Kodiak provided an interim operations update on its Williston Basin drilling and completion activities for 2010.
Kodiak will be mobilizing its third drilling rig in the Williston Basin within 30 days. Kodiak is also participating in one non-operated drilling rig with its joint venture partner in the Dunn County area of mutual interest ("AMI").The joint venture partner recently reached total depth on its first two long-lateral middle Bakken wells and they are awaiting completion. Kodiak owns a 50% WI and 41% NRI in both wells and retains a comparable interest in all of the AMI lands. The Company has recently been notified that its joint venture partner intends to mobilize a second rig to the AMI in mid-year 2011.
As of December 31, 2010, Kodiak operated, or had an interest in, a total of 35 gross (17.3 net) producing wells in the Williston Basin. As of February 28, 2011 Kodiak had six gross (4.4 net) operated wells and two gross (one net) non-operated wells waiting on completion. Two of the operated wells have been scheduled for completion in March 2011 and the Company is awaiting a completion date for a third well. The three additional operated wells are part of multi-well pads that are expected to be completed in the second quarter after all the wells have been drilled on each shared pad. At this time Kodiak does not know the completion schedule for the two-non operated wells.
Bakken/Three Forks Development: Dunn County, N.D. (59,000 gross and 34,000 net acres)
In 2010, Kodiak spud or participated in 13 gross (6.0 net) wells and completed 11 gross (4.7 net) wells on its Dunn County leasehold. To date, the Company has drilled a total of 24 gross (12.0 net) wells with 20 gross (9.5 net) wells completed and on production.
During 2011, Kodiak plans to drill or participate in 29 gross (16.7 net) wells and complete 26 gross (15.8 net) wells in this area. Of the 29 gross wells to be drilled, an estimated 19 will be operated by Kodiak with an average working interest of 64%. As of February 28, 2010, three gross (1.95 net) operated wells and two gross (one net) non-operated wells were drilled and awaiting completion in Dunn County. Completion work is projected to begin in early second quarter in this area.
McKenzie County, N.D. (37,500 gross and 25,500 net acres)
In 2010, Kodiak spud or participated in seven gross (4.1 net) wells and completed two gross (1.0 net) wells on its McKenzie County leasehold. During 2011, Kodiak plans to drill or participate in nine gross (6.7 net) wells and complete 10 gross (7.7 net) wells in this area. Kodiak expects to operate all nine gross wells to be drilled, with an estimated 74% average working interest. As of February 28, 2011, three gross (2.4 net) wells, one of which is a Three Forks test, were drilled and awaiting completion in McKenzie County. Completion work is scheduled for March 2011 on the first of two drilling pads in this area.
During 2010, the Company focused on improving the performance and resulting financial returns of its wells, primarily by modifying its completion process. The completion modifications included larger volumes of proppants, tighter well spacing, additional fracture stimulation (frac) stages and improved gel designs. The Company believes it has demonstrated stronger per-well performance as evidenced by increased production in the early stages of a well's history.
In the three longer laterals drilled and completed in 2009, the Company averaged 319 barrels of oil equivalent per day (BOE/d) for the first 360 days of production, or a cumulative average total of 115,000 BOE. This compares to two longer laterals completed in the third quarter 2010 that averaged 689 BOE/d for the first 180 days of production, or a cumulative average total of 122,000 BOE. The shorter laterals have also experienced similar performance improvement. With the higher production rates, the wells are reaching payout sooner allowing the Company to accelerate the deployment of cash flow back into its drilling program. Individual well performance improvements are referenced in the table above which illustrates the difference in production from wells drilled and completed in 2010, as compared to 2009.
As Kodiak continues to develop the Bakken/Three Forks play, the Company expects to drill long horizontal laterals on 1,280-acre drilling blocks utilizing multi-well pads. Comparative analysis indicates that stronger internal rates of return can be achieved with long laterals, as compared to shorter lateral wells. Furthermore, as a result of Kodiak's contiguous acreage blocks and the drilling of longer laterals, the Company is able to convert its leases to held-by-production status and mitigate lease expirations.
