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Takeaway Infrastructure Catching Up in Bakken, Kodiak CEO Says

Transportation of rapidly rising oil production in the Bakken Shale play is no longer a problem as both rail and pipeline shippers have excess capacity, according to the CEO of Kodiak Oil & Gas Corp., which sells its growing production at the wellhead. It holds no capacity for either rail or pipe shipments.

"We try to push more of our oil to pipelines these days because we get a little better pricing," said Kodiak CEO Lynn Peterson, adding that transportation is going to continue to be built out in North Dakota. "I think we have overcome [past shortfalls] in the Williston."

He estimated that total rail transportation capacity is about 1.5 million b/d, and only 500,000-600,000 b/d is now being shipped from North Dakota.

"I think all of us operators up there feel we have plenty of running room ahead of us from a transportation standpoint," said Peterson, speaking at the Johnson Rice Energy Conference earlier this month in New Orleans. He also emphasized that Kodiak is now 100% a Bakken/Three Forks operator, having divested all of its acreage in Montana.

"We have pretty much overcome all of the challenges [in takeaway transportation] that have existed during the last couple of years."

Peterson said Kodiak has grown into a sizable company in the Williston Basin, holding more than 190,000 net acres, operating seven rigs, along with holding a 50% interest in an eighth rig with ExxonMobil Corp., and expecting to invest about $1 billion this year on 100 wells in the shale play.

Kodiak expects to hit the lower end of its production guidance range of 30,000-34,000 boe/d for all of this year.

In commenting on the overall Williston Basin activity, Peterson said the lower rig counts today compared to recent years is reflective of much greater efficiencies in drilling. Using Kodiak as an example, he said two years ago the company averaged 30 days to complete a new well, and by the end of this year that will be down to 15 days. "We're in the high teens right now," he said.

The increase in efficiencies is also measurable in the number of wells spudded per rig. According to Baker Hughes data and NGI's Shale Daily calculations, the average rig at work in the Williston Basin spud 4.08 wells in 3Q2013, up from 2.46 in 1Q2012. That suggests an efficiency gain of 66% over the last 18 months.

Peterson said Kodiak intends to continue adding acreage in the Bakken and to apply the lessons it has learned so far in terms of efficiency gains and bringing down the average cost of a well to about $9 million from the $10.5-11 million/well level the company was at early this year.

"When we first started, we were drilling about nine or 10 well, max, per-rig-per-year; today we are pushing on 13 wells [per-rig/year]," Peterson said. "We're going to continue to push that envelope, and we are going to continue to see this production ratchet up while the rig count stays pretty flat."

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