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Vol. 17, No. 41 Week of October 07, 2012
Providing coverage of Bakken oil and gas

Tapping Bakken shale

PetroShale, Slawson tout successful results from Upper Bakken wells

Mike Ellerd

For Petroleum News Bakken

Almost all of the oil production from the Williston Basin’s Bakken petroleum system comes from two non-shale, tight sand reservoirs — the Middle Bakken and, to a lesser extent, from the Three Forks. But PetroShale’s Sept. 27 announcement about successful results from four stimulated horizontal test wells that its partner, operator Slawson Exploration, completed in the Upper Bakken shale, could change all that.

Instead of referring to the Bakken as a “non-shale shale play,” the Bakken might honestly be able to produce a significant amount of oil from one of its primary source rocks, the Upper Bakken shale. Core samples indicate there could be as much as 30 million barrels of oil in place per section of land, PetroShale said.

The wells are in a 40,000-acre area of mutual interest, or AMI, in the Mondak play in Richland County, Montana. Test results confirm that not only is the upper shale member a rich source of Bakken crude, but also that oil from the area’s shale can be successfully produced.

In a recent interview with Petroleum News Bakken, John Fair, chief executive officer of Denver-based PetroShale (US) Inc., described test results from the wells as “very positive” and said they “prove we can improve front end deliverability” from the Upper Bakken shale.

The four wells mark what PetroShale calls a “successful completion” of the partnership’s appraisal of the AMI within the “Mondak shale play.”

Slawson, the sixth largest oil producer in the Williston Bakken and the seventh largest private oil producer in America, holds a little less than an 80 percent working interest in the 40,000-acre Mondak AMI; PetroShale about 10 percent; and the balance is owned by private investors.

Approximately 75 percent of the Mondak AMI is in Montana with the remaining 25 percent in North Dakota.

Ninety-eight percent oil

In the partnership’s Sept. 27 announcement, PetroShale said different completion techniques were used in the first four test wells, which were about 10,500 feet deep with one-mile, stimulated (hydraulically fractured), laterals.

The Culverin well, in which the preferred technique was used, had a 24-hour initial production rate of 476 barrels per day flowing and is producing 200 barrels per day after 90 days of production.

One of the other wells, the Cleaver, had an initial production, or IP, flowing rate of 296 barrels per day, and the remaining two wells had on-pump IP rates of 312 and 316 barrels per day.

PetroShale said the production from the first four wells is 98 percent oil.

To date, early type-curves on the preferred completion method showed estimated ultimate recoveries, or EURs, analogous to those from un-stimulated wells that Slawson drilled in the Upper Bakken between 1994 and 2007, which averaged 730,000 barrels each.

“These new test wells in Mondak prove that the play is continuous. Now we are experimenting with completion techniques to increase the early stage deliverability,” Fair said in the announcement.

“With these first five wells we have experimented with completion techniques and micro‐seismic data to hone in on the most efficient completion formula. The history of the Bakken tells us that completion techniques and economics continue to improve — field by field and year over year,” he said.

The test results were very positive “and gave us critical data to help fine-tune the completions. This data also supports our original estimate of being able to get three wells per section, and probably more,” Fair said.

Try, try and then try again

Almost all Bakken production thus far has been from the tight Middle Bakken reservoir, but as PetroShale said in its announcement, these new test wells are “noteworthy” because they were drilled into actual Bakken shale, or source rock.

Fair told PN Bakken that Slawson first started drilling into the upper shale member in the late 1980s and early 1990s when it drilled 22 horizontal un-stimulated, fracture-intercept wells into the shale in the Billings Nose field on laterals of 1,000 to 2,000 feet. This was in the early days of horizontal drilling and Slawson was trying to intercept large fractures. Although these wells had high IP rates, production quickly fell and the wells did not have large EURs.

Slawson then drilled a horizontal well on the edge of the Mondak play that initially produced in the range of 120 barrels per day, which Fair said was considered “ho hum,” and Slawson moved to other plays, such as the Middle Bakken.

But as the well continued to produce, Slawson noted that it went hyperbolic very quickly and was producing a lot of oil with a very low decline. Once the well “hit curve,” it declined at an annual rate of only 1 percent.

The production curve, according to Fair, shows that particular well, which was un-stimulated and completed on a very short lateral, will ultimately produce some 750,000 barrels of oil.

Then in 2007, Slawson drilled four more un-stimulated horizontal wells in an area adjacent to the Mondak. None of the four wells had high IPs, but the average EUR for those for wells was 738,000 barrels. None of the wells, Fair said, behaved like Middle Bakken wells in that they had low IPs, went hyperbolic very quickly, and then had very low declines. Two of those wells are expected to exceed 1 million barrels.

Upper Bakken shale world class source rock

According to Fair, Slawson then looked at the results of the un-stimulated wells and developed a theory about the Upper Bakken shale in what he called an “intriguing area at the south end of the Elm Coulee field.” The Middle Bakken in this area, Fair said, becomes very tight and begins to pinch out, the lower Bakken shale has already pinched out, the Lodgepole above the Upper Bakken is very tight, and so is the Three Forks below the upper shale. The result, he said, is a world-class source rock with no place for the oil to go, which created in-situ fracturing that resulted in a reservoir.

The middle Bakken, where everyone is drilling, is the reservoir, Fair said, but the shale is the source rock. Cores show an oil column approximately 30 feet thick, he said, but the highest oil concentrations are in the four to seven feet of Upper Bakken shale.

