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Bakken operators weather low oil price environment

 

Posted 8/11/15 (Tue)

Bakken operators weather low oil price environment

By Kevin Killough
The Bakken boom was fueled by innovators who found ways to profitably extract oil from tight rock formations. Now as low oil prices present the industry with new challenges, the same innovative drive is helping to keep exploration profitable.
Second quarter earnings reports are showing the major operators in the Bakken expect to maintain or slightly increase production rates in the future, all while finding new ways to cut expenses.
“Bottom line: more production and lower costs,” said Continental Resources COO Jack Stark in the company’s second quarter conference call last week. 
Continental reported an increase in production of 127,872 barrels per day in the second quarter of 2015. This is an increase of 40 percent over the same quarter last year, and a 5.4 percent increase over the first quarter of this year. 
Marathon Oil averaged 61,000 barrels per day in the Bakken during the second quarter, a 22 percent increase over last year and a 7 percent over the previous quarter.
Whiting also reported slight increases over their first quarter of just over 2,000 barrels more per day. 
Hess was up 11,000 barrels per day over the first quarter and 36,000 barrels per day during the period last year. 
Drilling slowdown
All these increases come as drilling operations are scaled back significantly across the board. 
Hess reported their rig count reduced from 12 to 8 rigs in the second quarter. Based on the current level of activity, the company expects to drill 187 wells, complete 217 wells, and bring 225 wells online by the end of the year. This is a decrease over last year, when the company drilled 261 wells, completed 230, and brought 238 online. 
While production climbed steadily in each quarter, Hess COO Greg Hill reported these increases would eventually reverse as drilling and completion operations slowed, as far as its Bakken operations are concerned. 
“We do expect Bakken production to turn modestly lower in the second half of this year,” Hill said in a conference call on the second quarter earnings. 
Marathon currently has only one rig operating in the Bakken, according to the Department of Mineral Resources. The company reported 22 wells brought online in the second quarter. 
Continental is maintaining a rig count of 10 in the Bakken, but if oil prices remain as low as they are, the company intends to cut back to eight. 
Whiting is also operating an eight-rig program in the Bakken.
Efficiency and Innovation
In order to maintain or increase production while slimming down their drilling activities, operators in North Dakota are looking towards reducing costs, improving technologies, and maintaining efficient operations. 
Hess reported it hasn’t done a lot in the way of altering its well designs. The company has trial wells with increased stages, but these are not in standard use in the company’s Bakken operations. 
“Our well design has not changed,” Hill said. 
Instead of developing technology improvements, the company is focusing on reducing costs and increasing efficiency using its current drilling approach. Hess reported reducing well costs from $7.3 million average in 2014 to $5.6 million in the second quarter of this year, which was also a decrease from $6.8 million in the first quarter of 2015. 
“Supply chain savings amount to about 60 percent of those savings, with lean manufacturing efficiency accounting for the balance of that,” Hill stated. 
Continental is also reducing its well costs and enhancing completion designs, but it’s also focusing on core Bakken regions, which have greater production rates. These include Williams, Mountrail, Dunn, and McKenzie Counties. 
The improvements in well designs are reducing drilling time and increasing initial production rates. 
“And they continue to push the technical limit,” Stark said. 
Compared with older wells, the new designs resulted in 40 to 50 percent increases in production, Continental reported. 
Whiting is also focusing on core areas of the Bakken, as well as improved completion techniques. These techniques actually increase well costs by about 15 percent but deliver greatly improved production rates of 40 to 50 percent. 
Whiting reported one well in Dunn County producing at an initial rate of 4,300 barrels per day. 
This is “one of the very best in the county to date,” said Whiting CEO James Volker. 
The company reported a reduced well cost from $8.5 million last year to $6.5 million in the second quarter of this year. The improved completion techniques increase that to $7.0 to $7.5 million, with profits rising significantly above those costs through improved production rates. 
Future prices
The major Bakken operators said the current course of efficient drilling through location, technology, cost reductions, and other efficiencies will remain in play throughout the low oil price environment. 
Whiting is planning on oil prices remaining where they are. 
“We are tooling Whiting to run and grow at $50 oil,” said Volker. 
Volker said, should prices rise higher than anticipated later in the year, the company could ramp up drilling operations. 
Gary Gould, Sr. Vice-President of Operations for Continental, stated the company plans to do most of its growth in its southern operations in Oklahoma. Over time, if prices remain where they are, Gould predicted production increases to fall off.
“I think you’re going to see that throughout the Bakken play. I think there are a lot of operations and overall production dropping off over time for all operators,” Gould said. 
Hess reported that it intends to maintain its current rate for the time being. This will include maintaining an inventory of 25 to 30 wells to keep production rates where they currently are.
“That’s about as low as it can go,” Hill stated.