Bakken-Three Forks play reaching mature status

Declining well performance

What is a mature play? Our definition is a play in which total resource potential is reaching or has reached a plateau; well performance is declining; and cost reductions, optimization, and downspacing become more of a concern than exploration and delineation drilling. However, production from a mature play can continue to grow for many years. In light of these criteria, the Bakken/Three Forks has become mature. Our analysis shows that average well performance by the industry in the Bakken and Three Forks play peaked in 2010-2011. Economic wells in the play, in our view, are those with an average peak monthly production rate of 300 b/d or more. The wells that met or exceeded this target peaked in 2011 at over 70% of the total wells drilled during the period. Performance dropped to less than 70% in 2012. This trend appears to continue in the first half of 2013. At the same time, the percentage of wells in the two lowest performing categories appears to have doubled. We are currently updating our Bakken research to re-examine this trend.

For unconventional plays this erosion of performance comes when the drilling locations in the sweet spot drop as a percentage of total wells drilled. Mountrail County, the principal sweet spot in the play, has declined in importance over time as the industry has expanded the play. When the Bakken-Three Forks delineation phase is finished we would expect there to be the potential for an improvement in well performance as the companies commence the harvest phase starting with drilling in the best locations. The good news has been that Three Forks results have been improving over time and are now, on average, as good as the Bakken outside of Mountrail County.

Second quarter sound bites

Performance of all great plays, like all great athletes, is expected to decline over time. The question becomes is this erosion of performance the commencement of an irreversible, long- term trend or can the industry (even at least temporarily) develop a performance enhancing technology that will improve well performance? Hope was provided in the second quarter in the play commentary provided by EOG Resources. The company claims that year to date, the estimated ultimate recoveries (EUR) of its Bakken well EURs have increased by over 50% due to longer laterals and a different completion design. EOG's acreage is in some of the best areas of the play. Still, when a producer of EOG's stature reports a "Renaissance in the Bakken/Three Forks" we take notice. EOG was not the only company talking about testing new drilling and completion designs and improved well performance. Perhaps these companies can engineer improved well performance with continued innovation. On the other hand, the second quarter company commentary on the play focused on issues that are characteristic of mature plays. Most company commentary revolved around cost cutting, efficiency gains and downspacing. Continental Resources was the only company talking about exploration, with the focus on the Lower Three Forks benches. There was very little conversation about growing land positions and increasing resource estimates. Don't get us wrong. The cost cutting results are truly remarkable with several industry players shrinking per well expenditures by $1 million or more. Most of the savings result from shifting to pad drilling along with some service cost reductions. The shift to pad drilling indicates the play is moving into the harvest phase and multiple downspacing pilot projects are all indictors of a play becoming more mature.

Some companies bucking the trend

Not all companies are reporting declining well productivity. Hess is reporting material improvements in well results. The company is now among the leaders in average peak monthly production rate. Hess has also demonstrated strong performance on the cost cutting side of the ledger. Noteworthy performances for production rate improvement were also made by EOG, Newfield Exploration, SM Energy, and Marathon Oil.

What's coming?

The IHS Herold company play analysis on the Bakken will be updated soon and will be followed by a series of company specific reports that detail operator performance in the Bakken-Three Forks play. Interested parties should contact IHS for access to the reports.

Posted 15 October 2013

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.