Sunday, December 30, 2007

Marathon Buys PDC Acreage

Marathon has purchased from PDC about 72K undeveloped acres and most of the company's Bakken wells for almost $35 million effective 12/31. The transaction brings Marathon's net acreage up to 320K acres. Fox News

PDC and Marathon had a AMI in a large part of Bailey Field in Dunn Co., where each was developi
ng their interests in a checkerboard pattern, but PDC hadn't been active in the area since last summer. Marathon is going to need a few more rigs besides the six it currently operates to hold a lot of its proven acreage, where the leases mostly expire in two years or less.

Speaking of Marathon, here are a few pictures of their operations in Bailey Field near Killdeer in Dunn Co.

It also appears that Billings, MT based Nance Pet. has sold most or all of their interest in ND to St. Marys Land & Exploration.

Some Reader Input

David expended some effort in writing some comments to a recent post that deserve some better exposure. He wrote:

EOG seems pretty confident that they can recover 750,000 bbls of oil from each section drilled in the Parshall/Bakken field almost irrespective of the initial bopd figure. According to Mark Papa in one of his responses during an analyst presentation, the Bartelson 1 well, one of the first completed which initially produced 1800 bopd, produced an average of 600 bopd over an entire year, but was at a little over 400 bopd rate 1 year out. The wells seem to pop off initially at quite variable rates, ranging from about 700 bopd to 2000+ bopd, but once the initial pressure is off, they all seem to move fairly quickly into a rate of 500-600 bopd, and then the rate of decline is much less rapid after that.

I've been trying to determine what assumption about well life EOG is using for the 750,000 barrels recovery from each 640 acre spacing--as near as I can tell that assumes a well life of about 5 years, possibly 6. EOG is experimenting right now drilling a third well on a 1280 acre spacing from the opposite corner across the Bartelson and Patten sections 1 and 2 of 152-90. If you listened to their request in Bismarck, they aren't really expecting this strategy to increase recovery on the two sections relative to what they are getting from the two existing wells(they think that the oil from the new well simply cuts production from the two older wells on the 640 acre spacing) However, this is an experiment (EOG's words) and there is a possibility that this will become a normal method to increase recovery rates, and a third well running crosswise of the laterals on two of the current 640 acre spacings may turn out to be the norm in the Parshall and Austin fields (those two fields will eventually be one).

The EOG economics are pretty simple: a very average well producing 500 bopd for 6 months generates over a million $ of oil a month at current prices and pretty much covers all their direct drilling costs of 5+ million $. As a capital budgeting project, this number is nothing short of fantastic, and EOG has been saying this over and over again in their reports to shareholders. What is pulled out after the 6 months is over less royalties and the cost of running and maintaining the pump goes straight to EOG's bottom line.

With oil around $90 a bbl, the economic incentive for EOG and others to experiment with new technologies to up the recovery rate on each section is huge. EOG seems pretty confident that there is 9 million bbl of oil under each section in the Parshall/Austin field, and that this first round of wells using the laterals, fracturing etc, is going to bring about 8 % of that to market. But if there is any way to pull more of the total 9 million bbls of oil out, the economic incentive to find that technology given what has already happened is huge. No doubt, 5 years from now EOG and others drilling the field will have further honed their techniques. EOG isn't going to walk away from a field that has been treating them this way from a purely capital budgeting standpoint. The only part of the puzzle I havent quite figured out is why the majors have not already landed. EOG is a big company, in the S&P 500, but small by the standards of a major oil company.

Does anyone have a number to toss out with respect to how much gas a typical well in the Parshall/Austin field might produce once the pipeline is in and the gas gets old rather than flared off? I have been guessing that the value of the gas might be 10-15% of the value of the crude oil produced each month, but this is only an uneducated hunch on my part.

I think the Feb-March date EOG is talking about corresponds to the date that the wells will be connected to the crude pipeline as well. At the moment the number of trucks needed just to haul off the oil from the 22 wells producing 500 bopd has been substantial--things should get a lot simpler with the pipeline in place.

