Multi-well pads, rig loans make Bakken's Abraxas Petroleum unique

By Luke Geiver | February 15, 2013

Abraxas Petroleum Corp., the San Antonio-based oil and gas exploration and production company, will lower its drilling costs in the Bakken through increased drilling crew efficiencies and multi-well pad practices. The company’s first two wells in the Bakken, the Raven 2H and 3H, will be completed simultaneously this month, according to Bob Watson, Abraxas president and CEO, instead of individual completions a month apart for each well. The decision, he said, will lead to cost savings. Raven Drilling LLC, the wholly-owned subsidiary of Abraxas, utilizes a multi-well pad drilling system that decreases rig mobilization costs and also utilizes the same mud system for multiple wells.

According to Geoff King, vice president and CFO for the company, the crew has worked through the learning curve of drilling in the Bakken shale with a multi-well pad system.

“I know the engineers probably have things they are tweaking, but I think it is just getting everybody accustomed to doing the same thing over and over again,” King said. Abraxas is one of the smaller operators in the Williston Basin, with only 23,000 net-acres, a substantial portion of which King said, is non-operated. The company is also one of the more unique operators drilling for crude oil in the play. In July 2011, the company’s mineral rights leases were not active, King said, mainly because the company was unable to secure a lease for a drilling rig and other equipment. Typically, most drilling companies lease a rig from other firms such as Nabors Drilling, but during 2011 when a rig supply shortage was happening, Abraxas had to make a decision.

Rather than go with a contract at what King considered a “pretty lofty level,” for a third party to perform the drilling, King said the company elected to buy its own rig. Abraxas bought a used Oilwell 2,000 horsepower diesel-electric drilling rig, and then refurbished and winterized the rig to handle North Dakota winters. After completing the rig in Houston, Abraxas shipped it to McKenzie County. “The economics of it actually worked in our favor,” King said, “when you looked at what it was going to cost us to buy a rig and refurbish it versus contracting it.”

To finance the purchase of the rig, the company took out a rig loan, a practice that is not typical for drilling operations. But, financing the loan for the rig was simple. “It’s like leasing a car versus buying a car,” King said. “If you are leasing you are paying a monthly payment, but if you buy it you are going to take out a loan on it.”

In addition to buying its own rig, the company also put together its own crew to travel with the rig from well pad to well pad. The company expects a busy drilling schedule in the next few years. The company’s first Raven well is complete, and Raven 2H and 3H will be completed this month. The company also has a multi-well pad site with four Lillibridge wells under development. Intermediate casing on the Lillibridge 1H and 2H is complete and total depth was just reached on the Lillibridge 3H. After intermediate casing is set on the 3H, the drilling rig will move to drill the curve of the Lillibridge 4H. After the Lillibridge wells are complete, King said the company will work on another three-well pad followed by another four wells. “So a lot more activity for us this year.”