The Bakken is a key element in the Hess Corporation’s strategy to turn all its major assets into big cash generators by 2022, stepping their net cash flow up by more than 250 percent by 2025.
A detailed plan for the company’s Bakken assets was discussed during a recent investor day, in which company officials said they plan to run up to six rigs and three hydraulic fracturing crews in the Bakken for 2019, and bring online 160 wells.
These wells will average 1.2 million barrels of estimated ultimate recovery or EUR, with more than a 65 percent internal rate of return or IRR. The 180-day Initial Production average is expected to be a little bit north of 120,000 barrels.
The company has continued to reduce its operating costs and increase its production through better operating efficiency and better technology. Its time to completed wells has moved down to 14 days per well on average, a 70 percent reduction overall.
Chief Executive Officer John Hess acknowledged recent price volatility, and talked about how Iranian sanctions announced by the Trump administration — unexpectedly followed by subsequent production waivers by the same — played out, but said the most important indicator for investors to consider is global investment. That has fallen far short of forecasted needs.
The International Energy Agency estimated that oil and gas needed to invest $580 billion a year to grow supply to meet future demand, but in 2016, investments were just $350 billion. In 2017, they were $370 billion and in 2018, $410 billion.
“(That is) way under what the market needs to grow oil supply to keep up with oil demand,” Hess said.
With shale posting increased investment in future oil capacity, while the rest of the world has dropped 40 percent, Hess believes this is positioning both his company and the Bakken well.
Meanwhile, the results of a Bakken optimization study that Hess commissioned has validated the company’s recent move to new plug and perf completions, which is a common well completion technique. Company officials estimate that shift will increase the net present value of its Bakken assets by 1 billion barrels of recoverable oil.
“A 36-stage plug and perf will be what we are going to be calling a standard design,” said Barry Biggs, vice president of Onshore Operations for Hess. “But we will be looking and testing different completions and designs in multiple locations as we move forward.”
The study also validated a decision Hess made during the downturn to move to tighter drilling spacing units, long before its competitors did.
The company estimates it has a high-quality drilling inventory of 15 years, with a greater than 50 percent internal rate of return.
But those figures don’t consider things like refracturing wells, nor enhanced oil recovery, which gives the company considerable upside potential. It also doesn’t take into account work the company is doing in Tier 2 areas, to shift them to Tier 1, which could turn second-best areas into best-performing areas as well.
The company is running tests on 25 wells in the Red Sky, East Nesson, North Goliath area to see if they can boost the returns there. If successful, that will add even more wells to its low cost, high-return portfolio, and increase the lifespan of its assets in the Bakken.
“So our 2019 program is focused on some excellent wells,” Biggs said. “We have excellent running room moving forward, and we are going to work hard to bring Tier 2 into Tier 1 returns.”
The company also has advantaged infrastructure that has positioned it well to continue delivering its products to the markets with the best prices. And it’s building new infrastructure to handle an increase in Bakken production to 200,000 barrels of oil equivalent per day by 2021.
The Little Missouri 4 gas processing plant is to come online in the second quarter of 2019, while the Blue Buttes Compressor should be online by the end of February, to help push gas south of the river.
Meanwhile the marketing side is working to secure additional offtake for both the natural gas and natural gas liquids side.
“The Bakken is a very premier asset and I think we are a proven premier operator in that asset,” Biggs said.