Continental Resources is contemplating skyward adjustments of recoverable reserves estimates in the Bakken petroleum system based on a massive revision in the company’s oil in-place estimate. The company plans to make revisions of its recoverable reserves estimates in late 2013 at soonest, once it completes extensive productivity testing of the lower benches of the Three Forks formation.
Three Forks, which lies below the Bakken formation, is the reason Continental’s in-place estimates spiked sharply upward. If Continental is right about Three Forks, the Bakken petroleum system is vastly richer per acre and more cost effective to drill than previously thought.
So far, as Continental delves into the deeper benches of the Three Forks, its case is getting stronger.
In 2011 and 2012 Continental — noting production success in the upper Three Forks — conducted a well-coring program to find out where the oil saturation ended. What it found raised its optimism about the oil saturation of all four levels of the Three Forks formation.
“What we found was it didn’t end,” Warren Henry, Continental’s vice president of investor relations, said during his presentation to the Global Hunter Securities GHS 100 Energy Conference June 25, 2013 in Chicago. “It went all the way down to the Nisku (bottom cap).”
Based largely on core samples from its current 20-well exploration program Continental thinks seven layers of the Bakken petroleum system have much in common.
The company views the Bakken as an integrated, high-pressured petroleum system, top to bottom, compared to the former theory that the deeper Three Forks “was sort of a halo of oil” pushed down into that interval based on the pressure in the middle Bakken, Winston Frederick Bott, Continental’s president and chief operating officer, said in a Feb. 28, 2013 conference call with industry analysts.
“We now feel it’s all one cell and it’s all very, very similar pressure,” he added. “And therefore, the recovery factors are going to be much more an important factor for us to determine.”
From top to bottom, the cell actually extends from the Lodgepole just above the upper Bakken shale member downward through the middle Bakken dolomite unit and lower Bakken shale to the “Nisku” just below the fourth bench of the Three Forks, Henry said.
Technology, testing — key catalystsContinental’s aggressive progress in the Bakken is driven by increasing knowledge of the production capabilities of the petroleum system, combined with leaps in technology and subsequent economies.
Henry said “the key catalyst” for Continental right now is the on-going well productivity and density tests, which will carry into next year and help establish how much resource can be recovered from the Bakken petroleum system.
However, Henry said, “probably the most important catalyst” for the company during the past several months in the Bakken has been the company’s continuing move to pad drilling.
The move from four wells per pad to as many as 12 saves the company time and money, he said.
FLASH — upper Bakken shaleIn a new development, Continental is targeting the upper Bakken shale in far southeastern McKenzie County. To date, just a few companies have been able to successfully produce from the actual Bakken shale source rock, with Slawson Exploration in the lead.
Continental submitted an application to the North Dakota Industrial Commission to drill, complete and produce up to four wells in each existing 1,280-acre spacing unit in the Charlie Bob-Bakken pool.
Currently, almost all oil from the Bakken play is produced from the middle Bakken. The middle Bakken is sandwiched between the shale layers that generated the oil which feeds the reservoirs in the Bakken system.
In its application, Continental put ultimate recoveries for the proposed upper Bakken shale wells at 246,000 barrels of oil and 323 million cubic feet of gas, with an estimated initial production, or IP, rate of 420 barrels of oil per day, and a gas-to-oil ratio of 1,300 cubic feet of gas per barrel of oil.
Continental’s application appears to be the first mention in public or company financial records of Continental’s targeting the upper Bakken shale member.
However, it fits with the high pressure theory — that the various layers making up the Bakken petroleum system are encased and under “very, very similar” high pressure, meaning a lot more oil than currently estimated by the company may ultimately be recovered from the massive system.
In addition to oil saturation, “high pressure greatly increases the odds that I’m going to have producible reserves,” Warren Henry, Continental’s vice president of investor relations, said in a May 6, 2012, interview with Petroleum News Bakken.
Dueling oil in-place estimatesContinental is the largest acreage holder in the Bakken, ending 2012 with a lease position of 1,140,000 net acres primarily in North Dakota. The company also leads the pack in fanning the expansion of expectations for the Bakken.
However, despite the recent boost to the company’s oil in-place estimates, Continental’s most recently stated estimate of recoverable reserves — 24 billion boe — has not been correspondingly adjusted.
Henry noted that a 3.5 percent recovery rate on 903 billion barrels of in-place oil would “pump” the 24 billion barrels up to 32 billion barrels.
