Kodiak Oil & Gas Corp. stopped short of declaring its crucial well down-spacing program a success, cautioning analysts and others not to overplay initial production results from one of its two crucial Williston Basin pilot projects, until more production data can be collected and analyzed. And that will take time.
But the company left no doubt that its Polar and Smokey pilots “will have a significant impact on how we lay out our future development programs,” declared Russ Branting, Kodiak’s executive vice president of operations.
Moreover, the final results could have a profound impact on other Williston Basin producers trying to figure out how much additional production can be squeezed out of their leases by increasing the well count per unit.
Kodiak released initial production results Aug. 1 from all 12 wells drilled and completed at its North Dakota Polar prospect in southern Williams County.
“We believe (them) to be very encouraging,” Branting said the next day in a conference call to discuss second quarter 2013 financial and operational results.
The 12 Polar wells had an initial production, or IP, rate average of 2,549 barrels of oil equivalent per well in their first 24 hours of production, or separately 1,930 barrels of oil and 3.70 million cubic feet of gas.
At least 6 months of data needed
“We would like to see at least six months of data before making any definitive conclusions,” Branting said, noting that the dozen wells together initially produced on average 22,550 boe per day, “which is consistent with our other Kodiak-operated wells in the area.”
In McKenzie County, home of the company’s Smokey pilot project, Kodiak also drilled 12 wells. Eight of them have been completed, while the remaining four wells are to be completed during the third quarter. However, Kodiak did not release any Smokey production data.
“Clearly, we are excited about early results from our down spacing,” Lynn Peterson, Kodiak’s chairman and chief executive officer, said during the conference call.
Ten years-plus of drilling inventory
“As we get more clarity on the production, we can then start to project the impact it will have on the company’s drilling inventory. I think it’s safe to say that we are comfortable telling you we currently have more than 10 years of drilling inventory and that number has a good chance to increase significantly.”
Peterson said the company is encouraged that it did not see “significant communication” between wells during well stimulation procedures, “which should bode well for tighter spacing…”
Kodiak, in both the Polar and Smokey areas, drilled Middle Bakken wells about 800 feet apart, which allowed for six wells to be drilled in each of the 1,280-acre spacing units. Six additional wells, also 800 feet apart, were drilled into the Three Forks formation. Wells were drilled on an alternating sequence between the two intervals. Four wells were drilled from three separate pads.
Kodiak saw significant increases in revenues and production during the second quarter of 2013.
The company reported oil and gas sales of $173.5 million in this year’s second quarter, compared to $85.8 million during the same period in 2012 and $165.1 million in the first quarter of 2013, representing increases of 102 percent and 5 percent. Adjusted operating cash flow was $131.1 million for the second quarter versus $67.7 million in the same period a year earlier, a 94 percent increase. However, net income for the second quarter came in at $44.3 million, down from $93.1 million for the same period in 2012.
Kodiak also reported an 8 percent increase in quarter-over-quarter sales volumes, with 2.1 million barrels of oil equivalent sold, or an average of 23,200 boe per day during the second quarter of 2013, compared to 1.9 million boe, or an average of 21,700 boe per day, in the previous quarter. The company averaged just 12,700 boe per day in the second quarter of 2012.
Kodiak’s current net production is about 34,000 boe per day, consisting of roughly 28,500 boe per day from legacy production and 5,500 boe per day from the company’s recent Liberty Resources property acquisition. That deal also included about 42,000 net leasehold acres in North Dakota’s McKenzie and Williams counties.
The company expects output to average 30,000-34,000 barrels of oil equivalent per day in 2013, compared to 3,900 boe per day in 2011, for an average production increase of more than 200 percent per year over the three-year period.
During the second quarter of 2013, Kodiak said it invested about $248.7 million related to its oilfield operations and leasehold acquisitions. It expended $204.1 million on its operated properties, $35.3 million on non-operated wells and $9.3 million in infrastructure and acreage acquisitions.
