Continental Resources plans to stick with its original goal of tripling production and reserves over five years, even though the Oklahoma-based company apparently now has the resources to far exceed the aggressive target it established less than two years ago.
The company’s original plan to drive production to 300,000 barrels of oil equivalent per day by year-end 2017 was based entirely on anticipated output from the Williston Basin’s Middle Bakken and the first bench of the Three Forks formation.
But a lot has transpired on the exploration front since Continental announced its five-year plan in October 2012.
For one, Continental recently established that the lower benches of the Three Forks also are commercial. Moreover, its Oklahoma SCOOP shale play, little more than a good idea two years ago, is said to be as competitive as the Bakken petroleum system. So, why not uncork these additional resources and drive production even higher?
Spending limits“We obviously have sufficient inventory to grow at a faster rate, but that would require outspending cash flow growth at a higher rate, and we don’t want to do that,” Warren Henry, Continental’s vice president of research and policy, told Petroleum News Bakken.
Henry said it’s more important that the company stay within a ratio of 1.6 to 1.7 times its net debt to cash flow, which is where Continental is today.
“We might accelerate a little or slow down a little depending on commodity prices, but we’re in the sweet spot right now,” he added.
Of late it’s been pedal to the metal for Continental, increasing production by nearly 40 percent in 2013 over 2012. With current output of about 150,000 boepd, that means the company already is half way to its 300,000 boepd goal.
Big growth yearAnd the company expects to achieve its preliminary guidance of 26-32 percent production growth in 2014 over 2013, despite having to contend with harsh weather in January.
“Continental is an exploration company — it’s just in our DNA,” Harold Hamm, Continental’s founder and chief executive officer, explained to investors in a February conference call.
In the Williston Basin, the addition of several productive zones in the Three Forks formation undoubtedly will cause Continental to eventually raise the amount of oil it believes can be recovered from the Bakken petroleum system. That stands at 24 billion boe for the Bakken system based on an estimated 903 billion boe of in-place resource. The in-place sum already has been increased several times.
Lower bench revelationData from the Hawkinson project in Dunn County, N.D., demonstrated that a whole lot more oil could be recovered than earlier believed. It showed that after four months of operation, average production of 12 of the 14 lower bench test wells together trended 50 percent above estimated ultimate recovery, EUR, model for a typical Bakken well.
Hamm declared that the “Three Forks package is larger than anyone knew just two years ago.”
After completing six more test projects this year, Continental said it would be poised to accelerate full-field development in multiple zones of the Three Forks. The company produced 93,335 boepd from the Bakken system during the 2013 fourth quarter.
Two years ago Continental also had little basis to believe that down south SCOOP, South Central Oklahoma Oil Province, would evolve into a hot play. In fact, with years of exploration and field delineation still ahead, “SCOOP well economics are on par with the Bakken,” Hamm told analysts.
SCOOP’s production surgeSCOOP accounted for 23,754 boepd in Continental’s 2013 fourth-quarter production and 20 percent of its record 1.08 billion boe of proved reserves at year-end. Fourth quarter 2013 production in SCOOP was more than triple the final quarter of 2012.
“SCOOP today is recognized as a tremendous additional growth platform, and we’re more excited than ever as we delineate SCOOP to the south and expand our footprint into play,” Hamm said. “Exploration is also the key to SCOOP.”
Continental continues to add leasehold to its SCOOP position. And in addition to more exploration and delineation, the company will continue expanding, and even doubling, the length of production pipe, a move that should greatly increase individual well productivity.
“What we have now is a handful of wells with extended laterals,” explained Richard Muncrief, Continental’s senior vice president of operations.
“Some of those are just over 6,000 feet, and we have others that are 9,200 feet. And so we’ve got a smattering of different lengths of laterals. The recovery per lateral foot is pretty predictive. So from that … I think you’re going to like what you see.”
Solid returnsJust over half of Continental’s operated rigs in the SCOOP are currently drilling extended laterals, “an important step in improving already solid returns,” said Rick Bott, Continental’s president and chief operating officer.
The company said it is getting EURs of about 1.2 million boe per two-mile lateral — 500,000 boe per mile and an additional 200,000 boe from “cross-over” spacing.
“You get a 120 percent uplift for about a 30-35 percent cost increase,” Bott noted.
“We’re also planning to do spacing tests and maybe … a couple density pilots later this year to prepare us to accelerate into development mode in future years,” he said.
Building confidenceBott said an estimated 4,500 to 9,000 well locations in the Middle Bakken and Three Forks first bench alone “gave us the confidence for our five year-plan.”
When adding the lower three benches of the Three Forks and SCOOP, he said, the number of well locations on Continental’s 1.2 million acre leasehold increases to a range of 10,000 to 20,000.
“And when you turn that into potential unrisked resource that’s between 4.5 billion and 7.2 billion (boe), which is on top of the proved reserves of (1.08) billion … there’s a tremendous three to four decades worth of inventory.”
So, it turns out that Continental’s current plan to triple production and reserves over five years is actually part of a longer-range plan extending years into the future.
“It’s just the beginning of what we see as a multi-decade growth trajectory based on premium inventories, strong production growth, strong cash flow growth and operating excellence,” Hamm said.
“Bakken and SCOOP exemplify our focus on the superior value of oil and liquids.”