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Abraxas, Enerplus Execs See Bakken as Key for Growth

Abraxas Petroleum Corp. and Enerplus Corp. separately reported production growth in the Bakken Shale during the third quarter.

With "significantly new" hydraulic fracturing (fracking) designs and elongated decline rates for six completions of drilled-but-uncompleted (DUC) wells, Abraxas is putting one rig back to work and plans to continue drilling in North Dakota through next year regardless of commodity prices, CEO Bob Watson told analysts.

Abraxas reported a net loss of $3.3 million (minus 2 cents/share) in 3Q2016, versus a year-ago net loss of $52.4 million (minus 50 cents).

Completing the six DUCs in the Williston Basin is one of four "catalysts" propelling more future activity for Abraxas in the Bakken, South Texas and Permian, along with the sale of noncore assets, Watson said.

Abraxas results in the Bakken “have very nicely exceeded expectations with 90-day initial production rates exceeding past performance on other wells by 10-20% on the same rocks and on the same leases, so obviously the [fracking] changes we made have had a significant impact," Watson said. "Obviously we feel that the new frack design has contributed to these wells exceeding our expectations."

Watson said Abraxas expects the Bakken rig to continue operating through 2017 and into 2018. "We have 60 more locations that we have identified to date, and at about 11 locations/year that gives us five more years of drilling, and that assumes we don't do any more acquisitions of additional drilling space, which we are always actively trying to do," he said.

He said the company expects to keep drilling costs flat in the Bakken next year.

"We haven't seen any price escalation in the Williston that way we have in the Permian, he noted. "We did these [six wells] so cheaply the last time, even if we get a little bump in price, it is not going to have a significant impact on [our] economics."

The San Antonio, TX-based producer earlier this year said it still plans to sell acreage in West Texas to help pay down its debt and said it expected to cut its borrowing base by 20%.

Calgary-based Enerplus CEO Ian Dundas said the company plans to keep two rigs operating in the Bakken in 2017 with forecast production growth of 25%, assuming an average West Texas Intermediate oil price of $50/bbl.

"Our North Dakota production is expected to grow 25% on a 4Q2016 to 4Q2017 basis, which will drive total companywide liquids growth up 15% over the same period," Dundas said.

Flashing ahead to 2018, he also expects to see "double-digit" liquids production growth.

He reported positive initial results from the company's recent high density test on Fort Berthold reservation acreage, and said optimizing the drilling spacing pattern "is a priority in the Bakken."

Enerplus operations chief Ray Daniels said there was "significant flexibility" in the capital expenditure budget and drilling would be reduced when and if prices warrant it.

Dundas said all of the company's upside in the Bakken relates to oil production. In 2017 he expects those rates to grow while natural gas production volumes "will come down a bit. We see North Dakota production growing by 25%; we see significant growth, so operationally we don't need a third rig to get to the next level of growth."

Enerplus is expecting to average 89,000 boe/d production in the 4Q2016, and it has contracted for one rig to operate through November next year and the second one through mid-year with both eligible to be extended over the full year, Daniels said.

About Abraxas' appetite for mergers and acquisitions, Dundas said in the Bakken "we're always looking for opportunities there, and we're trying to create some of our own opportunities and have a number of initiatives underway. We like the results up there, and...prices haven't just gone crazy, so if we can do a deal in the Bakken in good acreage -- we're not interested in second tier acreage -- we would certainly transact on an economic basis there."

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