Super fracks make a super difference in Bakken/Three Forks unconventional oil production

New technologies boost EOG’s Bakken/Three Forks well rates; low oil prices could prompt further enhancements.

IHS expects industry operators to sharpen their focus on developing new unconventional completion technologies to boost returns on investment now that West Texas Intermediate oil prices are flirting with $80.00 per barrel. The Bakken/Three Forks play in North Dakota and Montana, which IHS considers to be one of the premier unconventional liquids plays in the United States, has experienced a renaissance recently from the development and application of new completion technologies. We analyzed the impact of the new “super-frack” completion method, which involves pumping larger volumes of proppant into wells during the fracture stimulation process. IHS well data supports the reports of operators such as EOG Resources that these super-fracks are delivering stronger initial production rates which could drive higher per well estimated ultimate recoveries (EURs).

EOG has been the leader in applying the super-frack technology to the Bakken/Three Forks play. IHS data show that EOG has about quadrupled the volume of proppant it is pumping from around 0.4 million pounds of proppant per 1,000 lateral feet in 2012 to 1.5–2.0 million pounds since 4Q 2013. EOG’s wells showed a positive correlation between larger volumes of proppant and higher average peak month production rates. This held true in each of EOG’s operating sub-regions within the play, suggesting that the new method could be applied by companies operating across different areas of the play.

Improving initial production flows, but will rates hold up? IHS believes peak month production rates offer a good proxy for future well performance and an early indication of the EUR of a well. We analyzed EOG’s production data to see if the higher peak rates associated with its super-frack completions were resulting in steeper production declines and therefore driving only short-term improvements in well performance. Although production history for wells completed with the new method is limited, initial data suggests that declines have remained fairly consistent with past performance and are not being noticeably impacted by the larger fracks. This provides early-stage support for EOG’s decision to increase its Bakken/Three Forks type curve production by approximately 50% to 940,000 boe per well, as it expects the super-frack method will drive higher production per well.

As low oil prices put pressure on margins, is the added cost worth it? The super-fracks bring additional expense, with some operators reporting well cost increases of up to $1.5—2.5 million. While EOG doesn’t disclose the specific added cost of the greater volumes of proppant, the company has controlled its costs in the play by integrating self-sourced sand and is actually estimating a lower cost in the play now than it was in 2012. With a shift to mostly pad drilling, EOG was able to capture further cost efficiencies and offset other cost increases. EOG is targeting an average cost of $9.0 million per well in 2014, which gives an implied, and attractive, development cost of $9.57 per boe. This compares with an implied development cost of $16.42 per boe in 2012 when EOG’s type curve was 615,000 boe and the average well cost was $10.1 million. This 42% reduction in implied development costs bodes well for play economics, which is of particular importance given the recent slump in oil prices.

Other operators following EOG’s lead In order for the super-frack method to be applied more widely, a longer production history will be needed to assess whether the added cost makes economic sense and is able to drive long-term higher per well rates, particularly if the low oil price environment is here to stay. While EOG is a clear leader in applying the super-fracks, other Bakken operators have gradually been following suit. IHS found Halcón Resources, Enerplus Resources, and Continental Resources have made significant shifts to higher volume completions, while other operators have been more cautious in their shift.

Learn more about IHS Energy Company & Transaction Research.

Posted 21 October 2014

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.