Mountainview Energy combined big risk with family tradition to transform from small company to big-time Bakken producer.
Originally posted at http://www.thebakken.com/articles/79/conquering-the-play
Joseph Montalban may have a college degree in business, but the oil production industry runs in his blood. For his father Patrick, president and CEO of Mountainview Energy Ltd., that has turned out to be a good thing. Soon after joining the Mountainview Energy team three years ago, Joseph persuaded his father, a geologist by trade and 35-year veteran of the oil industry, to consider the Bakken shale play as the company’s next venture. Patrick’s boss, Joseph’s grandfather, had just retired from the company after 60 years in the business, Mountainview Energy had never drilled a horizontal well, and the company’s acreage position in the play was nonexistent.
What followed is a unique story, says Patrick, about a small producer from Cut Bank, Mont., that could increase its production from 200 barrels of oil per day to 1,000 bopd after one year in the Bakken by utilizing a son’s business degree, a father’s industry connections and a grandfather’s spirit to “take a small company and jump in with the big boys.” Talk with Patrick, Joseph or the consultants who spearheaded Mountainview’s Bakken well-drilling, fracking and completion program and one aspect of their story becomes crystal clear: Mountainview’s story is about more than just the Montalban family, it’s about the risk, reward and routes producers, large and small, are taking in the play to minimize one thing, and maximize another.
Funding the Dream
The average cost to drill and complete a well in the Bakken/Three Forks formation is roughly $8 million to $15 million. Land acreage costs will vary, but prices can range from $1,000 to $19,000 per acre. Due to the risk associated with drilling costs and hole uncertainty, most companies, aside from Continental Resources Inc., Whiting Petroleum Corp., and other large producers, will only own a portion of a well and its mineral rights even if the well success rate in the Bakken is one percentage point away from a guarantee. “Some companies will only take a quarter of the well,” Patrick says, “because they don’t want to take on the risk of a failed well or an uneconomic well.”
Because of that tendency to practice risk reduction, finding funding or outside partners to complete a drilling program or buy acreage is the most important for most, Patrick says. To purchase acreage in the play, Patrick used his relationships in the industry to find ground for drilling. During a meeting with Carter Stewart, a geologist, industry expert and former college classmate, and Jim Arthaud, CEO of MBI Energy Services in 2010, Patrick learned of a project in the Williston Basin from Stewart. Patrick reviewed the geology logs of the acreage, and along with two other land purchases made possible by his relationship with Stewart and Arthaud, Mountainview established its presence in the region in less than seven-months by securing a bank loan and issuing stock in the company.
“At that point we had the property but we had no funding to drill the wells,” Patrick says. “That was when my son really got involved.” Three generations of oil drilling experience might sound impressive, but for the majority of the potential investors Joseph spoke with, it wasn’t enough. “We had a lot of interest in our company. They loved the company, they loved the project,” Patrick says, “but when it really came down to writing a check to drill the well for $7 million, it was hard.” Calls and meetings with groups in Houston, Denver and Toronto were unsuccessful.
Eventually, Joseph turned to a mezzanine financing approach through Wells Fargo in Denver. Through the successful deal, Joseph assisted in landed a total of $75 million in funding, with a first draw of $19 million. “We are drilling on debt, but we were confident we could do this,” Patrick says. Mountainview did, and their efforts reveal what it takes to minimize risk and maximize production. By the end of 2013, the company will have drilled and completed at least three wells, raised its penny stock value from an initial 10 cents to 65 cents and surpassed the 1,000 bopd threshold. For two of the wells, the company showed its confidence in its drilling team and geologists, taking 93 percent and 88 percent ownership respectively.
To drill and complete the wells, the Montalbans leaned on Denver-based RPM Consulting Inc. Since RPM formed in 2005, the consulting firm has drilled more than 550 horizontal wells and completed over 400. The firm is paid on a daily rate. To understand why RPM has been so successful at horizontal drilling, fracking and well completions, and why the Montalbans entrusted their huge stake in their Bakken play to RPM, Jon McEvers, completion specialist for RPM, has a simple explanation. “If we do a good job, we keep working. We don’t need any kind of a contract,” he says.
The Job Well Done
McEvers’ take on RPM’s success may sound simple, but the process to complete a well for Mountainview or similar companies, he says, is a one-off, project-by-project approach that involves complex radiation reading tools, repetitive processes performed 8,200 feet below ground, and a bunch of experts with big egos. “If it isn’t a good team that gets along,” Patrick says, “you can literally have fist fights on the job site.” None of the Mountainview Energy sites had such issues, but Patrick learned what all small- or medium-sized producers should know.
When Mountainview Energy first started its drilling program, rigs were at a premium. “The only way we could get a rig was to contract for a year out, or to do one well per month,” he says. The team landed a used Nabors Drilling rig, only after 15 new rigs were brought into the region. Like the demand for drilling rigs, oilfield services were also high. “They charge for everything. You rent everything,” he says. “You don’t buy bits, you rent them. You don’t buy drill pipe, you rent it.” According to Patrick, in his father’s day, a drilling rig came with some supplies and fuel costs were included.
