Spyglass Project
Management Discussion
Updated Updated January 2013
About Spyglass
The Spyglass Project located in Divide County, North Dakota in the Williston Basin is one of American Eagle's two core property holdings, along with the Company's Hardy Project, underpinning the Company's current production base and offering near and long term high growth potential. Spyglass is a large oil resource development play targeting both the Bakken and Three Forks Formations in Divide County, North Dakota. Although the Bakken and Three Forks are "continuous reservoirs, they are not continuously the same. American Eagle's interest in the Spyglass area was based on extensive mapping of both the Bakken and Three Forks reservoirs and the specific exploration concept of focusing on those areas having the best overlapping reservoirs. As a result, American Eagle's management team was instrumental in causing the first horizontal Bakken discovery well drilled in the Hoffer Field in 2009 by TriAxon (subsequently acquired by Crescent Point). That discovery led to a second Bakken discovery at Oungre and the beginning of a large scale development drilling program that American Eagle has mapped covering the entire Spyglass Project area in the U.S. Both the Bakken and Three Forks reservoirs are found at depths of about 8,000 to 8500 feet versus depths of up to 11,000 feet in other parts of the basin so the Spyglass area has the added benefit of lower drilling costs.
Spyglass Bakken
As seen on the Spyglass map Crescent Point Energy, the largest Bakken explorer in Canada and Husky Oil Company have been actively developing the Middle Bakken reservoir on the north side of Spyglass across the international border in Saskatchewan. These wells have mostly been drilled as approximate 1-mile long laterals drilling multiple wells per section which is the common practice in Canada. However, the recent success of drilling 2-mile long laterals in the U.S. is now beginning to become the norm in Canada as well. In June 2012 Samson Resources drilled the first Middle Bakken Spyglass area well, the Nomad 0607-5H, with an initial 30 day average rate of over 300 barrels of oil per day. In August, American Eagle spud its first Middle Bakken well, the Silas 3-2N which was a short lateral adjacent to the Canadian border. The well was stimulated and put on production in November, 2012 at an average 30 day rate of 153 barrels of oil per day. In December, 2012 American Eagle drilled the Christianson Brothers well which is currently being completed and has plans for additional Middle Bakken wells in 2013.
Spyglass Three Forks
The excellent Three Forks potential in the Spyglass area is the result of local enhanced reservoir quality adjacent to a thick mature Lower Bakken Shale source rock along a geologic trend that includes all of the Spyglass Project area. Three Forks drilling activity offsetting Spyglass was initiated by Samson Resources in 2006. At that time Samson was drilling short, 1-mile long laterals. That changed in 2010 when SM Energy completed the first 2-mile long Three Forks lateral in the area. Since that time 2-mile long laterals have become the norm with greatly increased production rates due to improved frac technology resulting in longer stimulated lateral lengths. Since 2006 the Spyglass area has experienced a stunning rate of Three Forks development drilling.
The Three Forks 2-mile long laterals have mostly been drilled as stand-up 1280 acre (2 section) drilling units with one well per spacing unit. In 2010 SM Energy completed its first 2-mile long lateral offsetting the Spyglass Project outline, the Torgeson 14-19H with a 30 day average production rate of 506 barrels of oil per day. That well has since produced over 184,000 barrels of oil in less than 3 years. In April 2012 SM completed 3 additional infill wells within the same 1280 acre spacing unit. The average initial 30 day production rate of the 3 infill wells has been over 450 barrels of oil per day per well. Within the American Eagle's Spyglass Project area SM Energy has begun drilling a similar number of Three Forks infill wells in several of its spacing units and Samson Resources has begun a program approved for the drilling of 4 Three Forks wells plus 4 Middle Bakken wells within multiple spacing units previously designated for one well. American Eagle is an active working interest participant in many of the new SM Energy and Samson Resources wells. Just offsetting the Spyglass Project area Samson Resources has licensed as many as 8 Three Forks wells to be drilled in a single drilling unit.
American Eagle Spyglass Drilling and Completion Activity
American Eagle has participated in 36 horizontal wells in the past year with SM Energy and Samson Resources and others as operators. These wells have almost all targeted the Three Forks Formation with a 100% success rate and initial 30 day average oil production rates of 429 to 975 barrels of oil per day.
In 2012 American Eagle began its own operated development drilling program and to date has completed the drilling of 14 horizontal wells (12 wells were drilled and cased during 2012 with 8 of them on production by year-end). Average 30 day production rates have been approximately 450 barrels of oil per day for American Eagle's Three Forks completions. American Eagle is currently operating 2 rigs. A full field development scenario for American Eagle operated drilling units in the Spyglass Project area with 4 wells per formation would equate to over 50 additional Three Forks locations and over 60 Middle Bakken locations. American Eagle's current operated 2013 drilling program is to complete 15 to 18 gross wells (5 to 7 net wells) with about a third of the wells expanding the field area into undrilled spacing units and the remainder developing infill locations.
As a non-operator American Eagle participated in over 20 gross wells in 2012 primarily with SM Energy and Samson Resources as operators. American Eagle participated with an approximate 14% interest in the initial Samson Nomad well whose initial flowing rate averaged 915 barrels of oil per day. Samson has since drilled multiple additional Three Forks and Middle Bakken wells in the same spacing unit. American Eagle participated with an approximate 19% working interest in the SM Adams well which is a direct offset to our Christianson well. The Adams well had an average 30 day rate of 533 barrels of oil per day. American Eagle participated with an approximate 11% working interest in the SM Gulbranson 2-1H well which is a direct west offset to the Nomad well and which had an average 30 day rate of 591 barrels of oil per day.
American Eagle has continued to conduct a focused leasing program in the area with the primary objective of consolidating our interests near existing leasehold positions. The program is expected to continue into 2013, targeting highly selective areas for further development.