Shale Oil: The Sky’s the Limit

June 3, 2015 Elizabeth Alford

As crude prices plunged throughout the fall of 2014, producers tightened their budgets and changed their strategies to wait out the crisis.

Not only are these tactics working for individual companies, but the efficiencies and innovations that are occurring may be setting the stage for another season of prosperity.

Cutting Costs Producers have slashed costs associated with drilling through greater efficiencies and supplier reductions, including these first quarter results:

Sanchez reported Q1 costs at 30 to 40% below fourth quarter 2014
Matador reduced operating costs 30% to 40% for Q1
Continental’s drilling and completion costs fell by 15%
EOG announced it has benefitted greatly from the pull-back in activity and progress is being made to lowering cost in each phase of their operations

Innovation Looking for greater efficiency also means innovation. Cutting edge producers are pushing the science and technology to new levels as they work to get the most out of their resources. These include advancements in 3-D seismic research, telemetry, remote guidance and innovations in CO2 or nitrogen-style completions. Chesapeake recently reported that their drilling team broke several records including drilling their deepest well with a total measured depth of just under 21,000 feet, fastest spud-to-rig-release time of 7.8 days, and lowest drilling cost well at $1.1 million.

“A Wall Street Journal article recently said that this increased efficiency has fundamentally changed the industry. “Oil production is becoming a modern manufacturing process. The frackers are engaged in ‘just-in-time’ production, analogous to the methods pioneered by Japanese manufacturers in the 1970s and 1980s, which led directly to hyper-efficient global supply-chain management perfected by Wal-Mart in the 1990s.”

All of these advances have come during lean times, so what will happen as crude prices continue to increase? Since some operators report that they are more profitable today at $65 a barrel than they were at $95 a barrel three years ago, we could find ourselves in another boom very soon.

Rising Crude Derails Bakken Tax Trigger

June 2, 2015 Kenny DuBose

The recent increase in crude prices is good news for North Dakota’s coffers, but bad news for Bakken oil and gas producers.

North Dakota's oil tax trigger was introduced by lawmakers to provide tax incentives to strained producers to ease the sting of prolonged lower crude prices. The trigger went into effect in February as WTI crude dipped below the $52.58 price point. The formula requires that crude stay below that price for five consecutive months, for the state to waive its 6.5% oil extraction tax.

The oil trigger was expected to take place June 1st, but rising crude prices mean it wont be implemented and producers will miss out on an estimated $480 million over the next six months. Since the nosedive last fall, crude prices inched up after the first of the year and make a sharp rebound in May, increasing almost 25% since April 1.

“State Tax Commissioner Ryan Rauschenberger confirmed this by saying “Given that oil has been trading mostly in the upper 50s, well above $55.09, we will not be triggering.”

To read more, visit nd.gov.

Energy Executives Forced to Adapt

June 1, 2015 Kenny DuBose

Budget Cuts Affect Man Camps — Energy Execs Change Strategy to Stay Competitive

In these uncertain times, energy companies are getting creative in order to stay profitable and competitive, according to a recent survey by KPMG Global Energy Institute.

The firm found that 56% of the 200 senior executives polled plan to change their business model over the next two years to deal with the fluctuations and uncertainty.

“KPMG’s Regina Mayor said “Companies are taking necessary actions to drive improved near- and long-term performance and identify areas of greater efficiency to adapt to market pressures and remain competitive in this environment.”

The executives indicated that they will focus on managing costs through by:

Better management of staffing or outsourcing
Improved planning and budgeting management tools
Changing service delivery models
Optimizing costs related to inventory and repairs

Tightening the belt doesn't necessarily mean more layoffs, however. Over the next two years, the majority of the oil and gas executives (76%) expect to see their organizations’ ranks to increase or stay the same over the next two years.

