The shutdown of its Tioga natural gas processing plant took a toll on Hess Corp.’s first quarter Bakken production, but that plant went back into service in late March, and as of April 30, the company was producing in excess of 80,000 barrels of oil equivalent per day, a significant increase over the company’s average first quarter production of 63,000 boepd.
The plant was taken out of service in late November for upgrades, and a number of Hess Corp.’s wells were shut-in during the upgrades to avoid flaring, which put a dent in the company’s production. In the third quarter 2013, Hess Corp. averaged 71,000 boepd in the Bakken, but in the fourth quarter that output fell to 67,000 boepd, followed by another decline to the 63,000 boepd average in the first quarter of this year.
The North Dakota Department of Mineral Resources estimated that more than 100 producing wells were shut-in through February to reduce flaring because gas from those wells could not be processed at the Tioga plant during the upgrade.
But with the plant back in service and wells back online, and production averaging more than 80,000 boepd, the company is anticipating a strong performance through the remainder of the year holding firm to its original production guidance. “Our full-year 2014 production forecast remains 80,000 to 90,000 barrels of oil equivalent per day,” Chief Executive Officer John Hess said in an April 30 conference call with industry analysts.
As Hess Corp. has previously discussed, it plans to monetize its Bakken midstream assets in 2015, which according to John Hess will most likely be through a master limited partnership. However, Hess Corp. will retain operational control of those midstream assets.
The upgrade
The Tioga plant upgrade increased the processing capacity from 115 million cubic feet, mmcf, per day to 250 mmcf per day. Hess Corp. President Greg Hill said severe winter weather in the first quarter delayed the startup of the plant by approximately three weeks, but commended his Bakken team for an outstanding job of getting the plant back on schedule.
Hill said the first gas was introduced to the plant March 23, followed by the first residue gas sales March 25. Ethane recovery began April 23. And with the plant back in service, Hess Corp. brought 24 new wells online in April, compared to a total of 30 wells brought online in the entire first quarter.
The Tioga plant is currently processing between 120 mmcf and 140 mmcf per day, Hill said, with approximately 70 percent of that volume from Hess Corp. production and the remaining 30 percent from other operators. He said the company plans to ramp the processed volume to the 250 mmcf per day capacity as rapidly as possible. He added that the company is looking at ways to “de-bottleneck” the facility to further increase the capacity to 300 mmcf per day or even higher.
Downspacing pilots
In its other Bakken operations, Hess Corp. is continuing with its previously announced downspacing pilot tests on 17 pads spread across its Williston Basin acreage with seven middle Bakken and six Three Forks wells on each spacing unit. That is up from the company’s current standard spacing of five middle Bakken and four Three Forks wells per unit.
Hill said early field results from those pilots, although limited, are “very encouraging,” adding the company is “seeing very little interference.” But Hill added that the reason for testing on the 17 spread-out pads is to see in what areas the downspacing may work and where it may not.
In addition, Hill said the company is conducting higher density downspacing pilots on two other pads involving 17 wells, nine in the middle Bakken and eight in the Three Forks.
Hill said the company expects to have sufficient test data by the end of the year to provide updated guidance for well spacings, production, drilling locations and resource potential.
In the first quarter 2013, Hess Corp.’s Bakken drilling and completion costs averaged $8.6 million per well, but by the fourth quarter 2013 the company had brought that average down by $1 million to $7.6 million per well. And through the first quarter the company has brought the drilling and completion average down even further to $7.5 million.
Coupled with the lower drilling and completion costs is an above average well performance. “And the productivity of our wells continues to be above industry average,” Hill said in the April 30 conference call.
Overall, Hess Corp.’s global production averaged 318,000 boepd in the first quarter, an 18 percent decline from the 389,000 boepd output in the first quarter 2013. However, much of that decline was due to asset sales as Hess Corp. continued its transition to a pure play exploration and production company coupled with extended shutdowns in Libya as a result of civil unrest in that North African country.
With those factors considered, Hess Corp.’s pro forma production averaged 297,000 boepd in the first quarter, an 11 percent increase over the 268,000 boepd output the company averaged in the first quarter 2013. However, driven by the company’s ongoing growth in the Bakken production along with increased production from its Valhall field in Norway and the startup of its Tubular Bells field in the Gulf of Mexico planned for the third quarter, Hess Corp. still expects its 2014 production to average between 305,000 and 315,000 boepd.
