How Big Can They Get?

Jim Brown
 
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Everyone has heard of pad drilling where a company drills multiple wells from the same pad. It saves a lot of time in setup, takedown and transportation to the new well site. The concept of pad drilling is taking on a new meaning in places like the Bakken where there are multiple pay zones.

The Williston Basin is a "stacked play" where there are multiple clearly defined pay zones that can be accessed from a single drilling pad. Hess, Whiting and Kodiak Oil and Gas are experimenting with 12 to 17 wells per pad and plan to expand their test drilling in 2014 based on the success of Continental Resources.

Continental has taken pad drilling to an entirely new level. The Williston Basin is better known as the Bakken but that is only one layer of the stacked play. The layers identified by Apache and Continental are as follows from shallow to deep.

Mission Canyon
Bakken (sometimes broken into Upper, Middle, Lower Bakken)
Three Forks 1
Three Forks 2
Three Forks 3
Three Forks 4
Birdbear

Continental is the only company that has actively derisked multiple layers of the stacked play. They have drilled successful 14 well pads into four of the available plays. In the Hawkinson Density Project they drilled 14 wells total from one pad into the middle Bakken, Three Forks 1, 2 and 3. The initial production from those 14 wells was 14,850 Boepd. The laterals were 10,000 feet each.

Continental Presentation Slide

Continental is now planning some 30 well pads to test all the available layers and dramatically cut well expenses. They are planning on going back to existing wells in older producing regions and dropping a multi-well pad and adding 20-30 wells to that existing location. The benefits are huge. Infrastructure is already in place. Each new well only needs to be tied into the existing pipelines and it is ready to go.

They can drill more wells and stay within their existing capex budget. They can drill them faster because the rig does not move between wells.

Lastly the multi-well locations no longer have to flare their gas. Each Bakken well does not produce enough gas to justify a pipeline connection and producers have been flaring the gas. With 14-30 wells per location they can justify the pipeline expense and now that previously flared gas will be turned into profits.

Apache is starting to experiment with multi-well pads with wells going into different layers of the Bakken and Three Forks. In a recent presentation they showed the schematic below where each lateral would alternate between levels. Apache hopes to get additional production by allowing the levels to "communicate" using high pressure fracs.

Apache Pad Development Slide

The new mega-pad technology is allowing companies to increase production at a lower cost in a shorter period of time. As the mega-pad concept becomes mainstream for the Williston Basin we can expect it to also take hold in the other shale plays where there are stacked production levels.

Unfortunately the more oil they can produce in the Williston the cheaper it will become. The discount for Bakken crude is consistently $10 a barrel or more under WTI prices. There is simply not enough takeaway capacity in the Bakken and the faster they produce it the bigger the problem becomes. Eventually the Keystone pipeline will be completed as well as several other smaller pipelines already under construction. Increasing rail capacity is tough to do because the railroads can only carry so many trains per day in a specific direction. The Williston oil has to eventually be piped to Cushing where it can be delivered to the coast and into other pipelines for distribution to waiting refineries. This process could take a couple more years to complete.

Iran Agrees to Deal

On Sunday Iran struck a deal with the 6 UN nations and agreed to a temporary freeze of its nuclear program for six months. In exchange Iran will see limited relief from sanctions including access to $4.2 billion in oil sales proceeds that had been frozen and $1.5 billion from gold imports. In theory the six-month agreement will give diplomats time to negotiate a more sweeping agreement. In reality it gives Iran breathing room and access to a lot of money and the ability to buy gold, which it will eventually use to pay for sanctioned items on the black market.

The agreement freezes Iran's ability to enrich uranium at a maximum of 5% and well below the threshold for weapons grade material. Given Iran's hidden enrichment sites and restrictions on visitation by IAEA members the freeze at 5% is probably only symbolic rather than reality.

Benjamin Netanyahu called the deal a "historic mistake" and said Israel reserves the right of self defense.

Lest we forget, this Iranian regime supports terrorism all around the world while claiming they do not. This regime has vowed to eradicate Israel and to crush the great Satan, which is the USA. Making a deal with the devil has limited upside since the potential for deceit is so great.

Canada said it remained "deeply skeptical" of Iran and would keep its sanctions in place.

President Obama said the deal will keep Iran from using the cover of negotiations to continue advancing its nuclear program. Let's see how he feels six months from now. The sanctions can be reinstated and increased if Iran fails to live up to its promises.

Since 2003 Iran has installed more than 18,000 enrichment centrifuges and has more than 10,000 currently operating. They have stockpiled tons of 5% enriched uranium that can easily be turned into a higher enrichment product. They have stockpiled more than 440 pounds of 20% enriched uranium in a form that could be converted into a nuclear warhead within a couple weeks.

The key phrase in the agreement is "increased transparency and intrusive monitoring." If Iran balks at those actions now that the agreement is signed then we know exactly what their goal was. To get the money and buy more time.

Brent crude prices are down Sunday night -2.36 to $108.69 and WTI is down -.81 cents to $94.00 on the news.

Market

S&P futures were up +7 on the Iran deal but have declined to be up +5 at 10:PM ET. I believe the record high close from Friday will be sustained and we will move higher over the next couple of weeks.

Jim Brown

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