Optimizing developmentKodiak sets a lower 2014 Bakken capex as positive downspacing testing continues Mike Ellerd Petroleum News Bakken
Denver-based Kodiak Oil and Gas Corp.’s board of directors has approved a 2014 capital expenditure, capex, budget totaling $940 million, all of which will go into the Bakken-focused independent’s Williston Basin operations.
Of the $940 million total capex, $890 million is earmarked for the drilling and completion of an estimated 100 Bakken and Three Forks wells, and the remaining $50 million is going into the building of infrastructure as well as the acquisition of new, small acreages.
Along with other Williston Basin operators, Kodiak has seen improvements in well efficiencies. Kodiak’s average well cost for all of 2012 was approximately $12 million per well. In the third quarter, its well costs ranged between $9.2 million and $9.5 million. The company projected costs to be even lower in the fourth quarter. The lower wells costs are reflected in the company’s 2014 capex, which is approximately $60 million lower than its 2013 total capex of $1 billion. The company, however, plans to drill the same number of wells.
“Our 2014 capital budget is a reflection of this philosophy and we will take a measured approach next year as we continue to optimize our development,” Lynn Peterson, Kodiak’s chairman and chief executive officer said in a Dec. 18 press release. “The high quality of our core acreage position should continue to drive forward high rate of return wells and achieve very attractive production growth in 2014. This growth combined with our continued improvements in well costs and assuming current commodity prices, should allow us to fund most of the capital expenditures from operations.”
Kodiak holds approximately 192,000 net acres in the Williston Basin, and is moving into full development mode in its core areas in Williams, McKenzie and Dunn counties, N.D. “As we continue to move toward full-scale development of our core Williston Basin properties, we believe we are transitioning to a new chapter for Kodiak,” Peterson said. “Moving beyond the leasing, exploration, and delineation stages, we are excited to focus on development and maximizing recoveries and returns.”
Hedging Kodiak will fund the 2014 capex though operating cash flows and existing working capital as well as an existing revolving credit facility. Kodiak has an active hedging program supporting its cash flows, and currently has 26,150 bpd in crude oil hedged at an average price of $93.29 per barrel, which amounts to approximately 60 percent of the company’s estimated 2014 daily output hedged above $93 per barrel.
The company’s hedging program is intended to protect its cash flow as well as support its fixed cost coverage and capital program. Additional volumes may be hedged as more wells are completed and go on production. In 2013, Kodiak hedged 23,030 barrels at $96.35 per barrel.
Production guidance As Petroleum News Bakken previously reported, Kodiak’s third quarter output averaged 35,400 boepd. It had projected its 2013 exit production rate at 40,000-plus boepd and full year guidance averaging 30,000 boepd. However, due to the early onset of severe winter conditions in North Dakota in the fourth quarter, Kodiak believes its full year 2013 production will be slightly less than guidance at 29,200 boepd, although the company notes that it has not fully quantified the impacts of the early winter and has not announced revised guidance for the fourth quarter.
In August, Kodiak ranked eighth among the top 50 producers in the state averaging 33,918 barrels of oil per day according to Department of Mineral Resources Oil and Gas Division data for operated, non-confidential well production. In September, Kodiak increased its average daily production to 43,730 bpd, moving into the No. 7 position. However, in October, while Kodiak maintained its seventh place ranking, the company’s average daily production fell slightly to 42,928 bpd amid the adverse weather conditions. As Petroleum News Bakken reported on Dec. 22, a number of the top 15 North Dakota oil producers saw declines in their average daily production in October.
For 2014, Kodiak expects its Williston Basin sales volumes to average between 42,000 and 44,000 barrels of oil equivalent per day, which constitutes a year-over-year increase of 45 percent.
Downspacing pilots Kodiak has downspacing pilot projects ongoing in its Polar core area in the Traux field in southern Williams County and its Smokey core area in the Pembroke field in east-central McKenzie County. In each of the pilots, the company has increased densities to 12 wells per 1,280-acre spacing unit, six of which are middle Bakken and six are Three Forks wells. Kodiak identifies three Three Forks benches in both pilot projects, which it refers to as upper, middle and lower benches (see slide).
After 60 days of pumping in the Smokey project, the six Bakken wells averaged 739 boepd. The six Three Forks wells averaged 517 boepd with an overall 60-day average for the 12 wells of 627 boepd. Three of the Smokey project wells are upper Three Forks and three are middle Three Forks.
In the Polar project, the six middle Bakken wells had an average 24-hour initial production, IP, rate of 2,738 boepd, an average 30-day IP rate of 1,020 boepd, an average 60-day IP of 846 boepd, and an average 90-day IP of 735 boepd. The three upper Three Forks wells had an average 24-hour IP of 2,715 boepd, and 30-day, 60-day and 90-day average productions of 1,441, 1,314 and 1,261 boepd, respectively. In contrast, the three middle Three Forks wells averaged 2,006 boepd in the first 24 hours, and 850, 697 and 591boepd after 30, 60 and 90 days of production, respectively.
Just east of the Polar downspacing pilot, Kodiak is completing the first of what eventually will be four four-well pads in a 1,280-acre spacing unit for a total of 16 wells with lateral spacings of 600 to 650 feet. Of the 16 total wells to be completed in the first half of 2014, eight will be in the middle Bakken and the other eight in the Three Forks formation with six in the upper and middle benches and two in the lower bench.
“A key objective is to determine the optimum spacing and development blueprint for our asset,” Peterson says. “We believe the 2013 pilot programs in Polar and Smokey moved us a long way towards making that determination and believe that our 2014 program should provide additional information toward the long-term framework for development, understanding that well bore density will vary throughout our acreage position.”
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