The most critical stage of the entire drilling process, and one not all producers or drilling teams are achieving, is drilling within a few feet of the target zone. “That is where a lot of people lose money and lose wells and don’t do a good job because they don’t have the expertise on location.” Patrick says the entire team held numerous planning meetings before drilling and everyone knew exactly what the geologists on site were shooting for and how the directional drillers were going to drill the horizontal leg and stay in the target zone.
To establish and maintain the targeted zone, geologists will use gamma ray reading tools on the drill bits. Shale produces high amounts of radiation. If a geologist understands where the high- and low-level amounts of the shale are that indicate the top- and bottom-level of the rock formation, the geologist can direct the directional driller if he or she is or isn’t in the appropriate range by monitoring the gamma readings. The directional driller, however, is constantly fighting the natural tendency of the bit to push towards the surface, and although he or she may think the bit is in the zone, it may have moved up and out. “You would be amazed at the teamwork of the geologist and the directional driller,” Patrick says.
Luckily for Mountainview Energy, the drilling team did not encounter any problems and the process for the first of three wells was completed in 14 days and the bit never left the target zone. Drilling costs totaled roughly $2.5 million for the first well. Sanjel Corp., performed the fracking process, in part because Patrick says it was the only company willing to take on the work with such a small producer. Relationships formed with the company from years past helped land the job for Patrick. Fracking the well cost roughly $1.5 million, but it was the completion stage where the majority of the company’s money was spent. The stage involves cleaning out the fracking plugs, or milling, and also cleaning out the well before flowback can occur.
Unlike most CEOs, Patrick was onsite for the majority of the work. “Don’t think I wasn’t puckered up during the process,” he says. “I was knocking on a lot of wood.” The first well produced an initial production (IP) of 440 barrels per day, and the next two wells are expected to IP for more.
The ability of the Montalban’s to find the acreage and funding needed to form a drilling, fracking and completion team that could keep costs-per-well below $9 million while yielding wells with production levels over 400-bopd-per-well is unique. Add in the family tradition woven into the history of the company and the story becomes even more compelling. But, there are elements of the story that anyone not named Montalban can duplicate.
Because the Bakken play has gone from an exploration play to a resource play, keeping costs down and improving logistical efficiencies are the most important aspects for producers, according to McEvers. “Anything from handling water to shipping oil out,” he says, “anything will help to reduce costs.” The Montalbans achieved success because they were able to reduce costs by having the right people on their team. Not all drilling teams, frack operators and service providers are created equal. “You really have to have a good relationship with these services companies to get good products and good services,” McEvers says. “The lowest bid isn’t always the best bid.”
Along with the right people, McEvers looks for fair product pricing to help clients reduce costs. As an example, he points to water and pipeline volume purchases. A frack job may take 50,000 to 60,000 barrels of water, at a cost of $5 per barrel. But, if a producer can lower those costs to $2 per barrel, it could save up to $150,000 on water alone. To do that, a producer has to buy the product in bulk, and for that, the producer may need a consulting firm like RPM.
“As consultants, we work for operators both big and small, so we know the prices for each service,” he says. In order to secure a fair market price for an order of water or pipe, McEvers will try to pool his client’s product lists to generate a greater product volume. “With volume comes discount,” he says.
Cutting costs through volume ordering is one option for RPM to help clients. Following trends or practices of other companies, however, isn’t. “I don’t like to chase other people’s tails. Just because a company is doing something doesn’t mean we have to. We try and make our own theories, our own ideas,” he says. “When it comes to fixing problems and troubleshooting, if you don’t know the theory behind something (a frack job or region he cites as an example), you won’t know where to start to fix the problem.”
One trend the company is following however, is the push for multi-well pad sites. The company currently doesn’t operate with any producers looking to drill multiple wells on a single site, but that could change. It won’t happen right away with Mountainview however, and as both McEvers and Patrick point out, it all goes back to funding. “A small operator can’t really invest all the money involved to drill all four wells without seeing one drop of oil back,” McEvers points out. Patrick agrees.
“Multi-well pad sites are a fantastic thing for big companies. But you have to be very well-funded,” Patrick says. And as Joseph’s role in Mountainview’s development shows, funding, like every facet of the oil retrieval effort, is all about the people involved in each project.
“Being able to see beyond the five acres of that drilling and completion process on a well,” McEvers says, is what the play comes down to. For some companies that may mean partnering with a consulting firm to pool resources, receive bulk pricing, or have access to industry experts. For others, it may mean bringing on a geologist and directional driller who can work together. And for one company from Cut Bank, it just means maintaining the family business, and listening more to the business major with oil in his veins.Back to top