Posted 3/01/16 (Tue)
By Kevin Killough
In their fourth quarter earnings reports, the major oil producers in the Bakken had a common theme of planning for a year of low oil prices.
For the Bakken, this will mean large spending cuts, low rig counts, and production rates dropping slightly throughout the year.
Companies are doing minimal drilling with most completions deferred entirely or significantly reduced.
Hess reported in January an adjusted net loss of $1.1 billion.
The company reported an increase in earnings over the fourth quarter of 2014 in its midstream operations, which is attributed to greater throughput at the Tioga gas plant and increased gathering volumes.
The plant produced at a peak volume of 210 million cubic feet per day in the third quarter of 2015, but that dropped to 186 million cubic feet in the fourth quarter. Hess plans to hold at that level for 2016.
As a result of Hess’s overall losses, the company is scaling back drilling operations in the Bakken and instead focusing on reducing costs.
“Our focus is on value, not volume,” said CEO John Hess.
The company is cutting its capital and exploratory budget to $425 million in 2015, about a 70 percent reduction from the previous year.
The company plans to operate two rigs throughout the year and focus its activity on the “core of the core,” which is the area of the highest production rates.
This is down from an average rig program of eight in 2015 and 17 in 2014.
Due to increased efficiencies, the company reduced per-well drilling and completion costs from $7.3 million in 2014 to $5.8 million last year. In 2016, the company plans to drill 50 new wells and complete 80 wells.
For Bakken production, the company reported an average of 112,000 barrels of oil produced per day last year, up 35 percent over 2014.
For 2016, the company projects production to slow slightly to an average of 95,000 to 105,000 barrels per day.
COO Greg Hill stated the Bakken wells continue to be some of the best in the company’s portfolio.
Continental reported an adjusted net loss for the fourth quarter of 2015 of $86.6 million.
Continental CEO Harold Hamm predicted a recovery to begin in the second half of 2016. Hamm said the company is ready to ramp up operations when that happens.
“The market will rebalance, and we’ll be prepared to operate accordingly,” Hamm said.
He also praised the lifting of the ban on crude exports, which he previously testified before Congress would create more price stability.
The company is experimenting with enhanced completion techniques in shale plays in Oklahoma. These wells, said COO Jack Stark, are providing “some of the best returns in the company,” with initial production 30 to 35 percent better than its legacy wells.
In the Bakken, the company is planning to operate four rigs and focus its activities along the borders of McKenzie and Mountrail Counties.
The company is planning on deferring completion of the wells it drills this year until oil prices improve. Stark said they want to avoid putting more barrels on the market at this time.
“We look at the [uncompleted wells] as cash in the bank,” Hamm said.
The company ended the year with an inventory of 135 uncompleted wells. They project that number to increase to 195 by the end of the year.
The company produced over 135,000 barrels per day in the Bakken region during the fourth quarter of 2015, up from just over 114,000 averages throughout 2014.
Whiting reported a net loss of over $98 million in the fourth quarter of 2015, which is greater than expected.
The company plans to operate two drilling rigs in the Bakken in 2016, but it will suspend all fracking operations by April 1.
“We plan to defer completions in this depressed price environment,” said president and CEO James Volker.
Its drilling operations will be focused primarily in Dunn County.
The company is also cutting its spending by 80 percent, the largest single cut of any major shale producer in the U.S.
The company plans to spend $500 million in 2016, about a third of which will be spent on Bakken operations. Much of that is for maintenance only.
Whiting expects to have a total of 73 uncompleted wells by year end.
Marathon reported an adjusted net loss of $869 million in 2015. The company’s capital spending plan is reduced by 52 percent over last year.
Like Hess and unlike Continental, Marathon’s assets extend beyond shale production.
Despite having other options, the company is spending nearly 70 percent of its budget on its shale operations in Oklahoma, Texas, and North Dakota.
Of the $998 million the company plans to invest in shale operations, $193 million is going to the Bakken. This will support a part-time rig for the year, as well as a part-time frack crew.
However, if oil prices remain low, the company has no long-term drilling options, which means it could reduce drilling activity even further.
“If needed, we have the option to reduce spending further substantially, with all of our acreage held by production” in the three plays, which includes the Bakken, said Lance Robertson, vice-president of resource plays.
If prices do rise, Robertson said the company would not ramp up its Bakken operations until the company sees a sustainable price held over an extended period of time.
For this year, the company will not have a large drilling presence in North Dakota.