While it might only be the third-largest driller in North Dakota, Hess Corp. (NYSE:HES) has drilled 18 of the 50 top producing wells in the Bakken region over the past two years. The company is focusing on three areas to drive its overall Bakken performance: well costs, productivity, and price realization. This should enable the company to deliver superior returns.
Looking at the numbers, it is the well costs and productivity numbers that are really driving the company’s gains. For example, the company has been able to get its well costs down 28% over the past year. This has enabled Hess Corp. (NYSE:HES) to drill a Bakken well for about $8.4 million as the effects of pad drilling start taking hold. While multi-well pad drilling can make production lumpy, the cost savings really can drive returns.
Take Continental Resources, Inc. (NYSE:CLR), for example. The company is using efficiencies such as multi-well pad drilling to take its well costs lower. The company is now targeting costs below $8 million before the end of the year, which is a nice savings from last year’s costs of $9.2 million. The move not only saves money, but also time — Continental Resources, Inc. (NYSE:CLR) can save 73 drilling days, which is 36% faster, on a six-well pad. Finally, the rate of return, by shaving a million dollars off of well costs, improves from 50% to 60% at current oil prices, which really adds up.
The Bakken can still produce solid returns even with elevated well costs. Kodiak Oil & Gas Corp (USA) (NYSE:KOG) needs about $10 million to drill each of its Bakken wells; however, it can still deliver an internal rate of return of 57% as long as oil stays above $95 per barrel, thanks to higher estimated ultimate recoveries at its wells. Like Continental Resources, Inc. (NYSE:CLR), it has worked at getting its average drilling days down, dropping from 32 to 17 days since 2011.
By dropping well costs producers can continue growing at least at the same pace, but at a reduced cost. A good example of this is seen at Oasis Petroleum Inc. (NYSE:OAS). Last year the company spent just over a billion dollars to drill 105.6 total net wells. This year, however, the plan is to spend just $897 million to drill roughly the same number of wells. That’s a savings of $111 million, which is a lot of money that can be used to drive future returns for investors.