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Vol. 18, No. 10 Week of March 10, 2013
Providing coverage of Bakken oil and gas

Pressure theory

Continental builds case for additional Bakken system oil recovery

Ray Tyson

Petroleum News Bakken

Williston Basin exploration pioneer Continental Resources has learned that the various layers making up the Bakken petroleum system are encased and under “very, very similar” high pressure, meaning a lot more oil than currently estimated by the company may ultimately be recovered from the massive system.

The physics behind the pressure theory may help explain why the Oklahoma-based E&P independent is so bullish on the play. Last October it announced a highly ambitious goal of tripling production and reserves by year-end 2017, with the Bakken taking the lead role in the effort.

In addition to oil saturation, “high pressure greatly increases the odds that I’m going to have producible reserves,” Warren Henry, Continental’s vice president of investor relations, said in a May 6 interview with Petroleum News Bakken.

It likely will take until the end of 2013 before Continental has done enough drilling and testing to determine by how much it’s going to raise its current recovery estimate of 24 billion barrels of oil equivalent, an amount that already vastly exceeds the federal government’s estimate by nearly seven fold.

More in common than not

But Continental has analyzed enough core samples and drilled enough wells under its current 20-well exploration program to conclude that the Bakken petroleum system and its seven layers have a lot more in common than not.

Continental views the Bakken as an integrated, high-pressured petroleum system, top to bottom, compared to the former theory that the deeper Three Forks “was sort of a halo of oil” pushed down into that interval based on the pressure in the Middle Bakken, Winston Frederick Bott, Continental’s president and chief operating officer, said in a Feb. 28 conference call with industry analysts.

“We now feel it’s all one cell and it’s all very, very similar pressure,” he added. “And therefore, the recovery factors are going to be much more an important factor for us to determine.”

From top to bottom

The cell actually extends from the Lodgepole just above the Upper Bakken downward through the Middle Bakken and Lower Bakken to the “Nisku” just below the fourth bench of the Three Forks, Henry explained. The cell is sealed with rock shale at the top and bottom.

“The key thing is that you have consistent pressure throughout that cell, and you have lower pressure above it and below it,” he added.

Recoverable oil estimates from the Bakken petroleum system have varied widely dating back to the 1950s. In April 2008, the U.S. Geological Survey estimated the amount of oil that could be recovered using technology of the time at 3-to 4.3 billion barrels, 28 times USGS’ earlier estimate.

The state of North Dakota also released a report in April 2008 estimating there were 2.1 billion barrels of technically recoverable oil in the Bakken.

But these earlier studies largely excluded the Three Forks and its lower benches — estimates Continental has been trying to nail down for several years.

Bakken’s true pioneer

The Bakken’s largest leaseholder and oil producer, Continental is a true pioneer. In 2004, the company completed the first commercially successful well in the North Dakota Bakken to be both horizontally drilled and fracture stimulated, a technology that has allowed the Bakken to evolve into a world-class producer.

Continental also was the first explorer to demonstrate incremental reserves from the Three Forks first bench in 2008 and from the second bench in 2011. Last year the company also became the first to establish production from the third bench, as part of its current program designed to determine the region’s production and reserve potential.

But at year-end 2010 it was Continental’s general belief that the producing Middle Bakken and Three Forks formations were separate and isolated. The company estimated that when including the Three Forks, roughly 24 billion boe could be recovered from 577 billion boe of in-place resource, representing a 3.5 percent recovery rate.

Consistent saturation, pressure

The isolation view changed about a year ago after the company drew numerous top-to-bottom core samples across a vast area of the play and found consistent oil saturation and pressure throughout the system.

“The saturation levels and the pressures were not declining as we got lower,” Henry said. “We had expected to see a decrease. But they were hanging in there and looked just like the first bench of the Three Forks all the way down to the Nisku. So suddenly, I not only have a cell sealed on top, I have a cell that is sealed on top and the bottom.”

With this revelation in hand, he conceded, Continental had widely underestimated the amount of in-place oil within the petroleum system, and therefore boosted the number from 577 billion boe to 903 billion boe, a whopping 57 percent increase. However, the total amount of oil that might be produced, or recovered from the Bakken did not change.

