Kodiak Increasing Bakken Spending & Production Guidance

Kodiak Bakken Acreage Map

Kodiak provided a second quarter operations update, along with plans to spend more and produce more from the Bakken in the second half of the year. The increase comes as no surprise. Kodiak acquired Liberty Resources' Bakken acreage earlier in July 2013 for $660 million.

Kodiak's production at the time of the announcement was 34,000 boe/d. 28,500 boe/d from legacy assets and 5,500 boe/d from the recently acquired Liberty assets.

The update included the following 2013 guidance changes:

• Production guidance increases from 29,000-31,000 boe/d to 30,000-34,000 boe/d
• Capital spending will increase from a planned $775 million to $950 million to $1 billion
• The budget includes the completion of ~100 net wells

Kodiak's Second Quarter Bakken Activity

[ic-l]Kodiak participated in the completion of 48 gross (24 net) wells in the second quarter. Kodiak brought on a second full-time completion crew in May and plans to use a third crew temporary on its newly acquired lands. Third quarter activity is expected to include completing 30 gross (25 net) operated wells plus additional non-operated wells.

Kodiak was operating seven rigs in the area, dropped one in June, and then added a rig back through the recent acquisition. The company is running three rigs in the Polar area, two in the Smokey project, one at the Koala project, and one in Dunn County.

Wells on two 12-well units are nearing completion and one pad has eight wells already producing. Kodiak is testing 12 wells within a single 1,280 acre unit in both the Polar (Williams County) and Smokey (McKenzie County) areas. We should hear more in the third quarter.

Railroads Are Moving 70% Of Bakken Oil Production

Bakken Rail Export Volumes

Railroads are moving almost 70% of the oil produced in North Dakota. That represents volumes of more than 600,000 b/d, which is up from less than 100,000 b/d in 2011.

The importance of rail has increased as Bakken production surged over the past few years. The North Dakota Pipeline Authority estimates pipeline capacity out of the region will total 565,000 b/d and rail capacity will total 865,000 b/d at year-end 2013.

If the Bakken is going to truly surpass production of 1,000,000 b/d, additional pipelines will be needed. Even if the pipelines don't come quickly, operators benefit from ample rail capacity.

Magnum Hunter Resources Provides Second Quarter Bakken Update

Magnum Hunter Bakken Shale Map

Mangnum Hunter Resources participated in bringing on 19 gross (5.5 net) Bakken wells in the second quarter of 2013. At the end of the quarter 20.4 gross (11.4 net) wells were in some stage of drilling or being completed.

Magnum Hunter also noted midstream delays brought on by wet weather. A Oneok gathering system expected to be online in April did not accept gas until the last week of June. The gas gathering system is being built in an effort to conserve natural gas production in the area. In total, the project will connect ~300 wells in the area over the next year.

Bakken & Three Forks Well Highlights

• Border Farms 3130-5TFH - (28.3% interest) Drilled to a measured depth of 14,300 ft (lateral length of 6,075 ft), fraced with 26 stages. The 24-hour flowing initial production (IP) rate was 626 boe/d
• Montclair 0112-2TFH - (16.7% interest) Drilled to a measured depth of 17,710 ft (lateral length of 9,572 ft), fraced with 40 stages and placed. The 24-hour flowing IP rate was 683 boe/d
• J. Olson 22-15-162-98H 2DM - (36.25% interest) Drilled to a measured depth of 18,215 ft (lateral length of 9,455 ft), fraced with 36 stages. The 24-hour flowing IP rate was 872 boe/d
• J. Olson 27-34-162-98H 2XM - (35.7% interest) Drilled to a measured depth of 18,842 ft (length of 10,096 ft), fraced with 36 stages. The 24-hour flowing IP rate was 820 boe/d
• Baja 2215-2H - (30.4% interest) Drilled to a measured depth of 18,155 ft (lateral length of 9,568 ft), fraced with 25 stages. The 24-hour flowing IP rate was 813 boe/d
• Baja 2215-3H - (30.4% interest) Drilled to a measured depth of 18,280 ft (lateral length of 9,820 ft), fraced with 25 stages. The 24-hour flowing IP rate was 1,076 boe/d
• Baja 2215-1H - (30.4% interest) Drilled to a measured depth of 17,977 ft (lateral length of 9,545 ft), fraced with 25 stages. The 24-hour flowing IP rate was 913 boe/d

Magnum Hunter controls 190,000 net acres in the Williston Basin. 140,000 acres are located in North Dakota and ~50,000 acres are located in Canada.

Bakken Ethane Pipeline Gets State Department Approval

Vantage Ethane Pipeline Map

A pipeline that will move ethane from a Hess processing plant in Tioga, North Dakota, to Canada has been approved by the U.S. State Department.

The Vantage Pipeline will stretch 430 miles from Tioga, North Dakota, to Alberta, Canada, where it will deliver ethane to petrochemical plants. Approximately 80 miles of the pipeline will be located in North Dakota.

The pipeline will take several hundred thousand man hours and more than $300 million to build. Capacity is expected to be 40,000-60,000 b/d.

“The Vantage Pipeline is another major piece of infrastructure that will help us build our North American energy security partnership with our closest friend and ally Canada. The project illustrates clearly how modern pipelines can create jobs, make us more energy secure, and do so with good environmental stewardship. It will enable us to reduce flaring in North Dakota and also reduce emissions where the natural gas is used by industry.”

— Senator John Hoeven

Bakken Oil Production Record Set In May - Despite Wet Weather

Bakken oil & gas production in North Dakota grew almost 2% in May to set a new record. The state produced:

• 810,129 b/d of oil
• 899,977 mmcfd

That's up from 793,852 b/d and 861,193 mmcfd in April.

If any month was expected slow, it would have been May. June is really the only month left to watch this year. The rest of the year should continue to grow at a consistent pace. Activity levels point to growth of 10,000 b/d per month through the end of the year. Growth of more than 16,000 b/d in May is a bit of surprise to the upside and puts the state well on its way to eclipsing 850,000 b/d by year-end.

April was the coldest on record and was followed by the wettest month on record. Load restrictions have been in force in parts of the state over the past two months and construction of well sites has been constrained.