Hart Energy:
What does the year ahead have in store for the Bakken?
Dougie McMichael:
For Hess, we see another strong year of investment and production growth. We will operate six drilling rigs and three frac spreads and bring on about 175 new wells to production. In doing that we are going to grow our production to 200,000 MBOEPD by the end of this year. In addition, we see work across the play to improve gas capture. For example, Hess Midstream Partners will increase the capacity of the Tioga gas plant to 400 MMSCFD. We also think there is going to be work from Hess and other operators moving activity beyond the core so we can see just how much we can improve the economics in those areas and really expand the core and economics for development across the play.
Hart Energy:
The Bakken continues to exceed expectations in terms of productivity. What are some of the drivers of such strong production growth that you see in the play?
Dougie McMichael:
Hess has had great success with the implementation of our plug and perf completion design to improve IP180 productivity by about 15% versus our legacy sliding sleeve design, and increase ultimate recoveries. Beyond this, we see improvements by expanding the use of technology to help us gain a deeper understanding of the interplay between completions design and well spacing. Hess has an exciting project underway, where we will drill an observation lateral, which is a horizontal well that will not be produced. We are going to install permanent monitoring of the fiber technology and we're really going to try and see what happens in the subsurface underproduction condition then use that use the information to optimize our development going forward.
Hart Energy:
What are the drivers helping to keep costs manageable in the Bakken? And how is technology helping?
Dougie McMichael:
Hess has long been applying lean manufacturing techniques in our operations. From a technology perspective, that can include anything that improves our standard work helps us reduce defects and eliminate waste from our business. The most recent example is with our plug and perf completions design, where we've taken D&C costs from $7.8 million in 2018 and are on track to deliver well costs of $6 million by the end of this year.
Hart Energy:
Greg Hill mentioned in the fourth-quarter earnings conference call that Hess was performing trials on proppant loading and entry points on well spacing in the company's Tier 2 acreage. Are there any early findings or lessons learned that you could share with us?
Dougie McMichael:
Hess is in the great position of having more than 3,000 future drilling locations in our inventory. It's therefore important for us to understand how best to develop in areas beyond our core as they will be a larger part of our annual program in years to come. In 2019 for example, around 25 of the wells we brought online were in acreage where activity has been more limited in recent years. Although it's early days, the initial data is encouraging in terms of productivity, and we remain very optimistic.
Hart Energy:
The focus is on new wells and new production for many. However, I'm curious to know more about the work Hess has done testing EOR methods in the Bakken?
Dougie McMichael:
EOR is an area where Hess sees great potential, but there is a lot of work to do before we can unlock the value that might be available. Over the last few years, Hess has been attacking the challenge in multiple ways. We have been conducting engineering and geoscience studies, we are engaged in laboratory studies through our partnership with University of Wyoming, and we have completed one operated field pilot. We have also joined with Liberty Resources on a pilot that they implemented in the last couple of years.
Hart Energy:
Please tell us more about the pilot project that the North Dakota Industrial Commission green-lighted in December? Does it build on the work previously done by Hess in its Red Sky project in 2016-2018?
Dougie McMichael:
The upcoming pilot is very exciting, and it does build on the Red Sky project. The Red Sky pilot gave us optimism in a few different ways. It showed us that we could see an enhanced oil recovery effect. In other words, we did get an uplift in oil production. It gave us important insight to execution and operability issues. We have taken those learnings now into our next pilot. We are going to execute that later this year and we are hopefully going to have data come available to us by the end of this year and into 2021.
Hart Energy:
Looking beyond the next couple of years, how does Hess think about the Bakken in the context of your overall portfolio.
Dougie McMichael:
Hess sees oil as a growth business. We think the Bakken and North Dakota is going to be really important in meeting energy demand for the world in years to come. The Bakken asset is incredibly important to Hess. It's one of our two major growth engines and our plan for the asset is to grow production 200,000 barrels of oil equivalent per day. At that point, we can moderate investment, sustain production at that level and then deliver material free cash flow to our company.
Hart Energy:
Environmental, social and governance (ESG) is certainly on the minds of many in the industry. What is Hess’ approach to ESG?
Dougie McMichael:
Hess has been committed to developing oil and gas resources in an environmentally responsible and sustainable manner. We have a good track record of being an environmental steward and a good corporate citizen. For example, recently the Climate Disclosure Project recognized Hess for the 11th year in a row for our leadership in managing climate risks and greenhouse gas emissions in our operations. On the social responsibility side, Hess has been recognized for more than a decade by the Dow Jones sustainability index for the work that we do in the communities where we operate. To expand on that point, over the last seven years Hess has invested over $30 million with over 100 community organizations addressing issues such as education and health care.
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