“This data shows that even in today’s challenging price environment, short-term staffing cuts are not as pervasive as headlines may indicate, and perhaps there is more job opportunity across the broader energy market,” said Mayor. “It’s not all doom and gloom in the oil sector; the companies that employ a variety of actions around supply chain, cost optimization and a well-designed core operating model that will come out of this downturn with a successful future.”

Whiting Announces Strong First Quarter

May 28, 2015 Elizabeth Alford

EOG Releases 2015 Q1 Report — Whiting Petroleum: 2015 Q1

Whiting Petroleum announces solid first quarter results for Bakken region.

In its Q1 press release, Whiting reported production totaling 15.0 million barrels of oil equivalent (MMBOE), 88% crude oil/natural gas liquids (NGLs). Production averaged 166,930 barrels of oil equivalent per day (BOE/d), a 3% increase over the fourth quarter 2014.

Whiting’s budget remains at $2 billion with capital expenditures expected to decline sharply in the second half of 2015.

“James J. Volker, Whiting’s Chairman, President and CEO, commented, “While we are reducing rig count and well cost, production was strong in Q1 2015. We had solid results in the Bakken/Three Forks and Niobrara. Our total rig count will average 11 rigs in the second half of 2015. Nine of these rigs will operate in the Bakken/Three Forks.”

Bakken Highlights

Whiting currently holds an astounding 1,270,092 gross acres in the Williston Basin of North Dakota and Montana. Here are Bakken In the first quarter 2015:

Production from the Bakken/Three Forks averaged a record 133,500 BOE/d, an increase of 82% over the 73,325 BOE/d in the first quarter 2014
The Bakken/Three Forks represented 80% of Whiting’s total first quarter production.
As of December 31, 2014, Whiting had an estimated 7,541 future gross drilling locations in the Bakken/Three Forks formations, of which approximately 60% target the Bakken formation.
At Dunn field in Dunn County, North Dakota, initial production rates from four Whiting-operated wells completed in mid-January averaged 3,181 BOE/d per well while 30-day rates averaged 1,255 BOE/d per well.
At the Polar field in Williams County, North Dakota, initial production rates from four Whiting-operated wells completed in late February averaged 2,630 BOE/d per well while 30-day rates averaged 1,130 BOE/d per well.
At the Koala field, which is located near our Hidden Bench field in McKenzie County, North Dakota, we completed four pad wells in mid-March that flowed an average rate of 2,584 BOE/d per well while 30-day rates averaged 1,395 BOE/d per well.

Continental Resources Aggressively Cuts Costs

May 27, 2015 Elizabeth Alford

Continental Resources announces first quarter results that highlights increases in production and reduced costs.

In a press release on May 6th, Continental reported a net loss of $132.0 million for the first quarter of 2015 and a production increase to 206,829 boed.

Most impressive is the company’s drilling and completion costs , which fell by 15% since 2014 year end. The company expects to see service cost reductions of up to 20% by mid-year and further savings from drilling and completion efficiencies. One example of these efficiencies is the new company record for drilling in the Bakken as they report drilling the two-mile lateral portion of a well in three days, nearly four days faster than its average time to drill a lateral.

Bakken Highlights for First Quarter

Production averaged 135,538 Boe per day (39% increase over first quarter 2014)
Completed 66 net wells
Operated an average of 13 rigs in the Bakken, down from 19 rigs at year-end 2014
Significantly reduced its completion crew count
115 gross operated Bakken wells drilled and waiting on first production (122 at year-end 2014)

Continental’s plans for Bakken moving forward

The Company plans to average 10 operated rigs through the remainder of 2015, based on current market conditions.
The Company expects to have approximately 90 gross operated Bakken wells drilled and waiting on first production at year-end 2015.
Approximately 60% of the wells in the 2015 program will be drilled on 660-foot to 880-foot inter-well spacing in the Middle Bakken and Three Forks reservoirs.
The Company's 2015 Bakken drilling program is targeting an average EUR of approximately 800,000 Boe per well.

Red more at clr.com