Capitalizing On The Bakken's New Resource

Unafraid of oil prices, Resource Energy Partners has entered the Bakken with an eye on acquiring producing assets and performing well restimulation efforts.
By Luke Geiver | May 09, 2016

The name of Paul Favret’s and Kent Moore’s oil- and gas-focused company is an indicator of things to come for Resource Energy Partners LLC’s recently acquired Williston Basin assets. It also tells of the team’s successful history in the oil and gas upstream and midstream sector. “We formed Resource Energy to pursue an acquisition strategy in resource plays in North America that could benefit from improved operations and what we call rejuvenations,” Favret says.

Favret has a classic oilfield pedigree. He’s spent time with Amoco, has a master’s in geology and an MBA, run an E&P firm and worked in private equity. He has overseen operations in Hungary, Peru, Poland and Germany in addition to drilling and completing 500 wells in Texas and Lousiana as President of Aspect Energy. In 2010, he helped lead Source Energy Partners LLC, a private oil and gas company focused on shale plays. With the help of Kent Moore, an oilfield veteran who has helped to lead drilling operations, cofounded American Midstream Partners and also worked for two large Denver mutual fund companies worked in private Favret formed and added an “Re” to his business model to take advantage of existing unconventional assets ripe for optimization and well restimulations.

Backed by Apollo Global Management, an investment firm with $163 billion under management, the Resource team acquired 112 total wells with 2,300 barrels of operated oil equivalent per day production in Divide County, North Dakota. The team’s future plans involve operations improvements, further acquisitions and refracks of existing horizontal well bores.

“The Bakken is a resource play with substantial oil in place,” Favret says of the decision to enter the Williston Basin. “We are big believers in investing our time and money in technology. We did a very thorough nationwide analysis of existing horizontal well bores and the Bakken is very fortunate to have an abundance of well bores in need of additional work.”

The Bakken Opportunity
As oil industry veterans, low oil prices have not deterred the Resource Energy team from investing into unconventional resource plays. When Moore started Caza Drilling in 1986 (sold to Ensign Resource Service in 1993), oil was trading at roughly $9/b. The advent of technology and new production strategies strengthens the team’s resolve to pursue oil and gas assets at a time when Favret says roughly 90 percent of all unconventional assets are currently uneconomical due to low oil prices.

Moore is particularly focused on the role of technology in making current or new wells profitable. “I like to compare it to Intel computer chips,” he says. During the computer revolution, there was a time when new computers became obsolete soon after release as the chips used were being updated faster than the release of new computers. “For frack jobs in the Bakken,” he explains, “jobs that were done two years ago are already partially obsolete.”

Favret compares oil and gas assets in plays such as the Bakken or Eagle Ford to prime real estate. “Eventually, things will revert back to the mean of cost plus a reasonable profit,” he says. Real estate offers a probable example for Favret. A house built for roughly $175 new build per square foot but purchased for $100 per square foot would create a profit eventually as the home’s value will again reflect the $175 price. The same theory can be applied to oil wells.

Armed with its rejuvenation experience—Favret has been involved in refracking hundreds of wells—and the industry know-how of Moore along with the financial backing of Apollo, the team believes the Bakken presents a unique opportunity. “People might need liquidity or they might need operational upgrades,” Moore says. “The menu of things that need to be done is much more unique and unprecedented than any time in the last years of this business.”

The Plan For Rejuvination
To validate the team’s penchant for refracks, Resource Energy has created a series of algorithms they call the refrack potential mapping technique. The system has been verified by a third party and both hypothetical applications and real-world refracks have proven to be economically positive. “We have a good way to predict refrack potential very effectively before conducting the operations,” Favret says, noting that some calculations have the company believing the recovery factor for some Bakken wells could be as high as 22 percent compared to 5 to 9 percent often seen in older Bakken wells fracked three years ago.

The recompletion strategy hinges proprietary techniques centered on pump schedules, pumping speeds, fluid variations and creating new well bore diversions to unfractured sections. In 2016, the company is considering a few pilot tests of its rejuvenation strategies in its Williston Basin assets. The company is also focused on growing its asset base in the Williston Basin, all of the Rockies and Texas.

Before forming the new company, Favret and Moore say they presented a detailed financial model that showed how properly invested capital—protected by hedges—could provide attractive returns to investors when wells were rejuvenated.

Since taking over the assets of American Eagle Energy, the Denver-based company has transitioned all royalty landowner governance. Favret says the company is excited for its first investment into its new strategy, in part because of the location. Although the team has encountered the visible slowdown in operations and services within North Dakota, the company is confident in its choice to enter the Bakken. “North Dakota is a great place to operate,” he says. “The people there are wonderful.”

Author: Luke Geiver
Editor, The Bakken magazine


Building A Bakken Foundation

In early 2016, Foundation Energy entered the Williston Basin through the acquisition of 100-plus operated and nonoperated oil and gas wells in North Dakota and Montana. “Oil and natural gas reserves are a real asset that typically require investment over the longterm and over multiple commodity cycles,” says Eddie Rhea, oil industry veteran and CEO of Foundation Energy.

Since acquiring the wells, Foundation Energy has moved an engineer to North Dakota to better assess the assets. The company doesn’t intend to spud any new wells this year, but Rhea says once the company gets into an area “we try to expand.” The Texas firm has operations in Wyoming and Colorado.

For Rhea, the plan in the Williston Basin is to grow. “We have more capital to deploy. Our net production is relatively small, but over time, we hope to find more opportunities.” The company generally seeks acquisition opportunities in the $5 million to $100 million range that offer significant current production or potential further development.