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August 2023 Cover Story

Guided by Harold Hamm, Continental Perfects Horizontal Drilling, Reigns As Tight Oil Champion

By Danny Boyd and Charlie Cookson

Adhering to the fundamental logic that if one wants to find water, they should look where it’s wet, the unconventional revolution of the past 20 years demonstrated time and again that the best places to discover new reserve opportunities were in the same basins where conventional reserves had been produced for decades.

It may sound obvious in hindsight, but only the most contrarian of thinkers entertained the idea that reserves trapped in conventional shallow zones, which the industry had targeted with vertical wells for decades, could be the manifestation of hydrocarbon migration through geologic time from deep source formations. Did the geology 101 textbooks have it wrong? Instead of classifying shales as low-quality, nonreservoir rock, could they be the motherload that originated the oil and gas sealed in overlying high-permeability zones?

Continental Resources’ founder Harold Hamm, the epitome of industry contrarians, has spent his life questioning the likes of such traditional industry wisdom. But it was his pursuit of perfecting the art and science of horizontal drilling, first in conventional plays, and then on to the company-making Bakken, that propelled Continental to be among the most celebrated and highly respected firms in America.

Today’s Tight Rock King

The oil and gas companies that were early adopters of “unconventional” thinking about petroleum systems set the shale revolution in motion, but that was only a small first step. An incredible amount of science, engineering, experimentation and technological development had to follow to turn the theoretical promise of shale development into proven reserves. The companies that navigated through that process comprised a short list, and while one could use any number of criteria to rank U.S. resource play pioneers, Continental Resources is near the top of every list.

By 2000, Continental was already one of the most established players in the Williston Basin—and had already proven the upside of horizontal drilling in conventional North Dakota geology—when it began testing the Bakken Shale in Montana. But the more it looked at the Bakken, the more its attention went to the deeper part of the basin in North Dakota, where various shallower oil targets had been drilled for 50 years.

“As we studied the Bakken, I knew it had the potential to be special in North Dakota,” says Hamm. “We started working to crack the code to make the North Dakota Bakken commercially produce on a very large scale.”

Almost since its founding in 1967, Continental had a knack for choosing to move in one direction while the crowd went another way. A case in point is Hamm’s fateful decision to keep his company’s operations dialed in on crude oil while many peer companies were pursuing natural gas. Moreover, to accomplish its strategy, Hamm elected to stake a claim off the beaten path and far outside Continental’s historic operating domain in Oklahoma: “oily” targets in the northern reaches of the Rocky Mountains, a region dominated at that time by gas activity.

“We decided that the best intrinsic value in the future was with crude oil, so being a geologist, my team and I studied several basins, and came to the decision that we should go to the Rockies,” Hamm assesses.

Making History

No one could have predicted the rest of the story, but the short version is that, after acquiring an acreage position in the Williston, Continental began making history through horizontal drilling.

The Bakken success story began in 1995, when Continental exclusively leveraged precision horizontal drilling to discover what would become a giant oil field in southwestern North Dakota—Cedar Hills. In 2003, while most of the industry’s attention was on finding shale gas corollaries to the new Barnett play in North Texas, Continental drilled its first Bakken wells. One year later, it completed the Robert Heuer No. 1-17R in Divide County, N.D., the first commercially successful Bakken horizontal completed with hydraulic fracturing. In 2008, it completed the Three Forks zone in a horizontal well for the first time, and began applying multiwell pad development in 2010, which soon become standard practice in every unconventional play.

Continental’s incremental advancements to perfect drilling and completion practices to unlock North Dakota’s Bakken Shale would contribute to countless technical innovations in other basins—including the company’s SCOOP and STACK discoveries in its own backyard in Oklahoma, as well as multiple tight oil plays in the Powder River and Permian basins—and help reposition America from an energy importer to a new oil and gas supply goliath.

It didn’t necessarily know it at the time, but Continental’s pioneering work in the Bakken in the early 2000s was opening the way for what had been thought impossible: Restoring domestic oil and gas supplies to a point where America was no longer dependent on foreign sources of crude oil.

Starting in the Barnett and Bakken, magnifying with successive discoveries of the Marcellus, Eagle Ford, Haynesville and Niobrara, and then capped by Permian tight oil plays, U.S. operators grew output of both oil and gas to historic highs throughout the first two decades of the new millennium. A new day had dawned in American energy. Gone were the days when the country’s energy policy was driven by chronic fears of tight supplies. Domestic production was suddenly bountiful enough to not only meet national needs, but sufficient to be shared with overseas trading partners.

Hamm became a tireless advocate for crude oil exports. His efforts were rewarded in late 2015 when Congress voted to eliminate a U.S. export ban enacted into law after the 1970s oil crisis. The United States’ first two unconventional resource plays—the Bakken tight oil and Barnett gas shale—touched off a game-changing reversal of energy fortunes that repositioned the United States as one of the world’s largest exporters of oil and gas rather than one of its largest importers.

