Tickers in this Article: CLR, HES, AEZ, EOG, KOG
Continental Resources (NYSE:CLR) will grow oil and gas production by 30% in 2011 with a strong contribution from the development of the Bakken formation in the Williston Basin. IN PICTURES: 7 Forehead-Slapping Stock Blunders


The Bakken is located across North Dakota, Montana and parts of Canada, and is one of the most popular unconventional resource areas in North America, with approximately 2,750 horizontal wells drilled since 2000. The industry is operating more than 150 rigs here, which puts it in track to add approximately 1800 wells every year.

Summary
Continental Resources has approximately 864,000 net acres that are prospective for the Bakken, and the company is operating 21 rigs to develop that acreage. The Bakken represents 56% of the company's total proved reserves of 310 million barrels of oil equivalent (BOE) as of June 30. This is sure to increase due to the company's aggressive development for the Bakken over the next year.

Capital Budget
Continental Resources is allocating $894 million, or 72% of its drilling capital in 2011 to developing the Bakken formation. This will be used to increase total company production from 15.8 million BOE in 2010 to 20.9 million BOE in 2011.

Like other operators that are active in shale plays, Continental Resources has found that completing wells in the Bakken with additional fracturing stages leads to increased production rates and higher estimates ultimate recoveries (EUR) on wells.

High Returns
Continental Resources estimates that its internal rate of return on wells drilled to the Bakken will range from 25% to 65%. The company uses a NYMEX oil price of $60 a barrel in the low case and $100 a barrel in the higher return scenario. The analysis also assumes a $6.5 million cost to drill and complete a well, and a EUR of 518,000 BOE.

Continental Resources is also looking to cut costs and has developed a method to drill 8 wells from a single pad on a 1,280 acre spacing unit at a 10% cost reduction from normal drilling techniques. The method also reduces the surface disturbance, which is an advantage during a time when there is heightened sensitivity to environmental considerations.

Continental Resources has just reported the first completions under this development method. The four wells had an average initial production rate of approximately 1100 BOE per day.

Other Players
Other exploration and production companies in the Bakken include EOG Resources (NYSE:EOG), which has 80 million BOE of proved reserves booked from its Bakken and Three Forks development. Kodiak Oil and Gas (NYSE:KOG) has 56,140 net acres under lease in the Williston Basin that is prospective for the Bakken. Hess Corporation (NYSE:HES) is also a large operator in North Dakota, and recently agreed to purchase American Oil and Gas (NYSE:AEZ) to increase its exposure to the Bakken play.

Bottom Line
Continental Resources has made a huge bet on oil in general and on the Bakken in particular, to help power production growth of oil and gas by 30% in 2011. (For related reading, take a look at How Does Crude Oil Affect Gas Prices?)

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