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Continental to Double Rigs in SCOOP, Reduce Flaring

Continental Resources Inc. plans to double the number of drilling rigs it has targeting a legacy shale play in Oklahoma in 2013, and it will increase development and exploratory drilling in the Bakken Shale as it looks to maintain its reign as North Dakota's top oil producer.

Meanwhile, in response to a shareholder resolution earlier this year (see Shale Daily, Jan. 14), the Oklahoma City-based company said it plans to reduce flaring at its natural gas wells in the Bakken to "as close to 0% flaring as possible."

During an earnings conference call with financial analysts on Thursday, CEO Harold Hamm said the company would expand its rig fleet in the South Central Oklahoma Oil Province (SCOOP) from six to 12 by the end of 2013, turning more of its 218,000 acres there into production (see Shale Daily, Oct. 11, 2012).

"As excited as we are at what we've accomplished this past year in SCOOP, we've just barely begun to scratch the surface there," Hamm said. "We expect to see continued strong production growth with our emphasis on crude oil and natural gas liquids as we develop in this historic oil province of Oklahoma."

COO Winston Bott said that in the SCOOP, Continental has to date completed 62 gross (33 net) horizontal wells targeting the Woodford Shale, including 17 gross (10 net) during 4Q2012. He said that of the 17 wells completed during the quarter, 12 were in the condensate window and five were in the oil fairway. Continental plans to grow production by 35-40% and will spend $3.6 billion on capital expenditures (capex) in 2013. Bott said $450 million will be spent to drill 90 gross (41 net) wells in the SCOOP area.

"Our 24-month goal in SCOOP is to de-risk and hold by production our acreage," Bott said. "Based on our repeatable results, we have greater confidence in this resource discovery and the production in reserve that will follow."

Hamm said more than two-thirds of the company's 2013 capex would be spent in the Bakken, with priority given to explore and test the lower benches of the Three Forks formation (see Shale Daily, Dec. 5, 2012). "You should expect a steady stream of news on these exploratory programs quarterly throughout 2013 and 2014," Hamm said. "And we plan to keep driving down well cost, with the end of year target of $8.2 million per well average for all wells in the Bakken."

Continental increased its position in the Bakken to approximately 1.14 million net acres by the end of 2012, a 24% increase from year-end 2011. The company participated in completing 135 gross (51 net) operated and nonoperated wells in the Bakken during 4Q2012, and plans to do the same for 558 gross (226 net) wells in the Bakken in 2013. Bott said Continental currently has 21 rigs drilling in the Bakken -- 14 deployed at multi-well pads and seven working to delineate the lower Three Forks. He said the company had originally planned to drill 14 gross wells in the lower Three Forks area in 2013, but have since increased it to 20 gross (15 net) wells. All of the wells should be completed by the end of the year.

Separately, Continental said 16 of the 21 wells in the Bakken are in North Dakota and five are in Montana.

"This is an exploration program," Jack Stark, senior vice president of exploration, said of the lower Three Forks. "It has breadth of about 60 miles wide and about 75 miles north to south. We've got five different areas where we're actually drilling wells in the various benches. We expect to see some variability in outcomes across the play, but we expect them to be representative of the areas that they are drilled in."

Continental said production averaged 106,831 boe/d during 4Q2012, a 42% increase from the 75,219 boe/d that was produced during the preceding fourth quarter. Production from SCOOP nearly quadrupled during that time frame -- from 1,871 boe/d to 7,123 boe/d -- and production in the North Dakota portion of the Bakken grew 65.9%, from 35,565 boe/d to 59,019 boe/d.

The company reported net income of $220.5 million ($1.19/share) during 4Q2012, compared with a net loss of $112.1 million (minus 62 cents) in 4Q2011. Net income for 2012 was $739.4 million ($4.07/share), a 72% increase over the $429.1 million ($2.41) in 2011.

Mercy Investment Services submitted a shareholder resolution in January that was aimed at getting Continental to reduce the volume of natural gas being flared at its wells in the Bakken. In a Form 10-K the company filed with the U.S. Securities and Exchange Commission (SEC) on Thursday, Continental said it had reduced flaring last year in the North Dakota portion of the Bakken by 50%.

"We recognize the environmental and financial risks associated with natural gas flaring and manage these risks on an ongoing basis," Continental said. "We set internal flaring reduction targets and to date have taken numerous actions to reduce flaring from our operated well sites. Our ultimate goal is to reduce natural gas flaring from our operated well sites to as close to zero percent flaring as possible."

Continental told the SEC that in December 2012, it flared approximately 10% of produced natural gas in the North Dakota portion of the Bakken, and 6% in Montana. Flaring was "negligible" in the SCOOP and Northwest Cana areas because of existing transportation infrastructure.

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