All pads and slickwaterHalcon earmarks nearly half of 2014 D&C capex for Fort Berthold development Mike Ellerd Petroleum News Bakken
Halcon Resources had a banner year in the Williston Basin in 2013, and the outlook for 2014 is every bit as good as the Houston-Based independent moves exclusively to pad drilling and slickwater fracks.
Despite taking a production hit from the severe winter weather in December, Halcon’s fourth quarter Bakken/Three Forks production actually increased 15 percent over the third quarter, helping to increase the company’s 2013 Williston Basin production by more than 75 percent. And now Halcon is looking at an even better year ahead with production guidance up, reserves up, and costs and capital expenditure down.
Floyd Wilson, Halcon’s chairman and chief executive officer, told analysts in a Feb. 27 conference call that the company is focusing on its Fort Berthold acreage in 2014 where it plans to spend 49 percent of its $950 million overall drilling and completions budget.
“In the Williston Basin, our Bakken/Three Forks program is going great,” Wilson said. “We have production growth there in 2013 of 77 percent. This year, all of our rigs are drilling in the highest-return area at Fort Berthold. We expect to spend a little — just barely less than half — of our drilling and completion capex in 2014 in the Williston Basin. And we expect to draw 100 percent of our 2014 wells off pad versus a little less than 75 percent last year.”
Slickwater fracks and EURs Halcon began experimenting with slickwater fracks in its Williams County acreage in 2013 with very positive results, which contributed to an upward revision of the company’s estimated ultimate recoveries, EUR. Halcon raised the average EUR for wells in the Fort Berthold area 39 percent to 801,000 barrels of oil equivalent. Of that revised EUR, 687,000 barrels or 86 percent is oil.
But that revised EUR already looks to be outdated as the slickwater-completed wells in the Fort Berthold area are currently outperforming the 801,000 boe type curve. The company’s engineers now estimate an average EUR for the Fort Berthold wells at 970,000 boe.
In its Williams County focus area, Halcon increased its estimated average gross EUR 43 percent to 477,000 boe, with oil making up 87 percent.
“We’ve increased the average type curves on our EUR estimates in all areas based on improved results related to drilling and completion modifications,” Wilson said, adding that one of the big improvements has been slickwater fracks. “We started with those up in the Williams County area. They were very successful. We’ve started down in Fort Berthold with those, and they’re meaningfully outperforming our new type curve.”
Halcon’s Williston Basin production averaged 24,125 boepd in the fourth quarter, up 15 percent over the third quarter output of 21,039 boepd. However, were it not for the harsh weather in December, the fourth quarter output would have been even higher with Halcon estimating winter weather hampered production by 1,040 boepd. Halcon ranked as the 12th largest Bakken oil producer in North Dakota in December based on output from operated, non-confidential wells.
The company currently has 141 Bakken and 39 Three Forks wells producing in the Williston Basin, and another 12 Bakken and seven Three Forks wells either being completed or awaiting completion, and two Bakken and two Three Forks well being drilled. Halcon holds approximately 142,000 net acres in the Williston Basin, and operates approximately 75 percent of that acreage with an average working interest of 94 percent.
The year ahead Halcon Resources is planning to increase company-wide production by over 60 percent in 2014 while reducing its previously estimated capital expenditure, capex. In mid-December, Halcon announced it had lowered its 2014 drilling and completions budget by 14 percent from $1.1 billion to $950 million. That revised 2014 drilling and completion capex is approximately 36 percent less than the approximately $1.5 billion the company spent on drilling and completions in 2013.
Halcon has earmarked 49 percent of the $950 million drilling and completion capex in the Williston Basin. Through the year, the company plans to operate four drill rigs and spud between 40 and 50 gross operated wells in the basin, and plans to participate in another 200 to 225 gross non-operated wells with an average working interest of 3 percent.
Halcon is also continuing with infill drilling, and early results suggest that up to 16 wells per spacing unit may be feasible in the Fort Berthold area. That density, Wilson said, could potentially increase the company’s Fort Berthold well inventory as much as three-fold. “We plan to complete all future wells in Williston Basin with slickwater fracks,” he said. “Continued downspacing there has yielded real success and has the potential to more than triple our operated well inventory in the Fort Berthold, as events unfold.”
Acquisition and divestitures Halcon also announced on Feb. 26 that it has entered into an agreement to sell approximately 83,000 net acres of non-core assets in East Texas for $450 million. That transaction is scheduled to close on April 1. While that is the only divestiture Halcon has planned for 2014, the company says it will continue to evaluate all of its remaining non-core assets for possible divestment.
Along with selling some non-core assets, Halcon is also adding a new core area to its portfolio. The company will use the proceeds from the East Texas divestiture to help fund the acquisition of approximately 307,000 net acres in the Tuscaloosa Marine Shale play in Mississippi and Louisiana, which will become the company’s third core area. Halcon has been evaluating the acreage for more than a year and now plans to spend 10 percent of its drilling and completions budget in the play in 2014 to operate two drill rigs and spud 10 to 12 gross operated wells.
Guidance and reserves Even with the divestiture of the company’s non-core East Texas assets, Halcon is reaffirming its previously announced 2014 production guidance of between 38,000 and 42,000 boepd of which oil is estimated at 85 percent, gas at 10 percent and NGLs at 5 percent. For the first quarter, Halcon is projecting overall production to range between 34,000 and 36,000 boepd.
At the end of 2012, Halcon estimated proved reserves stood at 108.8 million barrels of oil equivalent. A year later at the end of 2013 those estimated proved reserves increased by 25 percent to 136 million boe, and consist of 84 percent oil, 7 percent natural gas liquids and 9 percent natural gas.
Of the 136 million boe estimated proved reserves, 90.5 million boe or 67 percent are in the Williston Basin, 22.7 percent are in the company’s El Halcon project in the East Texas Eagle Ford play with the remaining 22.8 million boe spread among Halcon’s other project areas. Those reserves are 84 percent oil, 9 percent natural gas and 7 percent natural gas liquids.
4Q and full year output Company-wide, Halcon’s fourth quarter production averaged 40,217 boepd, up nearly 7 percent over third quarter production of 37,707 boepd and a nearly 120 percent increase over the 18,348 boepd fourth quarter 2013 production, For the year, Halcon’s overall production averaged 33,329 boepd, a 254 percent increase over the 9,404 boepd average production in 2012
Halcon’s 2013 production consisted of 84 percent crude oil, 6 percent natural gas liquids and 11 percent natural gas. In 2012, that product mix was 70 percent crude oil, 8 percent NGLs and 22 percent natural gas.
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