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Vol. 18, No. 32 Week of August 11, 2013
Providing coverage of Bakken oil and gas
Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©1999-2019 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.

Bakken Explorers 2013: Kodiak focused on communication theory

Fracking boosts nearby producing wells; will revise completion procedures to raise output, recoverable reserves

Steve Sutherlin

For Petroleum News Bakken

Kodiak Oil & Gas Corp. has observed evidence of “communication” between Bakken wells during fracture stimulation and it said it will revise well-completion procedures to strengthen production of nearby wells and increase recoverable reserves.

“With this approach we are seeing a positive response from the shut-in wells once they are returned to production, which leads us to believe that we are initiating new fractures into the old well bores and finding new reserves,” Lynn Peterson, Kodiak’s chairman and chief executive officer, said during a March 1 conference on year-end 2012 financial and operating results.

“As a result of that, we decided to revise our completion procedures,” he said.

Based on the observations Kodiak decided to temporarily shut down all producing wells within the immediate vicinity of new wells being completed, saying the gains outweigh the temporary production delays.

Company officials believe that by staggering fractures, the benches may communicate better and open up the entire interval.

Kodiak is testing its well communication theory in two pilot projects using tight well spacing, Smokey and Polar. The pilots will consume about a third of the 2013 drilling budget. In each pilot the company plans to drill six wells in the middle Bakken and six wells in the Three Forks.

However, Kodiak said it will not test the lower bench of the Three Forks even though Kodiak believes its Polar, Smokey and Koala prospects have lower bench potential.

Peterson is content for now to watch how drilling the lower bench goes for his competitors.

“We want to see what the results are before we go spending any capital,” Peterson said of the third bench. “But we’re very comfortable with the first two benches.”

Kodiak said it’s important to test the concept throughout an entire 1,280-acre drilling unit.

Wells in the middle Bakken will be 800 to 850 feet apart, with vertical spacing between the middle Bakken and upper Three Forks about 70 feet apart. Spacing between the upper Three Forks and middle Three Forks is about 50 feet.

Completion operations at Polar are scheduled for mid-year. Smokey will see full development after the Polar project.

Systematic

On Kodiak’s Polar block in Williams County a dozen wells are to be drilled and completed within a single 1,280-acre spacing unit. They will be fracked, then brought on line together.

The sudden surge of oil will need gathering pipelines, Peterson said at the Dec. 5 Wells Fargo Securities Energy, MLP and Pipeline conference in New York.

“We’ve got to be prepared to handle 15,000-to 20,000 barrels in a pretty short time frame in order to move all this properly,” he said. “This is going to be a fun test for us. We think it will really start to show us what this play’s potential is.”

In the Smokey prospect south of Polar in McKenzie County, wells will not be brought on stream at the same time. At Smokey — also a 12-well test with tight well spacing on a 1,280-acre unit — drilling and fracking was already under way in 2012.

“So we’re going to see if there is a difference in production as we frack them over time versus fracking them all together,” Peterson said. “So there’s a little bit of science going into this thing, in trying to figure out what we’ve got here.”

He added: “It is important that we do this work in the early stages of our development program in order to gain information to help us best drain the reservoirs.”

Per well cost down

Kodiak’s well costs in the deepest, most operationally expensive portion of the Bakken have dropped to $10-$10.5 million from $11.5-$12 million per well, the company said.

Kodiak is drilling wells much faster than a year ago due to efficiencies built into the system, Peterson said. A well that once took 35-38 days to drill now takes 20-23 days, with some wells taking less than 20 days to drill.

Crew quality has improved, Peterson said, adding that more wells are being drilled and completed per pad.

Kodiak recently took delivery of a seventh operated drilling rig.

The rig was mobilized to the Smokey project area in McKenzie County, where it will commence drilling a four-well pad, the company said.

Expansion by acquisition

Kodiak, which is focused on the Bakken petroleum system of the Williston Basin, is multiplying its acreage and production in the basin under a purchase and sales agreement reached with Liberty Resources, a small private E&P company, also based in Denver, Colo.

Kodiak is paying $660 million in cash for the assets — 5,700 boe equivalent production per day and 42,000 net acres in North Dakota’s Williams and McKenzie counties.

“The proposed acquisition’s characteristics adhere to our stated strategy of identifying and acquiring reduced-risk, contiguous leasehold in our immediate core areas,” Peterson said.

The acquisition, announced June 3, would raise Kodiak’s land position 27 percent to 196,000 acres from 154,000 acres, and would boost production by 23 percent to about 30,000 boepd from 24,300 boepd.

The acquired leasehold includes 35 controlled drilling spacing units, based on 1,280-acre spacing, and is 90 percent held by production. The southern Williams County lands, about 14,000 net acres, are adjacent to Kodiak’s core Polar area. An additional 25,000 net acres — called “Ursid” — are situated in McKenzie County to the west of the company’s Koala and Smokey areas.

A long runway of growth

“The increase in our inventory of future drilling locations provides the company with a longer runway of sustainable growth,” Peterson said.

“As we continue our down-spacing work in our Koala and Smokey areas, we would expect the number of locations to increase significantly.”

Peterson said Kodiak also would benefit from increased cash flow from the additional production, as well as proved reserves included in the deal.

“As the acquired lands are largely held by production, we can methodically develop the leasehold on a schedule that best fits our capital expenditures and drilling program,” he said.

Kodiak said it would finance the $660 million acquisition by tapping its revolving credit facility.

Competition heats up

Like every major play, consolidation continues in the Bakken, “though a lot of good packages have been purchased already,” Peterson said, explaining that ExxonMobil, Hess, Statoil and other large companies have contributed to the land scarcity, as they expand their positions in the Bakken.

When Kodiak entered the Williston basin of North Dakota and Montana in 2004, it was a small independent hoping to cash in on the rich promise of the region. The company has grown rapidly from a pure explorer of the Bakken with a $6 million annual budget in 2005 into an E&P with a $775 million capital budget for 2013, all allocated to the Williston Basin. 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.

Peterson wants to reduce well costs further.

“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 said.

In the Bakken, it seems the only thing that doesn’t change is change. A bit of flexibility in a company’s drilling program makes sense.



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Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News Bakken)©2013 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.





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