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Vol. 18, No. 37 Week of September 15, 2013
Providing coverage of Bakken oil and gas

Bakken +1, Scoop +8 rigs

Continental’s lower bench Three Forks development to start in ‘big way’ in ‘15

Kay Cashman

Petroleum News Bakken

In 2014 Continental Resources expects to increase drilling rigs in the Bakken from 20 to 21, but in its other major operating area, the South Central Oklahoma Oil Province, or Scoop, it plans to bump up the number of rigs from 10 to 18.

Still, the Williston Basin’s Bakken play will get the bulk of the company’s 2014 capital expenditure budget, Continental officials said Sept. 11 in a 2014 operating and financial guidance conference call.

In 2014 Continental plans to complete 300 net wells (886 gross) in the Bakken petroleum system, finalize four well density pilots involving 47 wells, and start three more density projects based on the results from the first four. By the end of that year, Continental expects to be producing 200,000 barrels of oil equivalent per day, about two-thirds of which will come from the Bakken in North Dakota and Montana’s Williston Basin.

By the end of 2013, the company-wide exit rate is going to be close to 150,000 boe per day, according to Jeffery B. Hume, vice chairman of strategic growth initiatives.

Continental’s projected capital budget for next year will be $4.05 billion, the bulk of which will go to its Williston Basin Bakken assets.

The rig count next year will be split between North Dakota and Montana, with 17 rigs in North Dakota and four in Montana.

Benefiting from recent reductions in well costs, Continental said its 2014 budget reflects 400 net well completions (1,090 gross) company-wide, with 94 percent in its two key operating areas, the Bakken and Scoop.

Another dozen wells will be in Continental’s Red River units in the Williston Basin; plus some “other exploratory drilling (that) … we’re not talking about right now,” Hume said.

The 2014 well count represents a 22 percent increase over current budgeted completions of 329 net wells in total for 2013, Continental said in a press release accompanying the 2014 guidance call.

Exploration drilling accounts for approximately $500 million of 2014 capital expenditures, a 16 percent increase over 2013’s exploratory drilling budget. Exploration will focus “primarily on continued density drilling tests in the Bakken, further testing of the lower Three Forks formation in the Bakken, and further appraisal and a density spacing test in Scoop.”

Drilling and completions account for $3.5 billion of the 2014 capex, Continental said.

Scoop gets 8 more rigs

The company has allocated 71 percent of its 2014 drilling budget to the Bakken play and 25 percent to its Scoop operations. Continental is planning to have an average of 18 operated rigs in the Scoop play in 2014, compared with a current count of 10 rigs.

The company reaffirmed its 2013 production growth rate of 38-40 percent and capex guidance of $3.6 billion.

Analysts from Global Hunter Resources were quoted in Continental’s press release as saying, “In order to reflect significant Bakken downspacing activity in 2014, we reduced our average well spacing assumption for CLR to 400 acres from 480 acres while simultaneously reducing our net EUR profile per well to 532 Mboe from 540 Mboe.”

In the conference call, Continental’s President and Chief Operating Officer W.F. “Rick” Bott said that in the company’s second quarter earnings conference, “we discussed the three density pilot projects on a 320-acre spacing and the 160-acre density pilot that we are currently drilling. We hope to have initial results from the first 320-acre test, the Hawkinson, … later this year and IPs from the others, the other three pilots, in early 2014.”

Drilling results, production history and the micro-seismic data from these density pilots “will be critical to the formation of our full-field development plan for the Bakken. … We are excited about what we are seeing thus far,” Bott said.

In 2014, the company plans to “experiment further with well completion designs in the Bakken to optimize long-term recoveries in the play,” he said. “We’re still very early in the game. So we’re eager to maximize the effectiveness and economics of our well completion methods.”

Companion to Continental’s effort to improve efficiencies in drilling and completion, “will be further efforts at production optimization, including experimentation with different downhole pump configurations, innovations with water gathering and disposal, new efficiency measures to reduce lease operating costs, and innovations in emissions control and capture,” Bott said.

In the question and answer session, Chief Executive Officer Harold Hamm responded to a question about Continental’s expectation of a 3-5 percent annual reduction in well costs in the Bakken, and what would that mean for well costs by the end of the year.

“We’re operating on the assumption that we’re going to achieve our year-end target of $8 million by year end (2013),” Hamm said. “So that will be an incremental 3 percent to 5 percent over and above that by year end 2014.”

From science to development

Subash Chandra of Jefferies LLC’s research division asked about the transition from Three Forks lower bench science to development; specifically did Continental “see all of 2014 as sort of a science and appraisal process? Or do you think sometime in 2014, you will be launching an actual development of those new locations?”

Bott replied, “We think what we’ve done now is de-risk about 3,800 square miles. And … over the whole de-risk area that we have in the play … the middle Bakken and the Three Forks’ first bench are prospective. But in those 3,800 square miles, we think we will add at least one … probably two of the deeper benches and possibly even three of those deeper benches might work in some of those areas. … It’s a question of really identifying sweet spots within that.”

Hamm said the company’s goal was to be in development mode on all of the benches that prove prospective, taking 12 more months to get there: “I think by mid-year next year we’re going to be well into seeing these developments. That’s why we’re doing the early work, that’s why we begin doing the early exercises to prove these out and see what our productive limits are. We’ve been pleased with what we’ve seen and we expect to see this going forward on a very developmental specific project basis before next year is out.”

Lower bench Three Forks development would for sure start by late 2014, “but certainly in a big way in 2015,” Bott said, and Hamm agreed.

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