estimated to hold mean undiscovered resources of 3.65 billion barrels of light (47-degree gravity), sweet crude—the largest continuous oil accumulation ever assessed by the U.S. Geological Survey. It also holds estimated resources of 1.85 trillion cubic feet of associated gas and 148 million barrels of natural gas liquids.

“We have about five rigs running now, but we are moving back up to scale and have increased our 2009 budget by 42%,” says Harold Hamm, chairman and chief executive of Continental Resources Inc.

Among the recent impressive Bakken well results are several posted by Denver’s Whiting Petroleum Corp. In April it completed two wells in Sanish Field, Mountrail County, North Dakota, for a combined total initial production of nearly 7,000 barrels of oil daily. The #11-16H Rigel State turned in 3,889 barrels of oil equivalent (BOE), and the #11-6H TTT Ranch teed off with 3,102 BOE daily. The company’s total net production in the county’s Sanish and Parshall fields averaged nearly 15,000 BOE daily in March of this year, up 5% from December’s figures and racheted up by 260% from March 2008.

The company expects to run four rigs in Sanish Field through this year, drilling 36 wells. Its average EUR on Bakken wells in Parshall/Sanish fields is 850,000 BOE; average well costs are $5- to $5.5 million.

But the play is not without its challenges. Activity slowed when commodity prices fell, knocking down the basin’s rig count from some 100 rigs (in third-quarter 2008) to about 42 in late August.

“We had as many as 32 rigs working at one point in 2008 before the oil price dropped,” says Harold Hamm, chairman and chief executive of Enid, Oklahoma-based Continental Resources Inc.

“We slowed way down when the oil prices went in the tank in 2008. We have about five rigs running now, but we are moving back up to scale and have increased our 2009 budget by 42%. By 2010, we hope to move up from there.”

Continental Resources entered the play in 2001, and now is the largest Bakken shale leaseholder in Montana and North Dakota with 605,000 acres. To date, the company has drilled some 238 producing wells and participated in more than 150 nonoperated wells. Continental exited 2008 producing some 37,954 BOE per day (70% oil) from about 159 million BOE of proved reserves.

Three Forks-Sanish

“We’ve got a tremendous amount of drilling in front of us, and beginning this year we’ll see more of those reserves move into the proved category,” says Bud Brigham, president and chief executive of Brigham Exploration Co.

About half of Continental’s massive acreage position has potential to produce from the Middle Bakken and Three Forks-Sanish as independent reservoirs.

“Last year we drilled the #1-29H Bice well in the Three Forks-Sanish on the Nesson Anticline in Dunn County, North Dakota,” says Hamm.

The Three Forks-Sanish consists of interbedded dolomites and shale with local development of a discontinuous sandy member at the top; it typically occurs some 75 to 150 feet below the Middle Bakken.

“We felt that it was a separate reservoir that could not be drained from the Middle Bakken. That well came in very nice, so we drilled the #1-35H Mathistad, which was also a nice completion,” he says.

The Bice flowed 700 BOE per day during its first week of production. The #1-35H Mathistad produced 103,000 BOE in relatively short order, and was pumping 187 BOE per day in 2008.

Since then, Continental drilled #2 Mathistad into the Middle Bakken, about 50 feet above and parallel to #1, to prove its theory of two separate producible reservoirs. This past August, the company reported an average 995 BOE per day from its seven-day test period of #2, making it one of the company’s strongest operated Middle Bakken completions to date.

Hamm says the Three Forks-Sanish is slightly superior to the Middle Bakken when measured in production and reserves—and he should know. Continental has drilled about half of the nearly 100 horizontal wells that penetrate the formation.

The company’s latest-and-greatest is its third-quarter 2009 #1-35H Bombach, in Three Forks-Sanish, producing nearly 1,400 barrels per day.

Pad-ing the economics

“Where do we go from here, and what is the most economical way to develop the play?” asks Hamm. “To answer that, we came up with the concept of ECO-Pads.”

Continental’s ECO-Pad system enables multiple horizontal wells from a single pad, with zero boundary-line setbacks from property lines instead of the normal 500-foot setbacks. The method allows longer horizontals to stimulate and harvest reservoir rock that was previously left untouched between abutting spacing units. The company has received permission from the North Dakota Industrial Commission to install eight ECO-Pad units in McKenzie County.

Continental plans to drill up to three Middle Bakken and two Three Forks-Sanish wells per ECO-Pad, saving as much as 10% per well and using 70% less surface area than four conventional drilling pads. Building a single access road to the pad also saves time and money.

“We plan to accumulate more acreage in the key areas and continue our plug-and-perf stimulations with up to 16 fracs per horizontal,” says Hamm. “It seems like the more fracs per well, the better wells we are making. We will drill about 88 gross wells, or 35.6 net wells, in the Bakken this year.”