24 billion boe estimate low

“We believe our 24 billion boe recoverable is low, but we don’t know how low,” Henry said. “So that is what we’re in the process of doing right now.”

However, a 3.5 percent recovery rate on 903 billion boe of estimated in-place resource would yield 32 billion boe, while 4 percent would yield 36 billion boe and 5 percent 45 billion boe.

Continental recently increased its exploration program from 14-to 20 wells, with one well currently drilling and seven wells competing. The effort is designed to establish the extent of the lower Three Forks benches, building on the success of the Charlotte 2-22H and 3-22H, the initial producing wells in the second and third benches in the field.

The most recent completion in Continental’s 2013 program is the Angus 2-9H, which flowed at an impressive 1,556 boe per day at 3,200 psi in its initial one-day test period. It is the second well to be completed in the second bench, and is considered a significant step-out, located 27 miles northeast of the Charlotte 2-22H.

Another well is currently testing the fourth bench.

Drilling confirms theory

Drilling results from exploratory wells drilled so far essentially confirm the pressure theory derived from the earlier core samples, Henry said.

“So far, the variation (900-1,500 boe/day) in the initial production results from the second and third bench wells looks just like the variation in other wells,” he said.

Jack Stark, the company’s senior vice president of exploration, told analysts that Continental should have by year-end “a fairly good opinion about the viability of or the producibility of these zones across much of the basin.”

In fact, a company priority for 2013 is “to extend the viability of lower Three Forks benches (layers) to accelerate productivity testing,” Harold Hamm, Continental’s executive chairman and chief executive officer, told analysts.

In addition to the 20 exploration wells to test Three Forks benches, Continental is launching a separate 47 well density program divided into four separate projects. These wells will be stacked in various zones in an effort to come up with the best development pattern.

“What this is all headed for is putting us in a position 18 months to two years from now to where we can say, okay, given all these 70 wells, plus everything else we’re doing, here is the optimum development approach for PAD drilling with today’s technology,” Henry explained.

Production jumps 64 percent

Meanwhile, Continental continues to expand its Bakken production, reporting average output of 67,522 boe per day during the 2012 fourth quarter, a 64 percent increase versus the fourth quarter of 2011. Moreover, Bakken production as a percent of total company output continued to increase over the past year, accounting for 63 percent of total output in the fourth quarter of 2012, compared to 55 percent for the same period a year earlier.

The company recorded overall production of 106,831 boe per day for the fourth quarter of 2012, a 42 percent increase from fourth quarter 2011 levels. Its goal for 2013 is to boost overall production 35-to 40 percent in 2013 over 2012, with total production in February alone on track to exceed 120,000 boe per day.

Continental doubles reserves

Continental also nearly doubled its proved reserves in the Bakken in 2012, ending the year with 564 million boe.

The company participated in 51 net (135 gross) operated and non-operated wells in the Bakken during the fourth quarter. In terms of operated wells, it completed 42 net (55 gross) wells in the Bakken in the fourth quarter, with 30 net (42 gross) wells in North Dakota and the remainder in Montana.

Continental said it plans to complete or participate in completing 226 net (558 gross) wells in the Bakken in 2013, including both operated and non-operated wells. It operates 21 rigs in the play, with 16 in North Dakota and five in Montana.

Continental increased its Bakken acreage position to about 1,140,000 net acres at year-end 2012, up 24 percent from year-end 2011, solidifying its position as the largest leaseholder in the play.

The company also expanded its acreage position to 218,000 acres in another “key catalyst” area called SCOOP, located in Oklahoma. The company plans to double SCOOP’s rig count by the end of the year, from six to 12.

“As excited as we are at what we’ve accomplished this past year in SCOOP, we just barely begun to scratch the surface there,” Hamm said. “One year ago, this play was hardly more than conceptual. Today, it’s one of the most exciting in Oklahoma.”

Continental also had a stellar financial year, reporting net income of $739.4 million for 2012 compared to $429.1 million for 2011, a 72 percent increase. Net income for the fourth quarter of last year was $220.5 million versus a loss of $112.1 million for the same period a year earlier.

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