The Bakken is coming of age. Gone are the days of jockeying for acreage and wildcat drilling. Here to stay are the days of well optimization and process improvement. Basically, there is a switch from volume to value, and that's not a bad thing: The Bakken is not withering, and production has not even peaked.
Still, for the handful of companies that made the Bakken their No. 1 position, priorities have definitely changed. Some companies have doubled down, while some have expanded elsewhere. Most are trying to find a happy medium between those two objectives. One of the companies that I think has done very well in striking a balance is Whiting Petroleum (NYSE: WLL ) .
As a Rocky Mountains-focused play whose biggest position is in the Bakken, Whiting has focused relentlessly on optimizing its production in this region. This year, Whiting will downspace its wells. In other words, the company will reduce the space between wells in order to increase drilling inventory. As with most other shale drillers, downspacing has not affected per-well recovery rates, and has therefore resulted in more drilling opportunities and increased recovery, overall. Whiting has also shifted some efforts to the Niobrara, where its "Red Tail" discovery in Weld County has thus far led to some very encouraging, Bakken-like results.
Whiting now has over 122,000 net acres in the Red Tail area in Weld County, Colorado. Although Red Tail is north and east of the Niobrara core, Whiting believes Red Tail to be a bona fide sweet spot, primarily because initial production rates are similar to those in the core Niobrara areas. This is no small play, either. Whiting sees 3,300 gross well locations, which should, on average, recover 420,000 barrels of oil equivalent each. Most impressive about the Red Tail is the economics: At $90 West Texas Intermediate oil, wells should provide an average internal rate of return of 85%.
New opportunities, familiar places
Perhaps even more significant than Whiting's new frontier are the company's efforts to maximize drilling opportunities in the land it already has. For example, in 2013 management identified 1,971 additional net drilling locations in the Rockies, most of which came from the Bakken.
This surge in inventory can be attributed to downspacing. Currently, Whiting drills 6-9 wells in each drilling location in the Bakken, with only three wells per location drilled in the Proghorn section. Management is increasing that number to eight in the Missouri Break section, 12 in the Cassandra section, 15 in the Sanish section, six in the Proghorn section, 12 in the Tarpon section, and an amazing 16 wells per location in Hidden Bench.
While many companies that were previously 'one-shale wonders' often get into marginal second plays, or non-core acreage on the better plays, Whiting's Red Tail discovery looks like a prolific spot in a very respectable shale. Continental Resources (NYSE: CLR ) bet on the SCOOP shale play in southern Oklahoma after the Bakken. Carrizo Oil and Gas (NASDAQ: CRZO ) cast its lot in the Utica shale after the Eagle Ford. But neither the Utica nor the SCOOP seem to match the economics of Red Tail so far.
Although the shale revolution is, no doubt, maturing in some places, the better companies are both moving into new shale plays and optimizing what they already have in order to produce at levels originally thought impossible. For its part, Whiting is succeeding on both fronts: Management has uncovered many hundreds of new drilling opportunities while moving into a very economical 'second' shale play.