Continental’s typical Bakken wells are about 11,000 feet deep with 9,000-foot laterals, and it is continually pushing the efficiency envelope, at one point drilling 21,000 feet in 16 days on three wells. Its typical well costs are about $4.7 million, slightly below the 2009 average of $5.5 million for operators in the play overall. Well costs averaged $6 million in 2008.

Field-service costs have fallen substantially. Steel prices are about half what they were only 18 months ago, says Hamm. Rigs that previously demanded as much as $18,000 per day are now asking $12,000.

“Going forward, we could realize as much as a 40% reduction in costs, especially as we use the ECO-Pads,” he says.

“We are continually looking for process improvements and efficiencies to bring our drilling and development costs down further.”

For example, the company has plans to install a CO2 flood test pilot facility. The “huff-and-puff” enhanced-oil-recovery program is on the drawing board, with data assembled and under study by the engineering staff. The construction date has yet to be finalized.

Twenty-eight fracs

Brigham Exploration Co. of Austin, Texas, recently announced its best Bakken well yet—one of the biggest recorded in the play overall—thanks to a previously untried number of fracturing stages. The well was drilled east of the Nesson Anticline in Mountrail County in the Ross area.

“We are proud of the fact that our #1H Anderson 28-33 was the first long lateral well in the basin with 24 fracs along the two-section lateral, and we were pleased with the 2,154 BOE initial daily rate. We expected a very good well,” says Bud Brigham, president and chief executive. “Primarily, that’s because we previously completed a short lateral well in the same area with 12 stages and thus the same stage spacing.”

Will Brigham continue to deploy its 24-stage fracture treatments on other wells? “We’ll see,” says Brigham. “I think it’s onward and upward from here. We’ve now run 28 swell packers in our Brad Olson well,” which was to be fraced with 28 stages in mid-September.”

But don’t be surprised to see the company increase its number of frac stages further, as the E&P is “not close to the point of diminishing returns,” he says. Given how relatively inexpensive each incremental fracture-stimulation stage is, Brigham’s objective is the optimal number of stages to achieve optimal economic returns.

Brigham controls some 290,000 net acres in the basin. About 100,000 net acres are east of the Nesson Anticline, with almost half of those in prolific Mountrail County. Another estimated 100,000 net acres are west of the anticline in Williams and McKenzie counties, a slice of the play that is drawing increasing attention due to sterling well results. The remainder is primarily in Roosevelt County, Montana.

Brigham is in the top tier of Bakken producers, along with Continental, EOG Resources Inc. and XTO Energy Inc. As an early mover in the play, the company benefits from having core acreage centered in some of the best areas, says Brigham. At year-end 2008 Brigham’s proved reserves in the Bakken and Three Forks-Sanish were just under 4 million BOE, and its probables were almost 15 million.

“Our Bakken and Three Forks-Sanish production is running at about 2,000 BOE per day, roughly double that of a year ago and up from less than 100 barrels per day two years ago,” he says. “Despite the pause in our operated drilling during the first half of 2009, our resumed operated drilling is driving our oil production volumes higher.”

Last year, the company drilled single-section short laterals, but in 2009 it is drilling all two-section long laterals. “Also, we’ve observed substantially better results with more multistage fracs using the plug-and-perf method relative to the sliding-sleeve method,” says Brigham. “The wells we’re completing this year are more impactful to our production and reserves.”

During its second-quarter conference call, the company estimated the potential reserves from its 36,000-net-acre Ross area at about 66 million barrels, not including reserves in Parshall and Sanish fields, nor reserves west of the Nesson Anticline in the Rough Rider area, where it has another 100,000 net acres.

“We’ve got a tremendous amount of drilling in front of us, and beginning this year we’ll see more of those reserves move into the proved category,” he says. “Our nonoperated participation in drilling the Parshall/Austin and Sanish fields is ongoing. We’re participating with small working interests in strong wells drilled primarily by EOG and Whiting in those areas. At the same time, our operated drilling program is accelerating, going from one to two rigs last month.”

In addition to the success of its #1H Anderson 28-33 Bakken well, Brigham recently brought online the industry’s best Three Forks well, the #1H Strobeck 27-34, at 2,021 BOE per day. The Ross-area well was treated with 20 frac stages. Its newest completion is its #1H Figaro 29-32, finaled at an initial rate of 1,895 BOE per day. The Figaro well, also treated with 20 stages, is in McKenzie County in the Rough Rider area.

“We have been and will be continuously acquiring Bakken assets,” says Frank Lodzinski, president and chief executive of GeoResources Inc.

“In our view, both these areas, west and east of the Nesson Anticline, are in the development stage, given the number of successful wells drilled in and around our acreage,” he says. “Whether we’re talking about the Bakken or the Three Forks-Sanish, the reserves per well clearly varies by area. It appears that our 20- to 24-frac-stage wells are likely to produce between 500,000 and 700,000 BOE. Given drilling costs of about $6.25 million per well, these wells should generate potential finding costs of roughly $10 to $15 per BOE.”