“The benefits of U.S exports to the rest of the world are obvious,” Hamm says. “Had it not been for U.S. liquified natural gas, Europe would have been in trouble last winter. One shipment of U.S. LNG is enough to heat more than 1 million European homes for a month. Crude oil exports have a similar benefit for our trade partners.”

Strategic Thinking

Continental’s strategic commitment to oil had led it to the Rockies. The need to precisely drill thin conventional layers had led it to apply directional and horizontal drilling in the Williston. Its search for new oil targets eventually led it to test the productivity of the Bakken. All three of these decisions—made independently over the course of two decades—indirectly led Continental to pioneering the modern tight oil play horizontal development concept in the Bakken, and ultimately made the company one of the nation’s top oil producers and a star player in the American energy renaissance.

Ironically, Hamm recalls one of the key motivators was then-President Ronald Reagan’s push to deregulate the domestic natural gas industry and eliminate federal controls put in place in the 1970s by the Carter administration.

“Deregulation was the right thing to do, but perhaps not all at once,” Hamm reflects from his office in Continental Oil Tower overlooking downtown Oklahoma City. “The country dumped all the nation’s natural gas reserves at once. When that happened, of course, it forced gas prices down.”

The suddenness of deregulation temporarily hurt Hamm’s beloved Oklahoma because most of the state’s production was in the form of gas, but at the same time, it convinced Hamm and his executive team to stay the course on their chosen oil-driven strategy. Even after oil prices crashed in the second half of the 1980s, Continental remain focused on oil. “We wanted to become a leading independent oil producer,” he comments. “It was controversial at the time. There were only five or six predominant oil players left in America.”

The only question remaining was where exactly the team should concentrate its efforts to achieve that goal. “We felt like the Williston Basin in North Dakota and Montana, and the Powder River Basin in Wyoming, had the best potential for oil, so that’s where we went,” he states.

Continental continues to take advantage of all of the knowledge and technical capabilities it has developed over the years in the Bakken/Three Forks play to perfect well performance in the geologically complex SCOOP/STACK and stacked Permian Basin plays. Now it is proving up high-potential tight oil formations in Wyoming’s Powder River Basin (recent acquisitions have allowed Continental to re-enter a basin it had identified decades ago when it had first set its sights on Rockies oil plays).

Going Private

Hamm insists that Continental, which he formed in 1967 as Shelly Dean Oil Company in Enid, Ok., is better positioned than ever to efficiently extract value from tight oil basins. That is partly due to its enviable portfolio of assets, and partly due to its unrivaled expertise and experience specific to tight oil development. But he says it is also related to the fact that Continental returned to its roots last fall by once again becoming a private company, albeit one with significantly more market leverage than when it went public in 2007.

“The public markets today are simply not supporting the industry,” he explains. “Wall Street is pressuring companies to emphasize sharing free cash flow over growth, and that forces companies into making decisions based on quarterly results rather than long-term performance.”

Hamm and his family owned 83% of Continental’s stock and purchased the other outstanding shares, delisting Continental last November. According to Hamm, he told employees at the time of the announcement to go private that it would give the company additional freedom and flexibility to explore, develop, produce, innovate and invest. The actual fruit of the move hasn’t disappointed, he reports.

“Going private has probably given us 20% more time,” Hamm says. “In fact, our auditing company, Grant Thornton, gave us a 20% discount after we went private. That confirms the time savings. Instead of working quarter to quarter, we now plan 25 years out. The next quarter is 25 years. You have more time to work, not just at top levels of the company, but throughout the company, because our employees do not have to continually prepare for the next quarter. It filters all the way through.”

Current activity levels have remained about the same as the company focuses on paying down debt from the reconversion, Hamm says. The Bakken, along with the associated Three Forks, remain key targets.

Early Adopter

Continental’s first applications of directional and horizontal drilling technologies were in its home state of Oklahoma in the 1970s and 1980s, extending wells laterally to tap stranded reserves beneath Oklahoma City, Chickasha, Enid and other municipalities. In Enid, Hamm says, 15 of 16 wells were highly deviated or horizontal and drilled from a single pad, which Continental dubbed Eco-Pad® development. It would update the Eco-Pad concept 30 years later to optimize Bakken/Three Forks development, touching off the trend of drilling and completing multiple wells from one pad.

With the Oklahoma project successes under its belt, the company turned its attention to the potential of applying horizontal techniques in the Rockies. It started leasing acreage in Montana and North Dakota in 1993 at the Cedar Hills Field. Guided by 2-D seismic data, Continental drilled horizontally into the Red River B, a formation that had frustrated other operators drilling vertical wells in the past. The company’s first well, the Jean Patterson in Montana, yielded several hundred barrels of oil production a day, Hamm recalls.