Multi-well pads accommodate efficient drilling and completions and operations, reduce costs with fewer rig mobilizations, while also minimizing surface disturbance. The Company is now drilling up to four wells from each pad and expects that in the future the number of wells per pad could increase. With high demand for oilfield services in the Williston Basin, pad drilling is especially important as it reduces the number of moves required between wells and eliminates the need for trucks to move the equipment. The Company believes it will also experience improved completion efficiencies by further eliminating mobilization and demobilization time for the pressure-pumping company.
Two important operational focuses during 2010 included evaluating drilling density of wellbores in the middle Bakken and proving the productive potential of the Three Forks Formation. During the fourth quarter 2010, Kodiak completed a middle Bakken well in Dunn County with a lateral that was separated by approximately 1,300 feet from another middle Bakken well completed in 2009. Testing indicated very little communication during the frac procedures and no change in production rates was evident. This work, along with other industry results, supports Kodiak's belief that these lands can be developed with four wells per drilling unit in the middle Bakken. From the same drilling pad, the Company partially completed its first Three Forks well. While only six of the anticipated 22 stages are completed due to a leak in the frac string that was subsequently repaired, limited production results lend support to the Company's belief that the two reservoirs are producing independently. The remaining stages of the well are scheduled to be completed in 2011.
Kodiak is currently drilling a second Three Forks test approximately three miles to the northwest which will provide another data point in the first half of 2011. In McKenzie County, the Company drilled back-to-back two-well pads to test the same density of wellbores and separation of the two reservoirs as discussed above. The pad with the middle Bakken well and the Three Forks well is scheduled for fracture stimulation work in mid-March.
During the first quarter 2011, industry continued to experience difficult Williston Basin weather conditions. These conditions have caused delays in Kodiak's completion procedures and have also caused production interruptions as oil tanker trucks were unable to offload oil from well-site tank batteries at some of Kodiak's locations. The Company anticipates production returning to higher and more predictable levels going into the second quarter as the weather improves.
In February 2011, the Grizzly #13-6H well (Kodiak-operated – 68% WI / 53% NRI) was completed in the middle Bakken. This was a reentry well where the Company drilled out a short horizontal lateral of 3,100 feet and fracture stimulated the well using 10 stages and a cemented liner. Initial production from the well was 378 barrels of oil per day and 128 million cubic feet of natural gas per day or 399 BOE/d. During the first 15 days of production, the well has averaged 160 BOE/d. The well will be placed on pump in the first quarter 2011. In this area of the Williston Basin, the Company has experienced lower reservoir pressure in both the middle Bakken and the Three Forks formation which is caused primarily by depth of burial. As a result, the wells typically flow back at lower rates and require the installation of pumping units in the early stages of the production life. Kodiak will continue to refine its completion design specific to this area to control well costs and maximize returns on capital employed.
The Grizzly Federal #1-27H-R was drilled and completed in the Three Forks Formation during the third quarter 2010 in 10 stages. The well's effective producing lateral length is less than 4,000 feet. Even as a shorter lateral, the well's production has exceeded expectations and provides good evidence that the Three Forks is commercial in this area. The cumulative daily production averages for 30, 60 and 90 days were 210, 204, and 196 BOE/d, respectively, indicating a much flatter decline curve than the Company has experienced in other operating areas. Based on the positive well results, the Company is allocating capital for additional drilling and completion in Grizzly area and anticipates drilling four gross (2.6 net) wells in late 2011 and continuing into 2012. Development work here will target both the middle Bakken and the Three Forks formations and Kodiak expects to utilize 1,280 acre drilling units and target lateral lengths.
Kodiak is currently scheduled to complete two wells in McKenzie County during March, one well was drilled in the middle Bakken and the other well was drilled in the Three Forks. The completion date had been scheduled for earlier in the quarter, but was delayed a few weeks due to the weather. Given the limited first quarter cumulative production from these wells, as they will be completed toward the later part of the first quarter 2011, the Company expects that first quarter production will be comparable to production reported during the fourth quarter 2010, but that production should return to higher levels during the second quarter 2011 and thereafter.
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