Enerplus - Williston Basin Review

By Eric Fox | May 26, 2012 AAA

Enerplus (NYSE:ERF) has a large acreage leasehold in the Williston Basin and plans to exploit this position to generate oil and liquids production and reserves growth for the company over the next few years.

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Oil and Liquids Development
The company estimates that oil and liquids production will grow to 50% of the total company production in 2012. This goal will be accomplished through oil production growth of 22% as it exploits tight oil plays across its portfolio in the United States and Canada. Natural gas production growth is expected to be flat during the year.

Williston Basin
One area the company is focused on is the Williston Basin, where it has 74,000 net acres under lease. It has approximately 78 drilling locations into the Bakken and Three Forks plays in the Fort Berthold area in North Dakota.

The development program will lead to rapid production growth for Enerplus from the basin. It expects to exit 2012 with a production of 15,600 barrels of oil equivalent (BOE) per day, up from 9,000 BOE per day at the end of 2011.

In 2012, the company is planning to drill 30 wells in the Williston Basin and allocate $300 million in capital here, or 50% of its total drilling and completion budget.

SEE: A Guide To Investing In Oil Markets

Returns
The company estimates that its Bakken wells will cost approximately $11 million to drill and complete. The average well will have an estimated ultimate recovery (EUR) of 940,000 BOE, with 95% composed of oil and natural gas liquids. The wells will generate an internal rate of return (IRR) of 90%.

The Three Forks wells will have the same cost and liquids content as the Bakken wells, but will yield an EUR of 650,000 BOE. The company expects to earn an IRR of 40% on these wells.

These returns are comparable to other operators that are active in the Williston Basin. Linn Energy (Nasdaq:LINE) has 17,000 net acres under lease and estimates that it will generate returns of approximately 50% on wells drilled and completed here. Marathon Oil (NYSE:MRO) has a large position here and estimates that IRR's on Bakken wells will range from 22 to 27%.

SEE: Oil And Gas Industry Primer

Long-Term Potential
Enerplus estimates that production in the Bakken and Three Forks has the potential to reach 25,000 BOE per day by 2015. This estimate is dependent on the future price of oil and adequate access to capital.

One company that is planning for future production growth from the Williston Basin is MDU Resources Group (NYSE:MDU), which recently purchased a 50% interest in midstream infrastructure from Whiting Petroleum (NYSE:WLL). The company paid $66 million for the assets, which include a natural gas processing plant and an oil storage terminal.

SEE: What Determines Oil Prices?

The Bottom Line
Enerplus is trying to grow its oil and liquids production and has chosen the Williston Basin as one of its core areas to help achieve this goal. Many other operators have chosen this basin as a means to accomplish similar goals and have attained success.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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