“Getting that kind of production rate validated that we were on to something with horizontal drilling,” Hamm says.

By 1995, Continental was producing multiple Red River B horizontals from what would become one of the largest fields in in the lower 48 in terms of liquids reserves. As it developed the field, Hamm’s team quietly assessed the Bakken oil source rock farther down in the stratigraphic column, hoping for a sleeping giant with the reserve potential to dwarf Cedar Hills.

Grand Science Experiment

The task of breaking the code on Bakken well productivity was a tall order, according to Hamm. “It took a lot of technical work to test horizontal drilling approaches, stimulation techniques, treatment designs, production methods and a lot of other variables,” he remarks. “It wasn’t easy.”

Continental started leasing prospective Bakken acreage in Richland County, Mt., in 2000. As it expanded activity from the heart of the original core in Montana across the state line into North Dakota, it quickly became apparent that some of what worked in Montana did not work in North Dakota. “The Bakken in North Dakota was deeper, the pressures were higher, and what it took to stimulate the rock was different. A lot of factors went into breaking the code, but the most significant were figuring out the right drilling and stimulation approaches,” Hamm says.

In 2004, the Robert Heuer 1-No. 17R in Divide County demonstrated the merits of applying horizontal drilling with multistage hydraulic fracturing, representing not only the game-changing combination Continental would leverage to make the Bakken the first true unconventional oil resource play, but also open other major U.S. oil and gas resource plays to commercial development. Continental forged ahead, learning by the well and continually innovating and optimizing drilling and completion methods to find the most operationally effective and economically efficient solutions.

“We tried all kinds of perforating approaches, using various cluster designs in different areas, and tested all types of hybrid slickwater fracturing techniques using gels and various proppants and proppant concentrations. We found that it came down to the fact that high-volume slickwater fracs with a lot of sand worked better than anything else,” he remarks. “We also started cementing in liners and drilling longer laterals to find the optimal length and spacing.”

“All of that knowledge is kind of secondary to us now, but the breakthroughs came one by one,” Hamm reflects. “Trial and error was the order of the day. We did a lot of very close observations from one well to the next to find out what would work and what wouldn’t.”

Clearly it has come a long way since those early “grand science experiment” days. This year, Hamm says the company is running four rigs and plans to drill 220 wells on its 1.3 million-acre Williston position as it works to extend laterals beyond three miles. It is also looking at its huge population of producing Bakken wells as it begins to test the merits of refracturing some of the older assets originally completed with less-than-ideal frac designs.

“Some of our refracs have resulted in flow rates that rival the initial completion,” he reports. “There is still a lot to learn with Bakken refracs, but we are encouraged by some of the early results.”

Crude Exports

Finding a market for Bakken crude proved to be a major challenge in the absence of ample pipeline capacity out of the Williston Basin. U.S. refineries were equipped to process heavy, sour, Canadian crude, thought to be the future during the energy disruptions of 1970s. However, refineries in the United Kingdom and Europe were designed to process light, sweet crude into transportation fuels and other feedstocks.

Rail was the best option to get Continental’s Bakken production to market, so Hamm backed the use of “unit trains” to deliver Bakken crude to Gulf Coast demand centers. Large-scale oil shipment via train had not been used in years, he recalls, and it cost $11-$12 a barrel to ship that distance, which was twice the cost of shipping by pipeline. Logistics were challenging, but the effort was worth it.

“It came together and we started shipping frac sand into North Dakota by rail and shipping oil out to the Gulf Coast by rail,” Hamm says. “It quickly became something that everybody started doing easily.”

Once the oil arrived at the Gulf Coast, the next impediment was the ban on U.S. oil exports that had been implemented in 1975 by the Energy Policy & Conservation Act. Hamm took his message to Congress, and the ban was officially lifted in December 2015. The oil Continental produced in North Dakota now had global reach; it could move by rail to the Gulf Coast and then be shipped by tanker to ports around the world.

Hamm also pushed for a new price point for crude oil, since most—including Permian crude—is shipped to the Gulf Coast instead of Cushing, Ok. The new benchmark for pricing U.S. crude production and exports, with a delivery point in Houston, is known as ICE Midland WTI American Gulf Coast futures, or HOU.

“It is becoming a major market,” Hamm observes. “It is tied to Brent, so you tie it to the world price and a world market. Brent needed that. It needed more oil supply to back it up, and it has been a good, natural combination. It took a lot of vision and action by the players to set up a best practices group to make that market come into existence. We were able to do it, and it’s been a very good thing and it will be the future of oil trading in the world.”

Next Success Stories

Reflecting the same persistence and commitment to continuous improvement that commercialized the Bakken play, Continental’s drilling and completion team is looking to write its next big success stories in Oklahoma’s SCOOP/STACK play and Wyoming’s Powder River Basin.

