Williston Basin pioneer Continental Resources has completed enough exploratory work on the lower benches of the Three Forks to conclude that the play is massive, full of oil, and more.
“It is looking commercial over a very large geographic area, where we think that at least one and in many cases two of these deeper benches will be commercially productive,” said Winston Frederick Bott, Continental’s president and chief operating officer.
“We have confirmed the resource tank — the production capability of the reservoirs. We’ve confirmed it’s filled with oil. We’ve confirmed it’s not filled with water.”
The middle Bakken and underlying first bench of the Three Forks are today’s primary sources of oil in the Bakken petroleum system. However, the lower zones of the Three Forks — TF2, TF3 and TF4 — have been largely a mystery.
Footprint is 3,800 square milesLower Three Forks test wells drilled thus far by Continental and other operators have delineated a “potential productive footprint” encompassing 3,800 square miles in the heart of the Bakken petroleum system, Continental disclosed in a recent conference call with industry analysts.
“What we wanted to do, first, was to delineate the productive footprint or basically determine the productivity of these lower zones, because before we started this, there really was no production from these lower benches,” said Harold Hamm, Continental’s chairman and chief executive officer. “And so we’ve succeeded, really, in demonstrating that we’ve got a productive footprint that covers at least, to this point, 3,800 square miles.”
Continental’s next step is to demonstrate that “the reserves we’re getting here in production are incremental to the play,” or in addition to current reserves, Hamm said.
“That’s been a big question out there,” he added. “So we’re 65 percent through drilling all of these wells and are just proceeding ahead as planned. And the results we’ve got at this point are very encouraging.”
Positive results from what amounts to a relatively few wells in such a large area “gives us a lot of confidence in the overall extent and continuity of the play,” Hamm said.
14 test wells completedDuring 2013, Continental completed 14 test wells, with another four wells now completing, one drilling and three waiting to be drilled. The completed wells include one first bench (TF1) interference well, six TF2 wells, five TF3 wells and two TF4 wells. The TF2 and TF3 wells had average initial production, IP, rates of 1,200 barrels of oil equivalent per day and 970 boe per day, respectively.
“We’re on target to have all of this year’s 20 wells completed by year-end, bringing the total program to 22 wells,” Bott said, noting that operators completed an additional five lower Three Forks wells.
Bott said six areas have been tested for productivity and production interference, with just one showing signs of well interference, the Colter spacing unit in Dunn County, N.D. And though the company has fewer than 120 days of production history in the majority of the lower Three Forks wells, Bott said, results indicate these wells are producing in line with typical TF1 producers in each of the respective areas.
Continental’s longest producing lower Three Forks wells — the Charlotte 2-22H and 3-22H — have produced 123,000 boe and 68,000 boe, respectively, since production began in late 2011 and late 2012.
Continental’s high-density programInvestors will have to wait on results from Continental’s other Bakken exploration and appraisal program — four pilot density projects to test 320-acre and 160-acre well spacing in the middle Bakken and first three benches of the Three Forks. The company plans to complete 47 gross wells to help determine the optimum spacing and pattern to “maximize the ultimate recovery” from multiple reservoirs.
Of the 47 wells across four pads — Hawkinson, Wahpeton, Tangsrud and Roffefstad — 23 wells have been drilled thus far and are waiting on completion. Once each pad has reached initial production, the wells will be announced together as part of the company’s quarterly results, the company said.
Completion efforts at the 320-acre Hawkinson pilot — where all 11 wells have been drilled — are being monitored by a cutting-edge micro seismic program, which is providing additional data to help the company understand how well it is accessing the reservoir.
“The micro seismic program has set many firsts for our industry and is, so far as we can confirm, the largest monitoring program to date for unconventional reservoirs worldwide,” Bott said, noting that Continental also is in the process of shooting 150 square miles of 3-D seismic over the Hawkinson site to further evaluate the project.
