Not only did Continental Resources set another production record in the first quarter of 2013, the company also ran successful tests of the second and third benches of the Three Forks, saw positive results from downspacing in 320-acre and 160-acre pilot spacing units, continued to reduce drilling costs to the extent it is planning to drop two of its Bakken drill rigs in the year, and continues to be an industry leader on flaring reduction.
Going forward in 2013, Continental plans to continue both its development of the Williston Basin Bakken petroleum system, and also plans to continue its exploration of the system.
“In the Bakken, even as we’re transitioning into full development mode, we’re exploring the depths of the play, expanding production in the Lower Three Forks benches and pushing out the Bakken’s geographic margins,” said Chairman and Chief Executive Officer Harold Hamm in a May 9 conference call. “Today, based on our coring studies and exploratory drilling, we’re discovering the lower benches of the Three Forks, testing well densities and configuration to prepare for the full development of the entire Bakken oil system. We are an exploration company.”
Three Forks test results
Continental’s progress on its Three Forks exploratory program has had positive results from three lower bench well tests. The Barney 2-29H-2 well, a second bench well in southern Williams County, had a 24-hour initial production rate of 1,075 barrels of oil equivalent, and the Stedman 2-24H-2, a second bench well in west-central Williams County near the Montana border, had an initial IP of 1,030 boepd. And the Stedman 3-24H-3 well, a third bench well, came in with a 24-hour IP of 465 boepd.
“This is an important validation of the extent of the third bench productivity, as it’s located almost in Montana, and is performing in line with Montana Middle Bakken wells,” said Continental President and Chief Operating Officer Rick Bott in the May 9 conference call. “It fits our geologic model in that it is acting completely independent of a second bench well in the same area.”
Presently Continental has six wells producing in the Three Forks formation, four in the second bench and two in the third bench. It is also completing another seven, one in each of the top two benches, three in the third bench, and two in the fourth bench. The company is currently drilling two additional second bench wells and plans to drill three additional first bench wells and four more second bench wells as part of its 22-well lower Three Forks exploratory program that spans down from Divide and across Williams, McKenzie and Dunn counties. Two of these wells were drilled in 2012 with the remaining 20 wells either drilled or to be drilled in 2013.
In addition, the company reports that its Charlotte 2-22H well, a second bench well in northern McKenzie County, produced a total of approximately 116,000 boe in the first 18 months of production, and its Charlotte 3-22H well, a third bench well, produced 55,000 boe in five and a half months of production. The Angus 2-9H-2 well, a second bench well in far northeast McKenzie County, produced 53,000 boe in just two months of production.
Downspacing
Another of Continental’s exploration and appraisal initiatives is its pilot density project where it is testing three 320-acre patterns and one 160-acre downspacing pattern, with plans to complete a total of 47 gross wells as part of this pilot program.
Currently the company has two 320-acre pilot projects under way. On the Hawkinson pad in Dunn County, Continental has eight wells in various stages of completion and is drilling the final three planned for the pad.
Two wells are being completed on the company’s Tangsrud pad in Divide County with five more being drilled.
Drilling is scheduled to begin this summer on the third 320-acre pilot on the company’s Rollefstad pad in McKenzie County.
The 160-acre pilot is on Continental’s Wahpeton pad in McKenzie County where the company plans to drill 13 wells, two of which are already under way.
Continental plans to announce results from these downspacing pilot tests on a quarterly basis beginning with the results of the Hawkinson wells later in 2013 and continuing into 2014 for all of the pilot tests.
“We are encouraged to see other operators following Continental’s lead in conducting density and downspacing tests,” Bott said. “We’re aware of at least eight additional density pilots being conducted by others. The whole industry will benefit from more well control to help de-risk this play.”
Drilling efficiency
Another initiative that Continental has been pursuing is reducing its drilling and completion costs.
In October 2012, according to Bott, Continental set a goal to reduce its average operated well cost to $8.2 million by the end of 2013, which would be a 10 percent reduction from the $9.2 million the company saw in 2012.
Currently, Bott said, field reports indicate the average well cost is down to $8.3 million, putting the company approximately six months ahead of schedule on reaching its target of $8.2 million.
“These well cost savings from improving efficiencies will allow us to drop two Bakken rigs and still hit our production targets for the year,” he said.
Rails and coastal markets
As is the trend in the Williston Basin, Continental is exporting most of its crude oil from the basin via rail.
Bott said in the first quarter of 2013, approximately 80 percent of the crude oil from its operated wells were railed out of the basin, and said the narrowing of the price spread between Brent and West Texas Intermediation has brought rail transport into “rough parity” with pipeline transport, but he added that the company is keeping its options open in terms of future commitments.
“If Brent/WTI spreads continue to converge, we will look at pipeline evacuation opportunities and we’ll need to see rail carriers reduce their costs to stay competitive.”
Bott added that Continental is also evaluating how it sells it oil.
“We have also begun to diversify how we sell our oil, balancing spot, selling with short-term agreements to commit set volumes of oil to specific refining customers,” he said.
Hamm said that production in the basin simply grew too fast and pipeline capacity couldn’t keep up as price differentials “blew out” some 15 months ago. Not only did Continental see opportunities with rail transport, but also advantages of east and west coast markets rather than always taking oil to the Gulf.
“Continental and one or two others saw the opportunity to rail oil to Gulf Coast refineries, bypassing the pipeline system and the glut at Cushing,” Hamm said. “But Continental alone recognized the opportunity to rail Bakken oil to the East and West Coast refinery complexes, and now, we’re expanding markets on both coasts that weren’t even accessible from the Bakken in the recent past.”
Leading on the flaring front
Continental has, and continues to aggressively address, the flaring issue in the Williston Basin. Hamm said that of the company’s 24 most recent well completions, 23 had gas gathering lines in place on the first day of production.
“This type of green completion is standard operating procedure at Continental requiring high degree of coordination with midstream companies and state regulatory agencies, as well as a lot of hard work with landowners to gain pipeline access on a timely basis,” Hamm said. “We’re the industry leader in reducing flaring in North Dakota.”
Senior Vice President of Operation Rick Muncrief said that working in conjunction with its gathering companies, it is rare that Continental ever has wells that go on production that are not connected to a gathering system. However, he said occasionally the company has situations where it has to “pinch” its wells back from maximum production capability in order to minimize flaring. “And that’s something that’s extremely high on our list.”
First quarter production and operations
In the first quarter of 2013, Continental’s combined North Dakota and Montana Bakken production reached 76,927 boepd, which was 63 percent of the company’s total production and represented an increase of 14 percent over the company’s fourth quarter 2012 Bakken production, and a 60 percent increase over its production in the first quarter of 2012.
Continental operated 22 drill rigs in the Williston Basin in the first quarter, and participated in completing 66 net wells (162 gross), which included 21 gross wells that were deferred from the fourth quarter of 2012. At the end of the quarter the company had a backlog of 80 gross wells drilled and awaiting completion.
The company’s operated North Dakota wells that were completed in the first quarter had an average 24-hour IP of 1,125 boe, which averaged 84 percent oil.
Its Montana wells had an average 24-hour IP of 670 boe. That production averaged 87 percent oil.
For all of 2013, Continental plans to run an average fleet of 20 drill rigs in the Bakken and complete 245 net operated and non-operated wells (790 gross).
