Oil producers are now “cracking the code” on the Torquay, or Three Forks formation below the Bakken, and coming up with incredible economics—these wells are paying back in only seven months.
This news has completely re-invigorated the Canadian side of the Bakken. And on the US side, the Three Forks is causing industry to leap-frog estimates of the amount of recoverable oil available–by about 57%.
The Torquay/Three Forks ranges from 1.5 to 7 time as thick as the Bakken.
On April 14 Crescent Point Energy (CPG-TSX) announced a Torquay discovery in its core Flat Lake area in southeast Saskatchewan, right along the US border. In just 12 months, the company grew production from 0 to over 5,000 boe/d by drilling 36 wells. These are low-decline, high-rate-of-return wells that payout in less than 7 months.
CPG says each well costs $3.5 million all-in on a 1–mile horizontal. These well economics are fantastic:
1. More than $73/boe in operating netbacks (netback=profit per barrel)
2. A recycle ratio greater than 6–that’s profit divided by costs. That’s 6 times your money. 2 is good; 6 is great.
3 Generates an IRR over 300%. I like to invest in anything over 70% IRR.
The Bakken formation is actually three layers of rock—Upper, Middle and Lower–and is situated above theTorquay/Three Forks. The underlying Torquay actually has four layers of tight rock identified as TF1 (upper layer), TF2, TF3 and TF4 (deepest layer).
Last year, the US Geological Service (USGC) updated its assessment to include the upper part of the Torquay, about 50 feet in thickness. For the two formations, the US Geological Service USGS estimates mean recoverable oil resources of 7.38 billion barrels. Estimates for the Torquay account for 3.7 billion bbl.
In its own assessment, Continental believes that including the deeper parts of the Three Forks increases the total amount of oil originally in place (OOIP) from 577 billion barrels of oil to 903 billion, and the amount that is technically recoverable from 20 billion barrels to as much as 32 billion, 36 billion or even 45 billion.
The US Energy Information Administration had been expecting increases in Iraq oil production to make up 45% of the net increase in oil production from now to 2035. However, the correct view is that new oil production must replace about 40 million barrels per day and add 15 million barrels per day for the EIA 2035 projection. Iraq was expected to go from 3 million barrels per day to 9 million barrels per day.
If Iraq substantially underperforms that expectation then more higher cost oil will be produced and demand could be less with higher oil prices. Also more energy would come from other sources because of energy switching.