Current Bakken operator themes

The producer community has shown many approaches and pushed many different messages during the second quarter reporting period, all of which have combined to yield loosely connected themes.
By The Bakken Magazine Staff | September 18, 2015

Operators Push New Message
For Bakken-linked oil producers, the play has entered an unfamiliar stage. With historic oil price swings happening for most of the summer, producers have had to navigate the current commodity price environment by choosing when, if or how to drill new wells or complete those already drilled using pricing information that could change weekly. The producer community has shown many approaches and pushed many different messages during the second quarter reporting period, all of which have combined to yield loosely connected themes. A select few producers is sufficient enough to highlight the main messages and approaches now being deployed during this new stage of activity in the Bakken.

8-Rig Program
Three of the largest-by-volume Bakken producers—Whiting Petroleum Corp., Hess Corp., Continental Resources Inc.—operated the second quarter (or are now doing so) with eight drilling rigs. For each operator, the eight-rig operation model is a rig decrease from what each respectively set-out to run at the start of the year.

Price Determining Production
EOG Resources, Abraxas Petroleum and Triangle Petroleum USA agree on when to ramp up Bakken production efforts. Each entity has made it clear it will not drill or complete new wells until commodity prices begin to trade higher. For Triangle’s President and CEO Jon Samuels, oil trading above $60 will entice the Denver-based operator to commence drilling new wells. Oil trading in the $50 to $60/b range will cause the team to “dig in and do some work,” he said.

“Many of you are asking, when will EOG grow oil again? We have said all along that we do not intend to grow production until we see the oil market balancing,” said Bill Thomas, chairman and CEO of EOG Resources.

San Antonio-based operator Abraxas Petroleum is similar to Triangle and EOG on its philosophy of drilled but uncompleted wells. All three operators are comfortable deferring the completion of its wells until prices recover in 2016. Triangle has 18 gross wells drilled but yet to be completed. EOG’s total grew in the second quarter and it said it will continue to have a high number of DUCs until prices recover. Bob Watson, president of Abraxas, said that although it is frustrating that his team shut in three offset wells during the drilling and planned completion of three other wells that have been deferred into 2016, his team is committed to operating with DUCs until prices recover.

Cashflow Boundaries
When Continental Resources updated its 2015 guidance by reducing its capital spending plan by roughly $300 million to $350 million, the operator cited a new ideal common among many producers. “While we do not believe today’s low commodity prices are sustainable long term, we are committed to living within cash flow until they recover,” said Harold Hamm, chairman and CEO. “We are reducing capital expenditures to protect our balance sheet and to preserve the value of our world-class assets until commodity prices improve.”

Like Continental, Triangle’s team is committed to maintaining the health of its balance sheet during sub-$60 oil. Triangle has dropped its lone rig and suggested it will wait on completing wells. The company has already achieved the midpoint of its projected 2015 production estimates for daily production. “With our asset base, production is simply a matter of spend,” Samuels said, in his explanation of the company’s potential to grow production.

James Volker, president and CEO of Whiting, told investors that his company will now operate within discretionary cash flow for the remainder of 2015 and into 2016 as long as oil prices continue to trade at current prices.

Reliance on Tech, Efficiency Gains
Almost every Bakken operator has continued its stance on the importance of finding efficiencies. Most second-quarter messages contained at least some note of an operator’s work to lower lease hold expenses or find new equipment set-ups that will make a field operation more efficient. The Abraxas team has already said it will invest in new equipment and processes. Triangle’s energy services division—RockPile Energy Services LLC—will try to maintain its presence in the fracking service portion of the industry due to what it said are indicators showing a strong future economic opportunity. According to Triangle, current frack crews are down significantly and offering services for unsustainable prices. Coupled with the fact that some are foregoing maintenance on equipment to save money, a return of higher prices will present an opportunity to frack crews and services that can maintain a strong relationship with current and future clients.

Whiting will continue to rely on the strength of its geology team in Denver to drive decisions during this current downturn in activity. The company deploys what it calls the stiletto heel drilling approach. The approach has led to what it calls the holy grail. Because Whiting has added scanning electroscopic microscopes to its Denver facilities, wells drilled in new locations can be drilled first vertically and then horizontally. According to Volker, Whiting can drill a vertical well, ship the core to Colorado where it will be slabbed out by Weatherford and then sent to Denver. In Denver, the geology team will work 24/7 to determine which places the drilling team should target for the horizontal.