Posted 8/09/16 (Tue)
By Kevin Killough
While oil prices remain stubbornly low, the big players in the Bakken remain consistently optimistic about the future by positioning themselves for a future ramp up in activity.
Most companies are generally reporting an oil price of $60 per barrel West Texas Intermediate Price, sustained over time, as the point when they will begin ramping up drilling and completions beyond what is needed to maintain current production rates.
In the company’s quarterly conference call, Hess CEO John Hess said the company is still betting on a recovery next year.
In the current low-price environment, however, they are not expanding their operations.
“We just don’t think it makes sense,” said Hess.
The company said $60 would be the point when that position changes, which they expect to happen next year.
Hess said there could be some difficulty ramping up, with recruitment and other costly challenges, but he said with the efficiencies and higher initial production rates they’ve achieved, the transition should be smooth.
For the time being, the company continued what Hess called a “lean manufacturing” approach, which focused on “value not volume.”
The company managed to reduce an already low per-well drilling cost by 14 percent in the quarter, for an average of about $4.8 million per well. And they developed a 50-stage frack, up from 35 stages.
This approach resulted in initial production rates increases of up to 20 percent for their completed wells.
As a result, Hess said the company had some of the “lowest cost and most productive wells in the play.”
The company drilled 20 wells in the second quarter of the year, up by one over the previous quarter. They completed 23 wells in the second quarter, a reduction by five over the first quarter.
According to Hess COO Greg Hill, the company will drill 65 wells and bring 90 online before the end of the year.
Hess operated three rigs this past quarter, with plans to drop that to two this month. This will be a 75 percent reduction over the average per month in 2015.
For the second quarter of the year, Hess posted a $392 million loss, which is down from $567 million in the second quarter of 2015.
The Tioga gas plant operated 183 million cubic feet per day, a decrease of 19 million cubic feet per day in the same quarter last year.
The company produced 106,000 barrels per day of oil in the Bakken in the second quarter, which is within the range of its full year guidance.
The company’s capital expenditures in the second quarter of 2016 were only 52 percent of what was expended during the second quarter of 2015.
Like Hess, Continental continued to reduce costs and position itself for a ramp up in activity next year, when it expects prices to rise.
In its second quarter report, company executives outlined a strategy of paying down debt. They will increase well completion as the WTI price holds to the upper $40s and up.
They will add rigs at about the $60 range.
In the meantime, they have continued to curtail production, drilling, and completion activities until oil prices rise.
Throughout the year, the company has aimed to be cash-flow neutral and not take on any new debt, while pushing for significant reductions in its existing debt.
The company carried out drilling and completion activities in Oklahoma and the Bakken as part of research activities into enhanced well completions to increase production and reduce costs.
This included eight test wells in the Bakken to develop these new techniques, which will be ready for application when oil prices rise again.
Continental reported it increased its average estimated ultimate recovery (EUR), which is the estimated total expected recovery of oil and gas from a well, by 13 percent.
Jack Stark, senior vice-president of exploration, said the results of these test wells were “impressive.”
In addition to increasing recovery and reducing the costs of drilling and completion, they’ve greatly reduced the “spud to TD” time, reporting 2-mile drills done in an average of 9.4 days.
Stark said the company may have broken a world record when it recently drilled 15,400 feet laterally with a single bit.
The company expects to have about 190 uncompleted wells by the end of the year, which is up from 135 the previous year.
These wells waiting on completion are meant to position the company to quickly increase production when commodity prices rise.
“We view these . . . as oil in the bank,” Stark said.
The company produced nearly 220,000 average barrels of oil per day, with about 125,000 barrels per day coming from the Bakken in North Dakota and Montana.
They operated an average of four rigs throughout the Bakken.
Continental CEO Harold Hamm said the company has maintained a strong performance without any across-the-board layoffs.
Stark praised the company’s workforce.
“We sincerely appreciate your commitment to excellence,” he said.
Like most companies weathering the low oil prices, Marathon Oil hunkered down to reduce costs and carry out test completions to position itself for a more favorable market in the future.
As with the other major players in the Bakken, the company cited $60 per barrel WTI as the ideal price where activity increases, and the company executives believe that will happen in 2017.
The company has been assigning its skilled employees to “special projects” in order to have that experienced crew ready next year, when it believes the demand for skilled labor will rise.
Most of the Bakken activity has been limited to test wells near where Dunn, McKenzie, and Mountrail County meet.
The company has no rigs currently in the Bakken.
When oil prices rise to a sustained $60 per barrel range, the company said operations in Oklahoma would be its first priority.
In the Bakken, the company produced 53,000 barrels of oil average per day in the second quarter, down from 57,000 for the first quarter. In the second quarter of 2015, the company produced 61,000 barrels per day average.
Whiting was also in research mode over the past quarter, working on its own enhanced completion techniques, which company executives say have produced good results.
Jim Volker, Whiting CEO, said in their quarterly conference their test wells in the core region of the Bakken had an initial production rate of 972 barrels per day, which makes it one of the top performing wells in the state.
A third of the company’s acreage is in Williams County, and a little less than a third is in McKenzie County. The company also has acreage in Dunn, Stark, and Mountrail County.
The Bakken represented 85 percent of the company’s total production, with an average of 114,435 barrels per day in the second quarter.
The company entered into a partnership with another operator and will add a rig in October through this participation agreement.
The company also predicts things will turn around in 2017 and is positioning itself for that rise to $60 per barrel oil.
“We do expect to build some momentum going into fourth quarter,” Volker said.