He went on to say that PetroShale board member and petrochemist Daniel Jarvie describes the upper shale as a “coffee cup” where the kerogen conversion occurs and the oil spills over into the Middle Bakken, but the cup remains full. Fair said core samples indicate there could be up to 30 million barrels of oil in place per section.

“That’s a lot of oil,” he added.

In an article in the June 17 edition of PN Bakken, Colorado School of Mines professor Steve Sonnenberg touted the Upper Bakken shale..

“They are world class source rocks,” he said. “They currently average about 11 percent by weight organic carbon content.”

Applause from Sonnenberg

Sonnenberg, who has been encouraging oil companies to try to produce oil from shale source rocks in the Bakken system, was not surprised by PetroShale and Slawson’s recent test results, but he was “quite impressed,” and said the results “speak loudly.”

In an October interview with PN Bakken, Sonnenberg said the shales were a play in the past with the first vertical well in the Upper Bakken drilled in 1976 and the first horizontal well in 1987, but left behind in the Middle Bakken rush.

And now, he said, PetroShale and Slawson’s results “are actually showing that the shales are quite a viable play.”

In late May, Sonnenberg told attendees at the Bakken Tight Oil Congress in Denver that the source of the oil in the Middle Bakken reservoirs was organic-rich upper and lower Bakken shales, which were being mostly ignored by oil companies.

In the recent interview with PN Bakken, he said he was “quite encouraged” by the results that show some “fairly significant” EURs for the wells Slawson and its partners drilled.

People should be excited, he said. “I think part of this petroleum system that people are ignoring right now are the shales,” and added that he has been an advocate of the shales. “I think it is great news for a great play,” he said.

Slawson proved

Geologist Julie LeFever of the North Dakota Geological Survey also was not surprised by the Upper Bakken drilling results.

She told PN Bakken that she can remember when companies like Slawson were tapping into the upper shale in the late 1980s and 1990s. Slawson, she said, had some “pretty good success” and ended up with some “big wells,” although those wells were on short laterals, she noted.

But LeFever said there were problems drilling in the Upper Bakken. The shale, she said, was unstable and would collapse around drill strings, and “getting stuck was a big problem.”

It drove up costs, she said, because getting unstuck was time consuming.

But, she continued, Slawson proved it is able to get in and out of the Upper Bakken shale while at the same time keeping costs down.

It has been easier for companies to drill and hydraulically fracture the Middle Bakken reservoir with the idea that some of the fractures might reach the upper shale, noting there is debate as to how much fracturing in the Middle Bakken actually extends into the Upper Bakken.

To date Slawson has drilled more than 40 wells in the Upper Bakken shale, and according to Fair, Slawson is the only company with extensive experience in the formation, although he believes a few companies are now starting to look at exploiting it.

Montana Board of Oil and Gas Conservation records indicate that at least one company, Fidelity, is also looking to drill into the Upper Bakken in the Mondak area.

PetroShale conduit to capital markets

PetroShale was formed and named in March 2012 when Mondak Petroleum joined with Algonquin Oil and Gas.

PetroShale then partnered with Slawson in the Mondak AMI.

While Slawson is the operator, PetroShale is the conduit to capital markets, Fair said.

Through experience the partnership now knows what works and what doesn’t, and according to Fair they have built a type curve they expect to improve upon.

“We’ve proven we can increase the front end deliverability” he said, “and we think we can do it even more.”

Encouraged by the positive Upper Bakken well results, Slawson is starting on a two-rig, two-wells-per-month program for the remainder of 2012.

In 2013, the rig count will increase to three rigs, and three wells per month.

PetroShale anticipates capital expenditures for its Mondak operations to be $25 million next year, which put the total 2013 capex at around $250 million.

Meanwhile, Slawson is working to reduce well costs.

Company President Todd Slawson said in the Sept. 27 announcement that Slawson has reduced the cost per well from $6 million to under $5 million, and costs are still decreasing.

Other prospective formations

“In addition to the Upper Bakken shale, Mondak is prospective in the Mission Canyon, Tyler, False Bakken and Red River formations,” Slawson Vice President Craig Slawson said in the announcement. “The Mondak play has more than 200 well locations,” he said.

Fair told PN Bakken that the Mission Canyon formation looks “intriguing with lots of fractures” that can be harvested horizontally. The Mission Canyon, he said, covers approximately 30-40 percent of the partnership’s Mondak AMI. The partnership plans to test the Mission Canyon, Tyler and Red River formations in 2013.

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PetroShale’s False Bakken option

In March, when PetroShale struck its deal with Slawson Exploration’s Alameda Energy for an option to acquire a 10 percent non-operated working interest in approximately 37,300 acres of Mondak leases for $14.9 million, PetroShale acquired a second option — this one to buy a 10 percent non-operated working interest in some 80,000 acres in the Montana counties of Dawson, Wibaux and Richland, the acreage collectively known by the partners as the “False Bakken leases.”

The option was for nine months and as of the end of September, had not been exercised, per PetroShale (US) CEO John Fair.

At the same time, on March 12, Algonquin Oil and Gas Ltd. announced that it and Mondak Petroleum had merged, renaming the combined company PetroShale.

The False Bakken member is part of the Lower Lodgepole formation in the Bakken petroleum system (see adjacent chart).

According to the North Dakota Geological Survey, the False Bakken is a layer of thin black shale and organic-rich limestone that exist around the margin of the Williston basin. It is separated from the Upper Bakken shale by a dense, thin limestone.

—Mike Ellerd