- The article provides latest production test data for SandRidge's (SD) Mississippian wells in Oklahoma.
- The fresh batch of test results made public last week shows wide variability in IP rates, but on average is in line with the fourth quarter average.
- Latest well data indicates that SandRidge is actively experimenting with open hole completions in the Mississippian (at least 23 wells during Q4 2013).
- While the approach is promising, initial production test data does not yet support the thesis that open hole completions lead to consistent improvement in well performance.
Latest Well Data
The table below provides well-by-well initial production test results (24-hour tests) for SandRidge-operated Mississippian wells in the State of Oklahoma. The data set includes wells that saw first production during the fourth quarter of 2013 and for which operating data is in the public domain as of February 16, 2014. While the table below should capture the vast majority of such wells, the 60-well set is being referred to as "sample," given that over a dozen additional wells have been reported as "spud" but did not have test results available as of the date of submission.
Test results that became available during the past several days are highlighted in blue.
Among the newly reported results, notable wells include:
- The Means 2511 3-25H in Alfalfa County that tested with 815 barrels of oil and 7.2 MMcf/d of natural gas per day (2,022 Boe/d on a two-stream basis) after 22 days on production. The well had an open hole completion with 825,000 pounds of proppant used. The well's location is Section 25, Township 25 North, Range 11 West.
- The Patria 2711 3-33H in Alfalfa County that tested with 538 barrels of oil and 2.7 MMcf/d of natural gas per day (986 Boe/d on a two-stream basis) after 20 days on production. The well had a perforated completion with 750,000 pounds of proppant. The well's location is Section 4, Township 26 North, Range 11 West.
Test results released last week contain no notable surprises and, on average, are in line with the sample average for the quarter. Test results continue to be characterized by wild well-to-well variability, which has been the signature of the Mississippian fractured carbonate play.
(Source: Zeits Energy Analytics)
Well Test Results: Quarter-On-Quarter Comparison
Overall, the fourth quarter promises to show a sequential improvement in terms of the average well IP rate, although may not be quite as strong as Q2 2013. SandRidge has traditionally included the average IP rate in its quarterly press releases as one of the operating performance reference points. Following the unexpected and difficult to rationalize deterioration in this metric during the third quarter, the data will likely be closely scrutinized by analysts during the forthcoming earnings announcement.
The table below shows a quarter-by-quarter comparison of test results for SandRidge-operated wells in Oklahoma.
The first two groups of wells, the "Q2 2013 Well Sample" and "Q3 2013 Well Sample," include 76 and 71 SandRidge-operated Mississippian wells that were turned in-line during the second and third quarters of 2013, respectively. These two samples capture a vast majority of Mississippian wells that SandRidge drilled in Oklahoma and for which test data has been filed. The samples do not include Kansas wells. Woodford wells are purposefully excluded. (For reference, SandRidge reported that it "delivered" a total of 111 Mississippian wells during the second quarter of 2013 and 104 Mississippian wells during the third quarter of 2013 across the entire play.)
The "Q4 2013 Well Sample" includes 60 Mississippian wells drilled in Oklahoma, which are presented in the table above, and captures over three-quarters of the estimated total.
(Source: Zeits Energy Analytics)
The comparison across the three well groups shows that based on production test data, SandRidge's fourth quarter promises to show a recovery from the worrisomely weak third quarter.
The 60-well Q4 sample shows a reduction in the percentage of wells with weak oil IP test rates: sub-100 barrel per day wells represent "just" 32% of the total, compared to 52% during Q3. At the same time, the fourth quarter shows a very strong increase in the average natural gas IP test rate relative to the previous two quarters.
It is important to note here that the 24-hour production test rate, which is the primary focus in this analysis, represents a very different metric than the 30-day IP rates reported by the company in its quarterly press releases or the first-month rate used as a parameter in the company's type curve. Moreover, in select cases, the test rate may be an inaccurate predictor of the well's peak 24-hour rate or peak 30-day rate.
- SandRidge conducts its typical 24-hour production test about three weeks after the date of the well's first production date (although the test may occur as early as ten days or as late as two months after the first production). While the majority of the wells are likely to have "cleaned up" by the time of the test, some may still have significant amounts of frac fluids flowing back. Chokes and flow regimes (free flowing vs. gas lift vs. pumping) differ from well to well. As a result, the test rate represents an imperfect and "noisy" indicator of the well's early productivity. Further complicating the story is the high variability of decline profiles exhibited by wells in the Mississippian. The bottom line, the correlation between the well's production test rate (or any IP rate, for that matter) and the EUR is imperfect.
Despite the obvious limitations, the production test data may provide a valuable hint with regard to how the company's current quarter is shaping up relative to previous quarters.
Open Hole Completions: A Silver Bullet?
Latest well data indicates that SandRidge is actively experimenting with open hole completions in the Mississippian. The company used open hole completions in ~60% of the sample's wells that came on production in Oklahoma during the November-December period (18 open hole completions of the 31 wells total, using the Q4 sample data). It is likely that the technique will be featured prominently during SandRidge's forthcoming earnings call and the Analyst Day that is scheduled to follow shortly after.
Open hole completions in the context of the Mississippian play have attracted significant attention in industry and financial press. There are several valid arguments that make this approach conceptually intriguing as a potential solution for some of the challenges encountered in the Mississippian play. Among the primary benefits quoted is the ability to minimize damage to the fracture-rich carbonate rock from the cementing job. Reduced well cost is another benefit (the approach may be particularly effective in cutting costs in those situations where the log data obtained during drilling indicates poor rock quality and an expensive completion is no longer justified).
However, a detailed review of SandRidge's production test data does not provide clear evidence that the method leads to better well performance.
The 60-well Q4 sample presented in the table above includes 23 wells in which open hole completions were used. The average IP test rates for those 23 wells were 207 barrels of oil and 1.4 MMcf of natural gas per day. These rates compare to the 60-well average IP test rate of 232 barrels of oil and 1.3 MMcf of natural gas per day.
Obviously, statistical significance of this comparison is low, given the small size of the samples. Moreover, operating circumstances specific to each completion must be taken into account to derive meaningful conclusions.
As a result, it would be incorrect to conclude that open hole completions lead to lower IP rates. By the same token, this data - at least on its surface - does not lend support to the thesis that open hole completions improve well performance.
I must emphasize that the sole metric being used in this analysis is the 24-hour production test rate. What really matters is the well's longer-term production, which would be a more relevant basis for performance comparison.
The Type Curve
SandRidge's Mississippian Lime type curve is provided below for reference purposes. The company's type curve is based on a 30-day oil production rate of 140 barrels of oil and 0.79 MMcf of natural gas per day. On a two-stream equivalent basis, the 30-day IP rate would be ~271 Boe/d (which is calculated as the 30-day oil rate plus 30-day wellhead wet gas rate).
I must emphasize that the rates observed in the 24-hour production tests and the 30-day rate that anchors the type curve are different measures. The production test rate in many cases understates the actual peak 24-hour IP rate. On the other hand, the 24-hour peak IP rate implied by the curve would be higher than the 30-day IP rate used in the type curve.
As a result, a comparison of the observed IP test rate to the type curve represents a significant challenge.
(Source: SandRidge Energy January 9, 2014 Investor Presentation)
Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.