Continental Resources has conducted extensive productivity testing of the lower benches of the Three Forks formation in North Dakota and the results are good, the company said, raising expectations that Continental will make yet another upward adjustment in its estimates of recoverable oil for its acreage in the Williston Basin.
“The Three Forks package is larger than anyone knew just two years ago,” Harold Hamm, Continental founder and CEO told investors in a February conference call.
Continental is using its drilling data to design full-field developments where the Middle Bakken - as well as the Three Forks first bench, second bench and third bench - will be developed from mega pads.
Currently the company estimates it will recover 24 billion barrels of oil equivalent from the Bakken system based on an estimated 903 billion boe of in-place resource for the play.
Continental’s 2012 plan to drive production to 300,000 boe per day by year-end 2017 was based entirely on anticipated output from the Middle Bakken and the first bench of the Three Forks formation.
Now Continental has established that the lower benches of the Three Forks are commercial, and its Oklahoma SCOOP shale play looks like a winning hand. Despite the exploration windfalls, the company plans to stay the course on its five year plan.
“We obviously have sufficient inventory to grow at a faster rate, but that would require outspending cash flow growth at a higher rate, and we don’t want to do that,” Warren Henry, Continental vice president of research and policy, told Petroleum News Bakken.
Henry said the company will seek to maintain a ratio of 1.6 to 1.7 times its net debt to cash flow, which is where it is today.
“We might accelerate a little or slow down a little depending on commodity prices, but we’re in the sweet spot right now,” he added.
The company expects to achieve its preliminary guidance of 26 percent to 32 percent production growth in 2014 over 2013, despite wicked winter weather in January.
Lower bench
Data from Continental’s Hawkinson project in Dunn County, N.D., demonstrated that substantially more oil could be recovered than earlier believed. It showed that after four months of operation, average production of 12 of the 14 lower bench test wells together trended 50 percent above estimated ultimate recovery, EUR, model for a typical Bakken well.
After completing six more test projects in 2014, Continental will be poised to accelerate full-field development in multiple zones of the Three Forks, it said. The company produced 93,335 boepd from the Bakken system during fourth quarter 2013, flat to third quarter 2013 production, but a 38 percent increase versus the fourth quarter of 2012.
“This first test validates our vision for full-field development of the Bakken and the vast resource potential across our acreage position,” Rick Bott, Continental president and COO said in a February conference call. “This is a landmark event for our company and the industry - unique production from four different intervals and spaced 1,320 feet apart.”
In November 2013, Continental said it had successfully completed the Hawkinson pilot with 14 individual wells, including three existing wells that tested at a daily rate of 14,850 barrels of oil equivalent.
Hawkinson included four middle Bakken and three first bench Three Forks wells, plus seven wells in the untested lower benches - four in the second bench and three in the third bench. The wells were spaced 1,320 feet apart in the same zone and offset 660 feet in the adjacent zones.
In February, Bott told analysts at the Credit Suisse Global Energy Summit in Vail, Colo., that Hawkinson had “proved some big things,” including proof that the lower benches contained oil and could produce at commercial rates.
“We’ve proved that it’s good quality rock. We’ve proved that there is oil in there. We’ve proved that we can produce at a commercial rate,” Bott said.
Wells exemplary for Bakken
The Hawkinson wells are exemplary for the Bakken.
Continental said that based on 120 days of continuous production, 12 of the 14 Hawkinson wells are performing “very well,” with average production trending 50 percent above its 603,000 boe estimated ultimate recovery, EUR, model for a typical North Dakota Bakken well.
The two “exception” wells, located in the third bench, were put on pumps and are producing on a trend below the 603,000-boe model and improving.
Continental has a 55 percent working interest in the Hawkinson project.
Continental is rolling out a plan for full-field development but it is a work in progress.
Bott said the goal of the Hawkinson tests is “to define the component parts of the petroleum system to determine how best to proceed with full field development.”
The company wants more data before putting the final polish on a full-field plan.
Enough is known about the lower Three Forks benches to include them in the company’s full-field development plan, Bott said, but he added that production histories from six additional density projects this year would be required before decisions on well spacing and other details are made.
“That’s going to be kind of an area-by-area sort of basis,” he said. “But we think the economics and rate of return in some of those deeper wells compete with anything we’ve got. We think it’s significantly adding to the recoverable resource of the basin and the entire petroleum system.”