Like many operators, Brigham “went into hibernation early in 2009,” given the mismatch between low commodity prices and high service costs. But the company sees daylight now.

“In our view we’ve exited the worse part of the cycle and we’ve moved into the best part of the cycle, when costs are low and oil prices have improved, with the potential for further improvement as the economy stabilizes.”

Brigham’s drilling costs in the play have plummeted roughly 40% from 2008. Interestingly, the company also is benefiting from low natural gas prices, which have forced service providers to reduce costs for the same rigs and services used in oil fields.

Last year, Brigham drilled nine operated and 39 nonoperated wells in the play. This year, it budgeted for eight operated and 21 low-working-interest nonoperated wells. The company’s 2009 operated drilling is focusing on the emerging Rough Rider area in Williams and McKenzie counties, site of its new Figaro completion and where in late 2008 it brought in its 1,433-BOE, 20-frac #1H Olson 10-15.

In a new development, Riverton, Wyoming-based U.S. Energy Corp. farmed into Brigham’s Rough Rider position. The deal covers 15 spacing units of 1,280 acres each. Initially, the partners will drill six Bakken wells, operated by Brigham, with a 35% working interest. U.S. Energy will hold the remaining 65%. After six initial wells, to be drilled this year, U.S. Energy will have the option to participate in nine additional 1,280-acre spacing units. Each unit could eventually support up to six wells.

Two wells were already in progress at press time, both in Williams County. The #1H BCD Farms 16-21 is drilling the vertical portion of the hole. The #1H Brad Olson 9-16 has reached a total measured depth of 20,500 feet and, as noted above, 28 swell packers have been run. Results—eagerly awaited by participants and observers alike—should be available shortly.

Spacing strategy

Elsewhere, Houston-based GeoResources Inc., which quietly began acquiring Bakken acreage a few years ago, made some noise this past summer when it acquired a 15% interest in some 60,000 net acres and 15% working interests in 59 producing wells via its existing joint venture with its operator, Slawson Exploration Co., based in Wichita, Kansas.

GeoResources historically has been a Texas and Gulf Coast operator, but it reached out to the Bakken in 2007 when president and chief executive Frank Lodzinski and his management team formed GeoResources Inc., the result of a three-way merger of Southern Bay Oil & Gas LP, Chandler Energy LLC, and GeoResources.

“At the time, the Bakken looked like an emerging oil play with significant opportunity,” says Lodzinski. “Producing property and leases in the West Texas Permian Basin were becoming too overpriced. We were looking for an oil play that was going to significantly expand and we guessed right. I wish we took a bigger position then, but we did get in early.”

The recent acquisition added about 486,000 BOE of proved reserves and about 180 barrels of daily net production, for a mere $10.4 million.

The independent now holds interests ranging from 7% to 15% in some 100,000 acres in the Williston Basin, and the JV has racked up at least 24 successful wells. GeoResources has working interests in another 120 wells in the play.

“Last year the JV had two rigs running, but then everything crashed,” says Lodzinski. “We continued with the program with our operator, Slawson, keeping one rig working continuously. As a result of our continued success and our significant acquisition in May, we have just added two more rigs. We might add a fourth rig from time to time, depending on operations.”

Some 60,000 acres in which it holds interests lie in Mountrail County in the heart of the Bakken; the rest is in adjacent North Dakota counties and in Richland County, Montana. Lodzinski expects to participate in at least 60 more horizontal wells during the next 18 months, with an average net working interest of 7%.

“We have been and will be continuously acquiring Bakken assets,” says Lodzinski.

The JV is developing its Mountrail County assets primarily on 640-acre spacing, drilling to average depths of 9,000 feet and taking 5,000-foot laterals out into the Middle Bakken. Initial production rates on its wells range between 350 and 1,400 barrels per day.

“The economics of drilling on 640s have been quite appealing,” says Lodzinski. “We are seeing improved frac technology and lower costs, and might be testing 15 fracs per lateral. Also, we often drill two wells with opposing laterals per drilling pad, and have reduced our well costs to about $3 million.” The 640-acre spacing units allow the partners to prove up and place acreage on production under an expedited schedule.

Still, the company has also participated in larger units, and it plans some 1,280-acre programs. Lodzinski believes additional upside can be realized through efficient drilling and completion techniques and infill drilling, as has occurred in similar fields in Montana.

The company will continue to develop acreage in Mountrail and the adjacent counties.

“We have learned a great deal about the geology and technology of this play during the past two years,” he says. “But we tend to let the bigger companies do the R&D.”

Given recent results and stable oil prices, those companies will be happy to oblige. Bud Brigham says it’s likely that in the next five years oil production from Bakken and Three Forks-Sanish will exceed that of Prudhoe Bay.

“This is a once-in-a-lifetime field that is very important for our domestic energy supply, and we’re very fortunate to be a part of it,” he says. “The trend here is very exciting to us, and we believe that the best is yet to come.”