Employing the proper completion technology - cemented liners and additional frack stages - is the “key” to Fidelity’s Bakken inventory; that, and making the underlying Three Forks formation productive across as much acreage as possible, said J. Kent Wells, CEO of Fidelity Exploration and Production, at a March 18 MDU Resources conference in New York.
Fidelity is an indirect wholly owned subsidiary of MDU Resources Group Inc.
“I’m not sure exactly where that is going to land, but that could (take) a couple of years of drilling to do that,” Wells said.
Despite the current excitement about Bakken downspacing, Fidelity is moving cautiously on infill drilling in the Middle Bakken.
Wells said employing downspacing before devising the proper completion technique is akin to putting the cart before the horse.
He acknowledged that other Williston Basin producers, looking to squeeze more oil out of their acreage, have become more aggressive than MDU at downspacing, a fairly recent - but generally successful - recovery method for the Bakken petroleum system.
“We’re continuing to develop the Middle Bakken; but, in our acreage, we’re getting toward the end of our Middle Bakken drilling, unless we go to additional downspacing,” Wells said.
“Our approach is let’s wait and see if that bears out,” Wells said. “And if it does then that opportunity is still there. Yes, it would have taken us a little longer to exploit, but we think that’s wiser than getting out and drilling more wells than we really needed.”
David Goodin, MDU chief executive officer, said to “stay tuned” on the Bakken, a play “which gets a lot of headlines … whether it’s downspacing (or) completion techniques.”
“We just don’t want to get out over our skis on that one,” he said. “But we are pleased with our acreage, and we continue to appraise that.”
Three Forks beckons
Wells said Fidelity is in the process of identifying well locations in the Three Forks, and that the company has had recent encouraging outcomes in that process.
Better-than-expected results from its Purcell well in southern Mountrail County could lead the company to 25-40 potential Three Forks drilling locations, he said.
The company also has been successful drilling in Stark County, a predominantly Three Forks play.
“I think as we refine this completion technique and (determine) exactly what the frack length is will really help us determine what the well spacing should be,” Wells said.
Fidelity will make $130 million in capital expenditures this year in the Bakken, Goodin said.
For Fidelity, early 2014 will be a time of experimenting with completion designs in the Bakken, Goodin said, adding that the company is crafting changes to its completion designs and it would make an announcement later in 2014 when the changes are expected to be finalized.
“We are testing alternative completion techniques in both counties utilizing more frack stages, cemented liners, higher strength propane and varying the pumping techniques,” he said. “Results to date have been encouraging, but there is still more work to do.”
Fidelity achieved a 36 percent annual increase in production in 2012 followed by a 30 percent increase in 2013. The Bakken accounted for nearly 60 percent of the company’s 4.8 million net barrels last year, notably from the Middle Bakken formation.
On par with expectations
Fidelity’s production came under pressure this winter from North Dakota’s harsh weather, as well as from significant rig cutbacks mid-2013, as the company focused on new completion techniques for the Bakken and other areas.
Despite the wretched winter weather, Fidelity’s production was on par with expectations while oil gained weight as a percentage of the company’s production portfolio.
“Our E&P group had great results on the strength of a 30 percent increase in oil production compared to the prior year,” Goodin said. “Further progress was made balancing its production portfolio with oil now representing 47 percent of total production in 2013, approximately double what it was in 2010.”
The company is running one rig in Mountrail County, where the development area consists of 16,000 net acres, and one rig in Stark County, where the company holds 51,000 net acres.
Goodin said Fidelity is looking to increase its rig count in the Bakken.
“We do look to add more rigs over time to try to accelerate our growth there,” Goodin said. “We have to be careful not to get ahead of the permits; we have to be careful not to get ahead of our learning and particularly as we are now starting to move to some different areas with the second rig as well as looking at the up-hole clastics.
“We could actually have a little bit of a slowdown in our production growth which will accelerate over time as we explore those new areas, so we are trying to be very disciplined here because this is an area where industry has not been able to make it work for five decades,” he said. “We feel like we are on a really good track and we are trying not to get ahead of ourselves, so it will be a measured growth but as soon as we feel confident we will look to accelerate the number of rigs working there.”
As the exploration and production arm of $6.49 billion market cap MDU Resources with the access to capital that represents, Fidelity seems quite comfortable taking its time to study its acreage rather than to horse the oil out of it in a rush for cash flow.
That’s not to say that Fidelity isn’t willing to venture outside of the box and try new things. In Richland County, Mont., Fidelity has drilled wells in the upper Bakken shale, making Fidelity the second Williston Basin operator to produce oil from actual shale with horizontal wells and hydraulic fracturing. The upper Bakken shale - the source of much of the oil in the tight sand reservoirs of the Bakken petroleum system - is a challenge. Its wells typically have lower initial production rates than Middle Bakken and Three Forks wells, but that is offset by a more gradual decline in production rates as the well ages, Fidelity said. The company said it will recomplete existing wells and it is working to find a more efficient completion design for Upper Bakken wells.
Also in Richland County, Fidelity is planning to begin an exploration program in the latter half of this year to test the Red River Horizon.
Paradox
Utah’s Paradox basin will see significant attention in 2014 as it assumes a more important role in supporting Fidelity’s overall production.
“The Bakken continues to drive our E&P group but with each passing quarter over the past year, the Paradox has taken on increasing significance for us and we see that continuing as we move forward,” Goodin said.
“For instance in 2012, we were encouraged by early results from the Paradox Basin, but it was largely based on the success of one or two wells and production from the play accounted for only 7 percent of our total oil production for the year,” he said, “In 2013 we repeated those early successes and production from the play represented 17 percent of the total oil production, and in the fourth quarter the Paradox moved up to representing 21 percent of our oil production.”
“This is, at least at this point in time, the gem of our portfolio,” Wells said of the Paradox, where the company has accumulated 130,000 net acres and the option for 20,000 acres, nearly doubling its position from three years ago.
The company will spend $170 million in the Paradox this year, twice what was invested in the play in 2013. It has boosted production to 5,000 bpd from 100 bpd three years ago.
Fidelity also has plans for the Powder River in Wyoming, where it recently acquired 42,148 acres (24,475 net).
“We believe it adds the third leg to our oil growth story,” Wells said.