Moreover, other operators have announced seven density pilots of varying well spacing, “which will help all of us better understand the optimal spacing in each area of the play,” he added.
One of those operators, Kodiak Oil and Gas, said recently it was “very encouraged” by initial production results from its Polar down-spacing project, saying that Polar, along with another down-spacing pilot, Smokey, “will have a significant impact on how we lay out our future development programs.”
Q2 output averaged 135,700 boepdMeanwhile, Continental’s net production totaled a record 12.3 million boe in the second quarter 2013, or about 135,700 boe per day, a sequential increase of 12 percent from the first quarter and a 43 percent increase compared to the same three-month period in 2012. Total net production included about 96,000 barrels of oil per day, or 71 percent of production, and 238 million cubic feet of natural gas per day. Current production is estimated at roughly 140,000 boe per day.
Net production from the Bakken petroleum system alone was about 88,000 boe per day in the second quarter, an increase of 14 percent compared to the previous quarter and 65 percent above last year’s second quarter. The company projects that total production for 2013 will be 38-40 percent above 2012 levels.
Continental’s mid-year estimate of 922 million boe in proved reserves represents a 17 percent increase over year-end 2012 proved reserves of 785 million boe.
“In fact, our estimate of proved reserves has more than doubled in the past 24 months,” Hamm said.
Company rig count stands at 20Continental operated 20 drilling rigs across its leasehold position of 1.2 million net acres in the Bakken.
“The company is able to operate fewer rigs while achieving the upper end of its production guidance due to the realization of meaningful drilling efficiency gains,” the company said.
The company participated in completing 73 net (180 gross) wells in the second quarter, while the Bakken backlog of gross operated wells drilled, but not yet completed, is currently 75 wells. The company said it plans to complete 245 net (790 gross) wells in the Bakken in 2013, including both operated and non-operated wells.
In North Dakota, all company-operated wells completed during the second quarter had average IP rates of 1,150 boe per day, of which 84 percent was oil. In Montana, wells had average IPs of 455 boe per day, of which 94 percent was oil. Results are consistent with the company’s estimated ultimate recovery, EUR, models of 603,000 boe for North Dakota wells and 430,000 boe for Montana wells.
Driving down operating costsContinental also continued to drive down operated drilling and completion costs in the Bakken during the second quarter. Compared to last year’s second quarter, for example, drilling cycle time of well spud to total depth improved by about 20 percent, a reduction of four days. Time spent drilling the lateral section of the well improved by nearly 30 percent, a reduction of more than 2.5 days. And time and cost of rig moves is down substantially as company activity on multiple well drilling pads has increased. Currently, 70 percent of Continental’s drilling rig activity in the Bakken is on multiple well pads.
The company said about 75 percent of its Bakken oil is now shipped via railroad.
“We continue to cultivate new rail customers on the East, West and Gulf coasts to capture the best price as their appetite increases for the premium Bakken barrel,” Bott said.
SCOOP’s excellent resultsIn other regions, Continental said it continues to experience “excellent repeatable results” from drilling activity in its Oklahoma SCOOP play. The play, discovered by Continental and disclosed last October, currently extends about 80 miles across four counties and contains “an oil and condensate-rich window.”
To date, more than 90 SCOOP wells have “de-risked” the productive footprint for more than 40 miles, Continental said, adding that in the second quarter of 2013, production averaged about 17,550 boe per day, an increase of 23 percent compared to the previous quarter and 435 percent above the same quarter last year.
Continental is the largest producer, most active operator and largest leaseholder in the SCOOP with 277,000 net acres in the play.
On the financial side, Continental reported net income of $323.2 million on total revenues of $1.1 billion in the second quarter of 2013, compared to net income of $405.68 million on revenues of $1 billion in the second quarter of 2012. Adjusted net income was $246 million for the second quarter of 2013.
Continental’s long-term debt was $4.4 billion at June 30, 2013, compared to $3.5 billion at Dec. 31, 2012.