Continental Resources (CLR) sizzling hot in the Bakken, Three Forks, and Woodford Shale

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Caption: The yellow shows CLR’s acreage in the Woodford Shale of the Anadarko basin. The gray band is the Woodford Shale. In the far NW corner, the yellow near the word Dewey shows the Northwest Cana Field just discovered by CLR. Toward the SE, near the word Grady, is where CLR is trying to prove is acreage with the Ballard wildcat.


Main Article:Continental Resources (CLR) sizzling hot in the Bakken, Three Forks, and Woodford Shale
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Continental Resources (CLR) is a $6.8 billion independent exploration and production firm highly focused on the Williston Basin, and, to a lesser extent, the Woodford Shale in Oklahoma. 67% of Continental Resources reserves are oil, and it is almost exclusively focused on horizontal (unconventional) drilling.

Billionaire CEO Jack Hamm built Continental Resources from scratch. He is highly entrepreneurial and understands all the details of CLR’s activities. Yet he has developed a large capable staff. In short, Jack Ham is a real oilman.

Williston Basin (North Dakota & Montana)

CLR’s Williston Basin Rig Count: Continental Resources rig count in the Williston Basin will rise from the current 12 to 16 at midyear (15 in North Dakota and one in Montana). About half of the Williston Basin wells will be in the Bakken and about half in the Three Forks (which CLR considers a separate horizon).

These rigs will drill 218 gross wells, which is only 80.5 net wells to CLR. This means that CLR has only an average 37% WI (working interest or ownership) in these wells. Sometimes independent E&P (exploration and production) companies drill lower WI wells to conserve their own cash. CLR will only have to pay 37% of the drilling and completion costs. CLR did state that the number of rigs that they are running in North Dakota is constrained by cash flow.

Multi-well Pad & Simul-frac Technologies: Continental Resources is bringing in “walking rigs” from SW Wyoming for use on “ECO-Pads(TM),” where up to four wells will be drilled on one location. These are more commonly known as multi-well pads. The drilling rig drills one well, then the rig “walks” a few feet and drills another.

Continental estimates that the multi-well pad method will save 10% on each of the four wells. At $5.4 million per well each multi-well pad saves CLR $2.16 million ($5.4 million x 0.10 x 4). Six of the 16 rigs will be on multi-well pads; these are development wells. The other ten rigs will mostly be delineating Bakken and Three Forks acreage. Two drilling rigs are already drilling on multi-well pads. Two more will be added within 45 days, and the final two by midyear.

Multi-well pads also offers the possibility of saving money through simul-fracs, a method where the same set of high pressure pumping trucks facture two wells at the same time. This has only been done a few times in North Dakota.

Multi-Stage Technology: Continental started 18-stage completions in September 2009, and now considers them standard. They are experimenting with 20-stage and 24-stage completions. This puts them in the pack, because the frac-stage technology leaders are already in the 28-32 stage range. CLR has increased their sand to 100,000 pounds per stage.

Hawkinson Three Forks Well: Continental Resources announced an important discovery in the relatively new Three Forks Formation, which is below the Bakken. CLR’s Hawkinson 1-22H (48% Working Interest) in Dunn County, North Dakota produced 1,667 BOEPD in its initial seven-day test period from the Three Forks horizon. The Hawkinson's strongest single-day production total was 2,338 BOE. It is currently producing 1200 BOEPD at 3200 PSI FTP (flowing tubing pressure) through a 14/64-inch choke. According to CEO Jack Ham, it is highly restricted “to capture the entire gas volume.”

Obert Well: This Three Forks test was just fraced. CLR will know the results within a few weeks. It is important to both CLR and Brigham Exploration (BEXP), whose large Rough Rider project is just to the east of the Obert test. The Three Forks horizon has not been tested in this area.

CLR’s Williston Basin Net Acreage: Net acreage refers to the actual acreage that Continental owns and excludes any acres in CLR operated wells that is owned by other oil companies.

Continental owns 652,000 acres in the Williston Basin, of which 489,000 acres are in North Dakota. About 70,000 North Dakota acres are now of questionable value, because the Traxel wildcat was a dry hole (uneconomic).

Only 7% of Continental’s undeveloped acreage in North Dakota expires in 2010, and they will either drill on it before expiration or pay renewal fees.

