Jefferies Analyst: Bakken ‘Will Be One Of The Largest Oil Discoveries In North America’

Can the Bakken unconventional oil play in North Dakota get any better? Yes, it can.

“We are in the first inning of what is already and will be one of the largest oil discoveries in North America,” says Subash Chandra managing director and senior equity research analyst, U.S. E&P, for Jefferies & Co. in the webinar The Renewed Bakken/Three Forks-Sanish: Economics, Well Results, Technological Advancements now available on demand.

“We’re probably talking about billions of barrels of recoverable oil that can come out of this play.” The play, centered around Montrail County, North Dakota, is producing better and better wells, its economics work at lower oil prices, incidences of success is spreading in the play, and the number of potentially successful well locations is underestimated by Wall Street, he says.

“There are legitimately 1000s of locations that Wall Street has yet to get its hands around.”

Results so far suggest Middle Bakken wells produce independent of the Three Forks-Sanish formation. “We are not draining the Three Forks with a Bakken well…so we can pretty much double these locations over time.”

Bakken producers’ stock prices include great expectations for the play, but expectations can be greater, Chandra says. “There isn’t a single Bakken company that can’t earn its premium over time and…earn an even higher one.”

He estimates the average Bakken well is economic at $50 Nymex oil, assuming a $7.50 basis differential, which isn’t the best or the worst differential but is a “pretty decent one.” Nymex oil was approximately $67 this morning (Sept. 24, 2009). “It is exceptionally economic at these levels.”

Initial production (IP) is also showing a direct correlation to 30-day average production (AP), suggesting estimated ultimate recovery (EUR) of many Bakken wells of 500,000 to 600,000 barrels or more. An AP of 500 to 600 barrels a day is required to be considered a good well. And, “we are seeing a lot more of these 1,000 to 1,200-barrel-per-day wells,” he adds.

Brigham Exploration Co. (Nasdaq: BEXP) has had APs of 1,1,41 and 919, for example; XTO Energy Inc. (NYSE: XTO), 860; and Whiting Petroleum Corp. (NYSE: WLL), 1,543, 1,086, 1,309, 901, 1,034 and 983.

Is play technology overcoming nature? “We are finding, with every passing well, that it can…There are no bad wells in the Bakken (generally); there are underestimated wells in the Bakken.”

Finding and development (F&D) costs are declining, while wells are proving more reserves. “Most can be done for approximately $12-a-barrel F&D…To do that in the oil world is absolutely exceptional.”

Chandra just returned from a Bakken field trip for investors and analysts with Brigham. “Investor interest was very high,” he reports. One trip attendee who advises investors and has worked in oil fields across the world. “He said he hasn’t seen any opportunity like the Bakken.”

Chandra is joined in the program by Lynn Peterson, president and chief executive officer of Kodiak Oil & Gas Corp., describing Kodiak’s results and economics in the Bakken. “We do believe there are two reservoirs (the Bakken and Three Forks),” Peterson says. “…The Three Forks could be nearly what the Bakken is.”

He estimates that, at an average EUR per well of 650,000, $70 Nymex oil and a $9 basis differential, “we’re looking at a rate of return of some 80% or better.” Kodiak’s acreage was tied up in permitting and other hurdles until recently. “That primarily explains why this area was under-leased and under-explored…A lot of these issues are behind us now.”

John Harju, associate director for research for the Energy & Environmental Research Center (EERC) at the University of North Dakota, says the Bakken has been extremely receptive to technology. “The Bakken is a place where we have an astounding rate of technological innovation.” Harju describes current fracture-stimulation practices, lateral lengths, the efficacy of gel and slickwater, and other drilling and completion practices in the play.

The archive of the program is now available on demand, including presenters’ slides: The Renewed Bakken/Three Forks-Sanish: Economics, Well Results, Technological Advancements.