Bakken Update: Mississippi Lime Well Design Improvement Is Increasing Estimated Recoveries, Part 2

| About: Chesapeake Energy (CHK)

In part one of this series, I covered development in the Mississippi Lime with emphasis on SandRidge (NYSE:SD). There are several key points identified by SandRidge that are important. The first is a change in how wells are modeled. SandRidge did cut oil EURs as it is finding oil is depleting faster than natural gas. These are the difficulties with new plays, as models are estimates and can change. Currently, SandRidge is the only operator addressing this. It is possible others will follow suit, but at this time, I am unaware of any other downward EUR revisions. The second variable is SandRidge's assertion that the Mississippi Lime is consistent throughout Oklahoma and Kansas with respect to EURs. Results contradict this as Oklahoma IP rates have been better than in Kansas. The best area is around the Nemaha Ridge. This would suggest EURs differ, but further development is needed to prove this. The third is better well design significantly improving IP rates. Some operators are further along in development, and this has improved production. Chesapeake (NYSE:CHK) and Devon (NYSE:DVN) also have considerable acreage in the Mississippi Lime. Both companies are experiencing varying degrees of success, but are improving techniques and well design to be more consistent.

There are a significant number of players in the Mississippi Lime. This is not surprising given the large number of acres in play. The picture below indicates where specific leaseholds are located.

This map is telling where the greatest interest in the Mississippi Lime is located. Chesapeake, SandRidge, Devon, and Range Resources (NYSE:RRC) all have acreage around the Nemaha Ridge. Apache's (NYSE:APA) acreage in the northwest is in exploration mode and not de-risked like other areas.

Chesapeake is another big player in the Mississippi Lime. It has been working on a deal to divest some of this acreage. Chesapeake states it is getting production of 45% oil, 9% NGL, and 46% gas from this play. This is an improvement from previous quarters.

The picture above (in yellow) shows Chesapeake's current acreage. Its operated rigs are blue and non-operated rigs are in red. The black rigs are other operators. It has grabbed significant acreage in Woods and Sumner counties.

The table below are wells completed in Woods and Alfalfa counties.

Well County Oil (Bbls) NGL (Bbls) Nat Gas (mmcf) Boe/d
Herold 3-28-151H Woods 1740 100 1.1 2025
Rauh 3-26-121H Alfalfa 1210 225 3.5 2020
Hada Land & Cattle 3-28-151H Woods 1150 90 1.0 1405

Chesapeake used peak rates in the above wells. This is important, and investors should be aware of how this can provide the impression of better results. Average 24-Hour IP rates are listed in the table below, for the same wells. The difference is significant. The well design is also important. These wells use an adequate amount of water, but proppant is underutilized. The Mississippi Lime is very thick, so it may be possible to stimulate the source rock over a greater area by tightening up stage feet. EOG Resources (NYSE:EOG) has been successful at this in areas like the Permian. If this is the case, we could see much better results. Keep in mind, the Mississippian is very shallow. This under pressured source rock will never produce IP rates of Bakken or Eagle Ford.

Chesapeake is lengthening its laterals. We are beginning to see an expansion of well design. Increased lateral lengths, stages, proppant and water will increase costs, but improve recoveries. Pad drilling will decrease costs, but it will take time to get enough results to gauge the benefits. The shale thickness will allow for very tight well spacing.

Well Oil (Bbls/d) Gas (mcf/d) Produced Water (Bbls/d) Lateral (ft.) Frac Water (Bbls) Proppant (lbs.)
Herold 1218 754 1583 4546 50504 907200
Rauh 438 1872 4860 5607 51498 1006603
Hada 726 1275 1741 4511 50691 850193

Devon has 545,000 net acres in the Mississippi Lime. 400,000 net acres are located around the Nemaha Ridge, with emphasis on Grant, Kay, Sumner and Cowley counties. It operates a total of 13 rigs. The pay zone varies in depth from 4500 to 6500 feet. Devon's well costs are between $3 and $3.5 million. In the third quarter, Devon reported a 30-day IP rate of 545 Boe/d. 480 barrels of this was oil. This well outpaces Devon's model of a 30-day IP rate of 300 Boe/d producing EURs of 300 MBoe to 400 MBoe. The table below are some of Devon's completions.

Well County Oil Gas Produced H2O Lateral H2O (Bbls) Proppant
Bowling 2-32H Kay 527 233 4101 3105 37440 750000
Page 1-24H Kay 80 185 879 2744 19914 314500
Downing 1-31H Grant 20 190 2560 3026 34496 700000
Bontrager 1-28MH Noble 597 703 3365 4698 141821 258660
Winney 1-8H Payne 198 559 1511 4280
Elinore 1-18H Payne 64 88 3652 4344 85412 158298

The above Devon wells have had sporadic results. Some have produced very well, while others may not be economic. Keep in mind, this is a newer play for Devon, as it is building a liquids rich portfolio. I don't doubt it will continue to improve as it gets more comfortable in the play.

In summary, Devon and Chesapeake both have large Mississippi Lime leaseholds. Results continue to improve as operators spend more money on better well design. Consistency is also a problem, as problem wells bring down IP rate averages. Overall the Mississippi Lime continues to improve, and this should continue long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This is not a buy recommendation. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, do not reflect actual investment results, do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results. All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. For more articles like this check out my website at Michael Filloon is a Director at Fracwater Solutions L.L.C. We engage in industrial water solutions for oil and gas companies in North Dakota. This includes constructing water depots, pipelines and disposal wells. We also provide contracting services for all types of construction at well sites. Other services include soil remediation. Please contact me via email if you are interested in working with us. For other, more of my articles check out