Well-Spacing Density: Continental Resources is planning on drilling four wells per each 1280-acre unit in each horizon (320-acre spacing).

CLR’s Montana Williston Basin Activities: Continental will use one drilling rig in Montana this year. It will alterative between (1) infill wells in Elm Coolee Field, and (2) steps-out wells and Wildcats to the north.

CLR completed the Rognas 2-22H, which is just a minor stepout from the prolific Elm Coulee Field. Continental used with a 14-stage frac with a high proppant (frac sand) load. The Rognas 2-22H averaged 841 BOEPD during its initial seven-day test period, but its best single-day production rate was 1,014 BOE.

Some operators like Brigham Exploration (BEXP) report only the “best single-day” IP (initial production rate), which is always much higher. One has to be careful to compare apples to apples. In the future, CLR plans to release only the “best single-day” rate.

The Rognas well gives us no information on the value the acreages further to the north, controlled by BEXP, EOG, and CLR.

Woodford Shale: Arkoma Basin and Anadarko Basin

CLR’s Woodford Shale in the Arkoma Basin: This is the older Woodford natural gas pay and is less important to CLR’s future. CLR has 47,500 net acres in the Arkoma Woodford; 47% is HBP (held by production). CLR will use one drilling rig here in 2010.

CLR’s Woodford Shale in the Anadarko Basin: This Woodford Shale play is new, larger, and to the west of the one in the preceding paragraph.

Continental Resources has added 51,500 net acres to its Anadarko Woodford leasehold, increasing its total position to 200,000 net acres; it is still leasing, especially in the “Northwest Cana” extension to Cana Field. CLR is already a major leaseholder in this area.

CEO Jack Ham said, "We think the Anadarko Woodford Shale play will be capable of competing with the economics of any shale play in the United States." This is important because of intense competition between with natural gas plays in shales. The plays that can produce gas the cheapest will make the most profit.

Keep in mind that CLR could use its cash to drill in the Williston Basin. CLR says Cana wells will produce a 30% return on gas prices below the current gas price.

CLR’s new discovery well in Northwest Cana is the Brown 1-2H (100% WI), which is Dewey County, Oklahoma, 40 miles to the northwest of what usually is called the Cana Field. It produced 4.2 MMCFD (million cubic feet) of natural gas and 102 BOPD in its initial seven-day test period. Anadarko Woodford Shale wells have a somewhat better (slower) decline rate than most gas wells. This well could easily still be producing 2 MMCFD at the end of one year.

Continental is currently drilling a step-out confirmation well, the Doris well, five miles south of the Brown 1-2H. The Doris will help “derisk” Northwest Cana Field.

35 miles to the southeast of Cana Field, Continental is trying to prove its 76,000 net acres in that area. Its McCalla well was a mechanical failure but showed strong promise of making a natural gas will with considerable natural gas liquids. Continental is now completing its second test well, the Ballard 1-17H (99% WI), also in Grady County.

During 2010, Continental will have three drilling rigs (up from one currently) in the Anadarko Woodford. Woodford wells cost about $5.4 million each.

Other CLR activity: CLR continues to spend insignificant sums on its Red River waterfloods and its Michigan oil wells. Both are economic but unimportant to CLR. It also holds 26,000 acres in the Haynesville Shale play.

Miscellaneous CLR Information

CLR’s Bakken rig time is now 26 days from spud to release.
Simulation time (fracing) = three hours per stage.
Total company-wide rig count is now 15 rigs, going to 24 at mid year.

Recommendation: Continental Resources is as close to perfect as an oil company can be. It is large enough to do anything that the big guys can, yet has the focus and agility of smaller firms. It is still entrepreneurially driven. It is oil focused. Is 100% U.S. onshore.

At $40.26 per share, it is a good buy. Today, I’ll be looking to buy CLR, and hopefully at a below $40.26. Then if it falls, I’ll buy more. I’ve had a buy order in for some time at $37.13, but, perhaps, that is being too optimistic. The target range for these great firms goes up with time.

Of course, if you expect a major market pullback, and if you are buying for the long term you should wait. I couldn’t find a published beta for CLR, but it must be 2 or higher.
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