Drilling results from three other 2013 density pilots - Tangsrud, Rollefstad and Wahpeton - are expected during the first half of 2014 and should shed even more light on the production capabilities of the deep zones, along with three additional density pilots - Hartman, Mack and Lawrence - scheduled for this year.
As part of its program, Continental will continue to explore the lower benches of the Three Forks, with plans to drill 26 exploration wells there in 2014.
Weather willies
Fourth quarter production was adversely affected by winter weather, especially in December, the company said. As a result, Continental has about 110 gross wells awaiting completion or infrastructure. To reduce the inventory and expedite initial production of recently drilled wells, the company has added additional third-party completion services.
Despite the weather, Continental was the U.S. Williston Basin’s largest producer in December with 91,362 bpd - 74,332 bpd from North Dakota and 17,030 bpd from Montana.
Continental plans to complete about 287 net (870 gross) wells in the Bakken in 2014, including operated and non-operated wells. It operated 20 rigs in the play in the fourth quarter of 2013, and anticipates operating an average 22 rigs throughout 2014.
Continental also plans to test several different completion design techniques on about 20 percent of its Bakken completions in 2014, “to evaluate possible performance enhancements.”
Bakken-bullish
Continental is bullish on the Bakken, having publicly announced increases in its estimated in-place oil several times and each time well above the federal government’s official projections, to a current 903 billion barrels of oil equivalent.
Despite exploration results to the upside, since 2010 Continental has not revised its recoverable oil estimates for the Bakken - currently 24 billion boe.
“We’re confident that the total now is larger,” Henry told Petroleum News Bakken in a Feb. 21 email. “But we don’t have a formal estimate of it yet.”
If the company were to announce, it likely would wait until results are in hand from additional well-density pilots in 2014 that include the second, third and fourth benches of the Three Forks.
The prolific nature of the Middle Bakken and first bench of the underlying Three Forks formation has been known and exploited by industry for years, with Continental again taking the early lead in exploring both zones and establishing their commerciality.
“On an area by area basis, we don’t necessarily see a tremendous difference between the Middle Bakken and first bench,” Bott said. “In fact, in some areas, the first bench can be better than the Middle Bakken.”
While the company is mum about specific numbers where estimates of oil in place are concerned, a few “what if?” scenarios extrapolate the significance of added pay zones in the Three Forks lower benches.
By Continental’s estimates, a modest 3.5 percent recovery rate on 903 billion boe of in-place resource would increase its current 24 billion boe recovery rate to 32 billion boe, while 4 percent would yield 36 billion boe, and 5 percent could generate 45 billion boe.
Full-field at Antelope
In its first full-field development in the Bakken, including the deeper Three Forks benches, Continental has three rigs running, and has 18 wells in various stages of drilling or completion. The company will devote four or more rigs to the program, it said.
Dubbed the Antelope “Ears Back” program, the company plans to drill 350 to 400 gross wells over the next five years at Antelope. Fifty wells are budgeted for 2014.
Antelope, in McKenzie County and Mountrail County, was selected due to the company’s “large operated footprint and historical results that are among the Company’s highest rates of return,” Continental said.
Antelope is an under-developed area, the company said. Pipeline infrastructure is currently being expanded there.
Antelope will make a large production impact in 2015, Continental said.
The company is also making progress in containing costs, it said.
Continental’s average operated well costs in the Bakken continue to trend lower, it said. Fourth quarter 2013 operated Bakken well costs were approximately $8 million per well. Continental is targeting $7.5 million per operated Bakken well by year-end 2014 for its typical completion design, it said.
Continental plans to test several different completion design techniques on approximately 20 percent of its Bakken completions in 2014 to evaluate possible performance enhancements.
Projected capital expenditures for the Northern region, which includes the Bakken and the Red River units, are approximately $2.9 billion for 2014.
Boldly into the future
As the company executes its five-year plan, it is laying the foundation for a longer range plan extending many years onto the future.
Bott said an estimated 4,500 to 9,000 well locations in the Middle Bakken and Three Forks first bench alone gave the company the confidence for its five year-plan.
When adding the lower three benches of the Three Forks and SCOOP, he said, the number of well locations on Continental’s 1.2 million acre leasehold increases to a range of 10,000 to 20,000.
“And when you turn that into potential unrisked resource that’s between 4.5 billion and 7.2 billion (boe), which is on top of the proved reserves of (1.08) billion … there’s a tremendous three to four decades worth of inventory.”
“It’s just the beginning of what we see as a multi-decade growth trajectory based on premium inventories, strong production growth, strong cash flow growth and operating excellence,” Hamm said.