How many barrels do each of those storage tanks hold? There are typically 8 or 9 set up on each well in the field. EOG is confident enough that the wells will come in that they set the tanks just as the wells are being started. [typically 400 bbls for the permanent tanks on location]

Here are some production histories from the Patten and Bartelson wells and projection for the infill well on the 1280.

And an earlier projection of production for the Warberg 1-25H well that indicates an EUR of about 400K bbls.

Another reader, Larry, sent along a graph plotting EOG's drilling permits and active rigs, indicating more rigs are likely to appear in the near future.

Thursday, December 20, 2007

Some Austin Well Info, Mountrail Co.

Regarding temporary spacing for their Austin 1-02H well, sec. 2, 154N, 90W, Mountrail Co., EOG indicated that the well last month was averaging 800-some bopd, and that they have been fracing their wells before producing them and are utilizing a liner and swell packers in their completions. They are projecting an EUR (estimated ultimate recovery) of about 750K bbls over the life of the well, and estimated the mid-Bakken’s porosity to be about 7% (pretty good for the Bakken) and attributed about one-half percent porosity to fracturing. They said the reservoir properties are similar to those at the main area of development in Parshall field to the south. The company stated that they expected gas sales from the Parshall field area to begin around February or March of next year.

Speaking of EURs, from recent articles in the media it seems that some people are still claiming that billions of bbls are possibly going to be recovered from the Bakken. Those figures are derived from what seems to be a “let’s pull a number out of the hat” recovery percentage of the 400-some billion bbl estimate of oil in place from Price’s non-peer reviewed Bakken study. Specifically, they are indicating a recovery factor of 1-3 percent of the oil in place, which would result in 4-12 billion bbls of Bakken production.

There is nothing wrong with being optimistic, but is such an estimate realistic? Keep in mind that there will be no EUR from every section of land that is not going to be drilled, which at this point appears to be no small amount in a lot of the relevant counties, and which the estimates quoted in the media appear to totally ignore. Then too it is important to recognize that recovery of a billion bbls would require 2,000 wells that each have a EUR of 500K bbls. Consequently, 8,000 such wells would be needed to meet the lowest estimated EUR of four billion barrels. I invite anybody who is throwing out these estimates to forgo giving unsupportable broad brush estimates that lack specifics and explain where these 8K wells will be drilled, and whether an average EUR of 500K per well is realistic considering that many companies outside of the Parshall area are using EURs of around 300K per 1280 acre unit.

Saturday, December 8, 2007

In The News

The Minot Daily News has a fairly good article mainly about the recent BLM lease sale. The only issue I have is including a map of the entire area where the Bakken is present. The only relevant area of the Bakken, however, is where the formation is deep enough so that heat and pressure caused hydrocarbon generation from the shales. Continental has a good map of that area, although pushing into Stark Co. quite so far is a little aggressive in my opinion.

Then the Missoulian
has an article that mainly tracks the Wall Street Journal article a few years back about Richard Findley. One glaring error is it's statement that "[i]t was Findley's idea to drill a well sideways - a technique called 'horizontal drilling.'" While Findley may have initiated the use of horizontal drilling in the middle Bakken, the drilling technique was used elsewhere in the world before it was ever used in the Bakken, and in any event, it was utilized in the upper Bakken shale in the late 80s and early 90s in ND. They should have confirmed that with Canadian Hunter Expl., as its now defunk subsidiary, American Hunter, lost about $50 million in that little adventure.

Monday, December 3, 2007

Recent Parshall Completions

Some recently released EOG well completion rates in the Parshall Field area:

Ralph 1-32H, sec 32, 153-89, 1,329 bopd,
53k bbls cummulative from Aug. to Oct.

Florence 1-04H, sec. 4, 152-90, 1,015 bopd,
61k bbls July to Oct.

Geving 1-09H, sec. 9, 152-90, 895 bopd,
39k bbls Aug. to Oct.