Kodiak Oil and Gas is staying the course in its Bakken downspacing pilot programs, and it is looking beyond early well results to the horizon.
In 2014, Kodiak will push its downspacing envelope further at its Polar 2.0 pilot in lower Williams County, North Dakota, drilling 16 wells in a 1,280-acre drilling spacing unit testing 600 foot to 650 foot spacing between wellbores.
The first four-well pad at Polar 2.0 was completed during the first quarter of 2014.
Kodiak reported that its two Polar 2.0 middle Bakken wells produced a 30 day average of 1,040 barrels of oil equivalent per day, and a 60 day average of 790 boepd. Two Three Forks wells produced an average of 792 boepd over 30 days and an average of 606 boepd over 60 days.
Russ Cunningham, Kodiak executive vice president of exploration, told analysts in a May 2 conference call that it is far too early in the pilot to extrapolate meaningful conclusions based on production from the wells to date.
“We have received numerous questions about these wells as people are trying to compare it to our first pilot program and draw immediate conclusions,” Cunningham said. “Please keep in mind that these wells were completed during some intense cold weather, while the first pilot wells were completed in August and as a result, different procedures were used to clean up the wells.
“Probably most importantly, this is an extremely small sample and we need to get the remaining wells drilled and allow these wells to produce for several months,” he said. “When we evaluate production along with pressure work being completed in the field, we feel good about the early numbers but again caution against extrapolating too quickly.”
Cunningham said well variability is to be expected, especially in the Three Forks.
“If you look at our initial pilot program, we have one well specifically that’s a really dandy well and we have one adjacent to it that isn’t nearly as good,” he said. “It’s a natural variability within the Three Forks.”
Cunningham said the company’s downspacing program is still in its infancy, but only time will tell the complete story.
“We posted 210-day production numbers for the wells at our Polar pilot 1.0 where we drilled six wells in the middle Bakken and six wells in the Three Forks formation,” he said. “While the numbers are encouraging and represent nearly 100,000 boe per well produced to date, this timeframe represents less than 2 percent of the expected lifetime of the wells.”
In its Polar 1.0 pilot, Kodiak completed 12 wells per 1,280-acre drilling spacing unit, testing 800 foot spacing between wellbores.
“We have taken the downspacing one step further with our Polar Pilot 2.0 drilling spacing unit, where we will ultimately drill eight wells in the middle Bakken and eight wells in the Three Forks staggered throughout the first three intervals,” he said.
Smokey pilot
Also in 2013, at its Smokey pilot project in McKenzie County, Kodiak completed 12 wells per 1,280-acre drilling spacing unit, testing 800 foot spacing between wellbores.
Lynn Peterson, Kodiak chairman and CEO, said that while Kodiak sees the Polar area as being its top property, Smokey, despite lower reserves, shows promise.
“I think we’re actually very pleased with the middle Bakken,” he said, adding that the Three Forks is less consistent.
Kodiak has observed variability at Smokey, and it is just starting to understand what the implications are, Cunningham said, adding that variability is more an issue in the Three Forks than the Bakken.
“There are two conditions that exist down there in Smokey and they are kind of transitional,” Cunningham said. “One is that the lower shale, which is one of the principal source rocks, thins rapidly from northeast to southwest across the block; additionally, there is another stratigraphic unit that presents some challenges to the migration of hydrocarbons.”
Dunn downspacing
Kodiak is also downspacing at its Dunn County acreage, and it has some very good wells there, Peterson said.
“We’ve actually continued to do some downspacing work over there, we just haven’t drilled the entire DSUs up all at once,” he said. “But the wells that we are working on over there are going to tighter spacing.”
Lack of infrastructure is a current limiting factor for drilling in Dunn County, Peterson said.
“Some of our drilling activity is going to be a function of where we can get our infrastructure built out,” he said, adding that the company is “very sincere” about improving its gas capture.
“If we get pipe built into an area, get compression established and are able to capture higher volumes of our product, those are the areas we are probably going to focus our drilling activity,” Peterson said. “I think really our activity is going to be driven as much by results but also very much aligned to where we can sell our gas and capture all of our product here.”
Dynamic ceramic
Kodiak continues to use 100 percent ceramic proppants in its wells.
Peterson said ceramic proppant use has insulated Kodiak from sand supply bottlenecks as other operators clamor for white sand and experiment with larger sand volumes per well, however the reason Kodiak uses ceramic proppant is due to its performance.
“I think we continue to use ceramics not because of that reason but because we think that it’s holding the fracture system open and the depth that we are drilling these wells at and the pressures that we see, we believe it will crush the sand,” Peterson said, adding that most wells in the company’s area are fracked with some portion of ceramic proppant.
“I’m not aware of too many wells that are just packed full of 100 percent sand in the deeper part of the basin, so I think it’s real,” he said. “And I think from our standpoint on the use of ceramics, we’re going to continue; it works both ways in our regard.”
Kodiak estimates that its completed and equipped well costs using 100 percent ceramic proppants are approximately $8.5 million to $9 million, a number it said is falling due to shortening intervals from spud to rig release.
Grip of winter
Cold temperatures from November through February hampered completion and workover activities on both operated and non-operated properties, resulting in lower than expected first quarter production, Peterson said. Due to winter’s effect, Kodiak revised its average 2014 full year production guidance to a range of 39,000 to 42,000 boepd, down from 42,000 to 44,000 boepd.
In the balance of 2014, Kodiak will be free to focus on its most promising areas.
“During the first quarter of 2014, nearly a third of our completed operated wells were drilled in our Wildrose area of northern Williams County to hold acreage; this is an area with a thinner reservoir section and less source rock that results in lower reservoir pressures and less gas, and corresponding lower production rates and reserves,” he said. “Wells in this area also have to be put on pump soon after completion, which was delayed because of weather.
“We are excited about the remainder of the year as our activity is all concentrated in the heart of our core leasehold in southern Williams, McKenzie and Dunn Counties, where we continue to deliver consistent well results.”
During the first quarter of 2014, Kodiak completed 20 gross (15.2 net) operated wells and participated in the completion of 26 gross (3.8 net) non-operated wells, he said.
“As we look at the next three quarters, we should complete approximately 22 to 25 net operated wells per quarter over each of the remaining three quarters,” Peterson said.
During the first quarter of 2014, Kodiak spent approximately $208.6 million of its $940 million 2014 capital expenditure budget for oilfield operations and leasehold acquisitions.
Kodiak has seven operated rigs in the Bakken which it will maintain throughout 2014, it said, along with continuing participation in non-operated activities.
In first quarter 2014, Kodiak reported oil and gas sales of $257.0 million, as compared to $165.1 million during the period in 2013 -- an increase of 56 percent.
Kodiak also recorded an overall 57 percent increase in quarter-over-quarter equivalent sales volumes with 3.1 million barrels of oil equivalent sold during the first quarter of 2014, as compared to 2 million boe in first quarter 2013, the company said. Crude oil revenue accounted for approximately 92 percent of oil and gas sales during first quarter 2014.