“If we were able to increase the recoveries with technology, it could be 4 or 5 percent (and) could double the recoverable oil,” he said.
When announced in October 2010, 24 billion boe was five times larger than the 4.3 billion boe published by the USGS in April 2008.
In the 2008 study the USGS did not include crude oil estimates for the Three Forks formation.
An updated USGS study released April 30 by the U.S. Department of the Interior says the entire Bakken petroleum system, including the Three Forks, holds a mean 7.38 billion barrels of undiscovered, technically recoverable oil, compared to a mean 3.65 billion barrels estimated in the 2008 study. Estimates range from a low of 4.42 billion barrels to a high of 11.43 billion barrels.
Of the 7.38 billion barrel mean, 3.73 billion barrels is attached to the Three Forks, meaning the 3.65 billion barrels attributed to the Bakken in the 2008 study remains unchanged in the revised study five years later.
Three Forks far flungThree Forks is a thicker and more extensive formation than the Bakken, extending farther east across North Dakota, farther west into Montana and as far south as South Dakota. However, only about 5 percent of the formation is said to have been tested, compared with 14-33 percent in some of the better-known parts of the Bakken.
The Interior Department said that since its 2008 assessment, upwards of 4,000 wells have been drilled in the Williston Basin, providing updated subsurface geologic data that helped in updating the study.
“Previously, very little data existed on the Three Forks formation and it was generally thought to be unproductive,” the agency said in a press release. “However, new drilling resulted in a new understanding of the reservoir and its resource potential.”
In mid-2008, Continental was the first company to drill a horizontal well into the first bench, or upper Three Forks, a variable tight oil reservoir consisting of green and pinkish-tan carbonate mudstone, as well as shale but with no organic content.
The first bench, or upper Three Forks reservoir, lies about 20 feet below the lower Bakken shale member, which until recently was where all Three Forks production came from.
Technology enhances harvestContinental said it prefers to grow organically rather than by acquisition, saying on its website that it relies on advanced technology in harvesting oil and natural gas to build shareholder value.
“Our technical staff has internally generated substantially all of the opportunities for the investment of our capital.”
The company’s operating strategy in the Bakken focuses on three major technologies — horizontal drilling, hydraulic fracture stimulation or fracking, and a proprietary multiwell pad drilling technique the company calls ECO-Pad.
In addition to reducing costs, the company said its ECO-Pad system taps more of a reservoir’s resources while reducing environmental impact due to a reduced operational footprint per well.
Shift to acquisition modeContinental’s organic growth model seems to have served it well so far, but as the playing field in the Bakken becomes more crowded, Continental has stepped up its focus on acquisitions.
“We continue to increase our concentration in high-value, high-growth, crude oil assets, especially in the Bakken,” said Harold Hamm, Continental chairman and chief executive officer. “We are growing the value of our Bakken assets through strategic acquisitions, exploration, and the expanded use of pad drilling, which should improve efficiencies and translate into even better rates of return.”
Continental saw its year-end 2012 proved reserves across all of its properties jump 54 percent to 785 million barrels of oil equivalent. Likewise, total annual production rocketed 58 percent from 2011 levels to 35.7 million boe.
Of the 785 million boe in total year-end proved reserves, three-quarters or 564 million boe are situated in the Bakken petroleum system. And that’s almost double the proved reserves in the play at the end of 2011, the company reported.
Continental has two major exploration-appraisal programs planned for 2013. It’s testing productivity of the lower Three Forks benches with a 14-well program at locations across the play. In addition, the company has initiated the first of four increased density pilot programs that will involve multiple wells in the middle Bakken and the first three benches of the Three Forks zone, to test the appropriate density for full development. Successful results from these programs would prove commercial productivity and could significantly impact future reserve bookings, the company said.
Continental said it expects to begin reporting results from new lower-bench productivity tests quarterly over the next 12-to-18 months.
“(Last year) was a good year for Continental. We completed the move of our headquarters to Oklahoma City, and we increased our focus by selling mature properties and redeploying capital to higher growth-rate assets,” said Rick Bott, Continental president and chief operating officer.
“We have expanded our land position, increased production, increased proved reserves, embarked on an ambitious exploration-appraisal program, retooled our marketing efforts, secured capital to fund our ongoing growth, and continued to build our leadership and technical staff.”