With multiple, largely undrilled stacked tight oil zones, Hamm describes the Powder River as “one of the nation’s most promising unconventional basins.” Similar to the Williston 20 years ago, the Powder River is challenged by limited pipeline takeaway and field services capacities, but those are familiar obstacles that Continental has learned to navigate in North Dakota.

“We have been very pleased with Powder River well results in most instances,” he comments. “It a tougher basin to work due to a lack of services and infrastructure. It’s a basin we felt like we needed to consolidate, and we have sought to do that and build out enough infrastructure to use some scale for better efficiencies.”

Continental has built a 400,000-acre Powder River position after acquisitions from Chesapeake Energy and Samson Resources II and is now the basin’s second-largest producer with some of the top-performing Niobrara wells. In fact, average 90-day initial productivity has exceeded 65,000 barrels of oil on the company’s best Niobrara assets in Converse County, Wy.

The basin is still in its infancy, Hamm insists, so applications of horizontal drilling and hydraulic fracturing should yield greater results ahead. However, the Powder River’s future is clouded by moves to curb drilling on federal lands. Through executive order, the Biden administration put the brakes on Powder River leasing in 2021, although lease sales have since been announced by the U.S. Bureau of Land Management. Despite the slowdown, future administrations easily could speed things up, Hamm says.

“We have always developed public lands in this country for oil and gas, which has been a great source of wealth for our government and for our nation, and we should be looking forward to continuing that,” he avers. “It is ridiculous that this administration would seek to do away with oil and gas. That is what this president basically has said he wants to do, which has not worked out very well for him.”

With the Bakken unlocked, Continental began looking for ways to tap into more oil and gas in Oklahoma. The result was the SCOOP (South Central Oklahoma Oil Province) discovery well in October 2012, followed a year later by Newfield Exploration Co.’s STACK (Sooner Trend Anadarko Canadian Kingfisher) discovery in 2013. Both the SCOOP and STACK are part of the huge Woodford complex. Continental’s discovery of the Springer play in the SCOOP included wells with initial 24-hour flows exceeding 1,500 barrels of oil equivalent a day in Grady County.

The company is plying its expertise aggressively in the Permian Basin, which Continental entered in December 2021 by acquiring Pioneer Natural Resources’ Delaware Basin assets for $3.25 billion in cash. Included were 55,000 boe/d and over 92,000 net acres in Texas’ Pecos, Reeves and Ward counties, where the Woodford Shale is a target. Echoing the familiar story scripted in resource play after resource play, the Woodford has remained largely untouched in the Permian, even with its extensive development history.

“The Woodford sources a lot of the oil in the Anadarko Basin and we are certainly working in the Woodford in the Permian as well,” Hamm says. “We took that same concept to the Permian, and it shocked a lot of operators that we could come in and find oil under their feet.”

Revolution Rolls On

Hamm predicts that the American energy revolution will roll on for a good long while. “The world will be using oil and natural gas for the next 100 years, and there is a lot more oil to find,” he insists. “The Permian is a good example of that. The industry has been working the Permian for 100 years and it is still finding new stuff every day.”

Enhanced oil recovery is not presently on the agenda for Continental in the Bakken, but opportunities exist down the road for Cedar Hills, Hamm adds. In the meantime, he says the company will continue to stay abreast of the latest innovations in EOR utilizing more carbon dioxide and in CO2 sequestration.

Continental is investing $250 million in Summit Carbon Solutions over two years to help fund development and construction of Summit’s associated capture, transportation and sequestration infrastructure to transport CO2 from midwestern ethanol plants, Hamm relates. “Taking the CO2 that is coming off those ethanol plants and sequestering it underground is the right thing to do,” he holds.

And of course, Continental will keep a sharp eye out for any possible future resource plays, Hamm promises. “The industry is always looking for the next one, which is hopefully on the horizon,” he says. “I cannot put my finger on it and say this is it right now. It takes so much to determine that. Are there others out there? I am sure of it. We just have to find them and define them.”

Continental has always been known as an exploration company with a strong geological and engineering group. Hamm says he is counting on contributions going forward from young geologists and engineers with exceptional talent.

“We are real proud of our people,” he concludes. “It is amazing, the ingenuity and the intelligence of these young people, and it’s just amazing how smart they are today with the training they get. They are our future. The company is set up to be around a very long time and that is one of the reasons we took it private.”

Editor’s Note: In addition to the article reproduced above, our August issue explores Hamm’s life, the role he’s played in shaping U.S. energy policy, and his thoughts on the path forward. It also includes several quotes from Game Changer, Hamm’s autobiography.

For other great articles about exploration, drilling, completions and production, subscribe to The American Oil & Gas Reporter and bookmark www.aogr.com.