Kodiak Oil & Gas Corp. anticipates boosting 2013 Bakken-Three Forks sales volumes by more than 80 percent over 2012 levels on projected annual capital spending that barely exceeds 3 percent compared to 2012.
The Denver-based E&P independent suggested that while difficult to quantify, significantly lower well costs should help keep down operational costs, resulting in more bang for the buck.
“Our experience in the second half of 2012 certainly supports a lower-cost trend for 2013,” Lynn A. Peterson, Kodiak’s chairman and chief executive officer, said in a recent statement.
$775 million capex for 2013Kodiak’s entire $775 million capital budget for 2013 is allocated to Williston Basin oil and gas activities. However, the projected tally may change depending on market conditions, oilfield services and equipment availability, commodity prices and drilling results, Kodiak said. The company’s final budget for 2012 was adjusted to $750 million.
Of the preliminary $775 million budgeted for 2013, $600 million is allocated for the drilling and completing of 75 gross (61 net) operated wells; $140 million to non-operated drilling and completion activities for 14 net wells; and $35 million for other items including water disposal systems, well connections, and acreage acquisitions.
“While we modeled nearly $10 million per well for drilling and completions costs in our 2013 (budget), we expect to achieve lower well costs as we move through 2013,” Peterson said.
The 2013 drilling program is designed to provide flexibility in identifying suitable well locations and in the timing and size of capital investment, the company noted.
Kodiak to operate six rigsAs part of the 2013 budget, Kodiak expects to operate six drilling rigs during the majority of 2013. However, the company’s rig termination schedule allows Kodiak to adjust the budget in reaction to economic conditions. Kodiak expects to primarily use one dedicated full-time, 24-hour completion spread, while maintaining the option to add a second 24-hour crew on an as-needed basis.
About a third of Kodiak’s 2013 drilling budget is dedicated to its North Dakota Polar and Smokey pilot projects, designed to test the full potential of the Bakken and underlying Three Forks reservoirs using tight well spacing on 1,280-acre units.
No capital expenditures were allocated to the Green River Basin in Southwestern Wyoming where Kodiak has a non-operated working interest in 30,000 gross acres (7,000 net acres). Participation in future wells in the Green River Basin is subject to prevailing Rocky Mountain liquids and natural gas prices at time of election, the company said.
Kodiak expects to finance it 2013 capital spending budget from existing working capital, operating cash flow and availability under its existing revolving credit facility agreement. As of Dec. 18, the company’s borrowing base and total commitment for the revolving credit facility was $450 million.
Budget reflects confidence“The 2013 budget reflects our continued confidence in the development of our Williston Basin leasehold,” Peterson said. “We are very fortunate to be investing capital in a world-class oil play where we are achieving excellent rates of return.”
Kodiak said it had two gross (1.6 net) wells on flowback, four gross (three net) wells being completed, and anticipated that completion activities would begin on four gross (three net) additional wells by year-end 2012.
Based on the company’s anticipated 2012 exit rate, combined with activities contemplated under its 2013 capital budget, Kodiak projects to average 29,000-to 31,000 barrels of oil equivalent per day in sales volumes for the full-year 2013, which would exceed 80 percent versus 2012’s sales volume growth. The projected exit rate for 2013 sales volumes is expected to range from 38,000-to 40,000 boe per day, the company said.
2012 exit rate reaffirmedAfter assessing production volumes for the first nine-months of 2012, and taking into account anticipated fourth quarter completions activities, the company reaffirmed its previously disclosed projected 2012 exit rate of 27,000 boe per day. Kodiak now believes its average daily production will be in the range of 15,500-to 17,500 boe per day for the full-year 2012. The new range compares to previous disclosure of 17,000-to 21,000 boe per day average production for 2012.
Peterson said that with the majority of Kodiak’s acreage held by production, the company could now focus on efficient multi-well pad development drilling where it can continue to drive down costs.
“Of added advantage, much of our infrastructure is already in place which further improves operations,” Peterson said. “While our 2012 growth in proven reserves, production and cash flow was significant, we planned our 2013 (spending) program to again deliver meaningful growth for Kodiak and its shareholders.”