Referring to the Bakken as its “principle engine of growth,” John B. Hess, chairman and chief executive officer of Hess Corp., said in an April 24 conference call that the company expects its Bakken production to average between 64,000 and 70,000 barrels of oil equivalent per day throughout 2013. With first quarter 2013 Bakken output averaging 65,000 boepd, the company is off to a solid start.
According to North Dakota Industrial Commission records, as of the end of February, Hess was the third largest North Dakota oil producer, running a close second behind Whiting with Continental holding top position.
Gregory P. Hill, Hess’s president of worldwide exploration and production, executive vice president and director said Hess Corp. continues to “make excellent progress towards our mid-decade goal of achieving net production of 120,000 barrels of oil equivalent per day from the Bakken.”
However, Hill noted that production in the second quarter could decline slightly because as the company continues moving to pad drilling, the inventory of wells drilled but not completed increases. As a result, Hill said production in the first five months of 2013 could be “flattish.” But after more wells are completed “as we move the completion spreads in, our completion rate really doubles in the last half of the year,” and he added that the company is confident it can achieve its 2013 production goal of 64,000 to 70,000 boepd.
Hill said Hess’s productivity continues to rank among the highest in the industry, and that in 2012, 10 of the top 25 wells in North Dakota’s Bakken play were Hess wells. “Therefore, considering well cost and productivity coupled with higher margins from our infrastructure, we believe we’re one of the most competitive Bakken operators, and there is much more optimization to come.”
“In summary, our long-lived, high-margin Bakken asset continues to deliver relatively low-risk growth that leverages our capability and competitive advantage,” Hill said. “Operational performance is firmly on track as our team continues to focus on execution, capital efficiency and profitable production growth.”
First quarter production details
Hess’s first quarter 2013 Bakken output was an increase of 55 percent over the 42,000 boepd the company averaged in the Bakken in the first quarter of 2012, and an increase of 18 percent over the company’s 2012 fiscal year Bakken average of 56,000 boepd. The first quarter 2013 production was also an increase of nearly 2 percent over the fourth quarter of 2012.
The 65,000 boepd average output in the first quarter is 82 percent oil, 9 percent natural gas and 9 percent natural gas liquids. The 2012 fiscal year average daily production of 56,000 boepd consisted of 84 percent oil, 9 percent natural gas and 7s percent NGLs.
In the first quarter of 2013, Hess brought 30 Bakken wells on production, 21 of which are Middle Bakken wells and the remaining nine Three Forks wells. Estimated ultimate recoveries for those wells in the first quarter were in the low 600,000 barrel range according to Hill.
Hill said the company expects to bring a total of approximately 175 wells on production in 2013, with approximately 65 of those slated for the Three Forks Formation, up from the 52 Three Forks wells the company drilled in 2012. The remaining wells will target the Middle Bakken.
The Three Forks, he said, underlies the majority of Hess’s 550,000 to 650,000 core Bakken acres, adding that the company has developed a good understanding of the Three Forks with over 30 cores. “We’ve done a major study of the Three Forks including all of the Three Forks production data that exists from the NDIC as well as our own data. So we have a pretty good understanding of Three Forks. It’s going to be a good play for us.”
Well efficiencies
Hill said the company reduced its average cost per well to $8.6 million, a reduction of 4.4 percent from the $9 million average in the fourth quarter of 2012, and an impressive 36 percent reduction from the first quarter 2012 average of $13.4 million. He said this continued quarter-on-quarter increase in cost efficiency was driven by “lean manufacturing techniques.”
While Hess has reduced its overall well costs, the greatest reduction in well costs has been in completion. Specifically, of the $8.6 million per well in the first quarter of 2013, drilling accounted for $4.8 million and completion accounted for the remaining $3.8 million; of the $13.4 million per well in the first quarter of 2012, $5.4 million was for drilling and $8.8 million went into completion. Thus drilling costs decreased by $600,000 or 11 percent, while completion costs decreased by $4.2 million or 53 percent.
Hess is also looking at down spacing, but also with an eye on efficiency. Hill said the degree of down spacing will be determined by the productivity and says for higher productivity areas, “you probably don’t need to down space as low as you might in some of the lower productivity area of the field.” He added that Hess is prioritizing wells based on both the highest returns and on pads where the company can capitalize on drilling efficiencies.
First quarter operations summary
Production from Hess-operated Bakken wells in the first quarter averaged 58,000 boepd or 89 percent of the company’s total operated and non-operated production of 65,000 boepd. That is up from the company’s average operated daily production of 48,000 boepd for all of 2012, which was 86 percent of the 2012 annual operated and non-operated average daily production of 56,000 boepd.
Hess had 15 rigs that drilled 49 operated wells in the first quarter of 2013. Of those 49 wells, 37 were completed and 30 were brought on production, bringing the company’s total number of producing Bakken wells to 584. Average 30-day initial production rates averaged 793 barrels of oil per day in the first quarter of 2013, up from both the average 30-day initial production rate of 750 bopd in the first quarter of 2012 and the 2012 yearly average of 782 bopd.
The average spud-to-spud drilling time in the first quarter of 2013 was 26 days, down five days from the 31-day average in the first quarter of 2012, and down four days from the 30-day 2012 annual average. The wells averaged 29 frack stages in the first quarter, down five from the first quarter 2012 average of 34, and down two from the 2012 annual average of 32.
In other operations, Hess’s Tioga rail facility ran at capacity in the first quarter, according to Hill, and delivered an average of 53,000 barrels per day. He said the company’s expansion of its Tioga gas plant in on schedule and should be complete by the end of 2013.
Overall performance
Overall, Hess’s company-wide production in the fourth quarter was 389,000 boepd, down 2 percent from the 397,000 produced in the first quarter of 2012. The decrease was due in part to the company’s continued sale of assets as part of its pure-play transition, and to a decrease in production from its Valhall field in Norway, but that decrease was partially offset by the increase in Bakken production. Hess has set an annual production growth of 5 to 8 percent.
In terms of profit, Hess reports first quarter adjusted earnings of $669 million, an increase of 31 percent over the $509 million in earnings in the first quarter of 2012.
“Our first quarter results demonstrate our strong operating performance across the company. In addition, we continue to execute our multi-year transformation into a more focused, higher growth, lower risk, pure play E&P company and are making excellent progress toward delivering our forecast of 5 to 8 percent compound average annual growth in production,” said CEO Hess.
In its transition to a pure-play company, Hess Corp. has been divesting assets in order to focus on what it identifies as three primary areas: unconventional onshore development and production in the Bakken and Utica plays; offshore development and production in the Valhall field in the North Sea, the Tubular Bells field in the Gulf of Mexico, and the North Malay Basin in Malaysia; and continued focused exploration in areas such as Ghana.
—Mike Ellerd
