Posted 3/11/09 (Wed)
By Cecile Wehrman
Exploration companies operating in the Bakken oil field are clearly slowing their activity, but most are hopeful for a turnaround in the near future.
A number of companies released their 4th quarter earnings reports in recent days, laying out their strategies for riding out low oil prices.
The following information is taken from transcripts recorded on the web site www.seekingalpha.com.
Continental Resources CEO Harold Hamm said the company is “hitting the brakes on our drilling program.”
Though this runs against the nature of the company, he said, “It makes no sense to put additional supply into a depressed market.”
Instead, Continental intends to preserve the value of its Bakken assets for a “more rational” market in the future.
“If history is a reliable teacher, the industry will probably over react on the downside and we will see another spike in prices, which again will shock consumers and the economy,” he said.
Even though the current situation is precarious, Hamm said North Dakota remains among the top three priority plays his company will stay involved in.
The company will continue to operate seven drilling rigs, and as contractors compete to hang on to business, Continental expects to realize savings that will help make Bakken drilling more economical.
“One of the most notable events we look forward to this year is the drilling mid-summer of the first Middle Bakken well with the lateral section stacked over one of our earliest Three Forks Sanish wells,” said Jeff Hume, COO.
The well will be a companion to the Mathistad 135-H in McKenzie County and will provide more information about the separation of the two formations.
Hamm said the company’s Norse project in Divide County continues to produce, as well.
Continental is looking for an oil price of $60 per barrel to ease the downturn and they look for that price in the second half of 2009.
EOG Resources will reduce its drilling rigs nationwide from a total of 73 to 45 rigs overall.
EOG considers the Bakken one of its key plays.
“We are now designating the Parshall field as the Bakken core and the extension beyond the Parshall field we’re designating as the Bakken light,” said Mark Papa, Chairman and CEO.
“Although the operations remain strong, the transportation and crude price differentials have caused us to alter our plan and development regarding this high quality asset.”
EOG’s current capacity is about 25,000 barrels of oil per day in the Bakken, with half that being piped to Minnesota.
“Since this oil pipeline is maxed out, we’re currently trucking the remaining half of our production to refineries as far away as Utah and Oklahoma,” he said.
The company is working on alternate permanent transportation outlets for crude and expects to have those in place by the end of the year.
In the meantime, “It just doesn’t make sense to us to squander the economic value of this asset by producing it at very low wellhead netbacks especially when we expect those netbacks to improve considerably later in the year when we solve infrastructure hurdles.”
Even in the current price climate, drilling in the core area remains economic. The Bakken “light” area needs $50 a barrel oil to be economic.
The company will reduce the number of rigs in the light area from 10 rigs to five.
EOG is also holding off on completions of some wells in the Bakken for more favorable weather, to minimize costs.
“We are just in no hurry to rush production and cram it into a market currently has signs of oversupply,” he said.
Wells not completed now, but scheduled by the end of 2009, will increase EOGs daily production to as high as 45,000 barrels per day.
Whiting Petroleum completed the first two infield wells and three horizontal wells in the Sanish field late in 2009, despite difficult weather.
“Based on the results of these two infield wells, we expect to develop our leases with two 10,000 foot horizontal wells in each 1,280 acre spacing unit,” said James Volker, president, adding a total of 78 potential infield well locations.
The wells, the McNamara 42-26H and the Fladeland 12-18H, are located in Mountrail County.
The McNamara had an initial production rate of 2,170 barrels of oil per day and the Fladeland, 1,756 barrels.
The company will continue to monitor horizontal Three Forks wells to see whether the formation interacts with the Bakken.
The company completed an expansion of the Robinson Lake gas plant, south of Stanley, to a capacity of 30 million cubic feet during a period when temperatures hovered between minus10 and minus 40 degrees.
The company is undertaking a common stock offering and plans to limit exploration development to discretionary cash flow. Still, the company plans to complete 40 wells in the Sanish field in 2009. In addition, 18 Bakken wells are planned in the Parshall field.
The number of rigs will be cut back from nine to four by November.
MDU Resources Group President Terry Hildestad said despite market volatility, its assets are becoming more and more valuable long term.
The group will continue drilling in the Bakken, downsizing to one rig.
“We’re focused on maximizing the value in our Southern acreage. We are taking a longer-term view on these properties and retaining leases in the most prolific areas,” he said.
The company remains encouraged by results in the Bakken, but will stretch out drilling in hopes of a better price and better takeaway capacity expected to be in place early in 2010.
Newfield Exploration currently has a single rig program, said President Lee Boothby
“The Bakken program is split between the Bakken itself and the Sanish/Three Forks section and the program is kind of evolving as we go,” he said.
The plan to run the program all year.
“We just brought on a new Sanish/Three Forks well that was in excess of thousand barrels equivalent a day and the Bakken wells continue to be above what I would consider the industry average,” he said.
He said the slowdown in activity in the field is helping those operators who remain, because there is additional capacity available in the refineries.
Boothby said the company is committed to operating within cash flow, so the drilling program won’t change substantially in 2009 unless prices recover.
St. Mary Land & Exploration
St. Mary Land & Exploration will run one rig in the Bakken, under contract throughout 2009.
Depending on results, said Jay Ottoson, president, “We may try to take it and do some other things or kind of cut our exposure to some.”
Ottoson believes the price differential on North Dakota crude will continue to improve as rig count falls and production falls.
“I haven’t done a calculation on how low it’s going to get. I can tell you that to start drilling again at these differentials we would probably need to see $60 oil.”
As rig rates and service rates drop, Ottoson said, companies are holding back to see how low rates will go.
“But everybody’s waiting to see what happens with price.”
Dave Roberts of Marathon Oil says the company is not scaling back in the Bakken, but Marathon is dropping from seven rigs to five in the area, and eventually down to four.
“That will be our program,” he said. “We’re going to protect our leases in these plays, do our due diligence in terms of leases in these plays...And when and if the conditions improve we will be in a position to expand our activities.”
President Clarence Cazalot also pointed out that Marathon is drilling the “best in class” wells, “And so we can actually drill the required number of wells with fewer rigs and at a lower cost than what we had originally planned for.”
The Bakken contributed about 13 percent of the total net reserve additions for Hess in 2008, “and that’s both a consequence of performance as well as drilling so we’ve been very pleased with our experience in the Bakken,” said John O’Connor, president, worldwide exploration.
Hess held its conference call at the end of January.
“We’ve obviously shifted downwards in the Bakken in terms of drilling activity at this time because we were really ramped up and growing and going during 2008. So, we actually welcome the opportunity to take a more studied approach to the Bakken.”