Gasfrac: Superior Production Results

Jan.12.12 | About: Gasfrac Energy (GSFVF)

Last week I wrote an article on Gasfrac (OTC:GSFVF) and it is revolutionary LPG fracking technology. In the article I touched on the multiple environmental and economic advantages this technology presents and the associated strong growth in revenues and profits Gasfrac has enjoyed and will likely enjoy in the next few years.

In this follow up article I have opted to demonstrate the superiority of Gasfrac LPG fracking technology and the key role LPG fracking will play in unlocking previously uneconomic oil and gas reservoirs. To achieve that goal I have dug through a number of financial statements, presentations and conference call transcripts by a number of Gasfrac clients.

In chronological order:

Delphi Energy Corp (OTCPK:DPGYF) - LPG fracking opens a new formation

Delphi Energy Corp. is engaged in the acquisition, exploration for and development and production of crude oil, natural gas and natural gas liquids from properties located in Western Canada. Its operations are principally concentrated in North West Alberta. Its operations are principally concentrated in North West Alberta at Hythe, Bigstone, Wapiti/Gold Creek and Tower Creek.

One of the formations where Delphi operates is the Dunvegan formation in British Columbia. Historically this area has been uneconomic to produce. The BC exploration assessment described the formation as follows:

The Dunvegan has been explored only slightly more than the Cardium in B.C. Thin Doe Creek sandstones are conventional gas and oil producers at Kelly, and several wells have been drilled for them. There has been virtually no exploration for the rest of the Dunvegan, however, as it shares several problems with the Cardium – shallow depths, lack of “sweet spots”, low formation pressures, and drilling damage.

Delphi was one of the first companies to apply Gasfrac LPG fracking technology. After applying LPG fracking to the Dunvegan formation in the 3rd Quarter 2008 it issued the following press release:

The Dunvegan formation at approximately 1,300 metres has been successfully completed in two wells utilizing new gas-frac technology. This formation, that has historically been marginally economic in the area, is now providing significant future development potential for the Company. The reservoir rock, having a thickness of up to 18 metres, is characterized as slightly under-pressured with good porosity but lower permeabilities. Delphi-operated wells completed using the gas-frac technology have experienced initial rates of up to 1.5 million cubic feet per day (mmcf/d) stabilizing at rates between 250 mcf/d and 500 mcf/d.

The company further added:

In addition, the Company conducted two recompletion projects in the Dunvegan formation at Bigstone utilizing the new gas-frac technology. The results have not yet been released, but the new technology has lowered the cut-off parameters previously thought necessary for economic production. To date, six additional recompletion opportunities have been identified in Company-owned wells. Recompletion activity is being scheduled for the upcoming winter program.

In a Sept 2008 article in New Technology magazine, Steve Burnside production technologist at Delphi energy had this to say about Gasfrac LPG Fracking technology:

“There is a lot of speculation out there about damaging reservoirs while fracing and how water affects flow backs; with this there is none of that. You are putting in the reservoir what is already there, hydrocarbon, so you really can’t damage it — in fact, in some cases, you probably make it quite a bit better.”

Delphi was one of the pioneers in using Gasfrac LPG fracking technology and the company continues to be a client of the company.

Corridor Resources (OTC:CDDRF) – LPG Fracking beats water and methanol based fracs

Corridor Resources Inc. (Corridor) is an Eastern Canadian oil and gas exploration and production company. It is engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick, Prince Edward Island and Quebec and offshore in the Gulf of St. Lawrence.

Corridor Resources is developing the McCully tight gas field in New Brunswick, Canada and began producing gas from two wells in 2003. Full development occurred in 2007 with the start-up of the McCully gas plant and tie-in to the Maritimes and Northeast pipeline. The field is comprised of low permeability Hiram Brook sandstones as well as the underlying Frederick Brook shale. Prior application of water and methanol based fracking failed to deliver satisfactory results, from May 5th 2009 press release by Corridor:

In Corridor’s completion programs during the past two years, methanol and water have been the significant components of the frac fluids employed. High concentrations of methanol have served to reduce the surface tension effects of the frac fluids and to prevent hydrates from forming during testing and production operations. However, new evidence indicates that chemical interactions between methanol and certain components of the formation appear to have caused down-hole scaling and deposition of minerals, including gypsum, within the well-bore. These deposits appear to be impairing production performance of at least some of these wells.

In 2009 Corridor decided to try Gasfrac LPG fracking technology in the field in order to improve reservoir performance. Unlike water based fracking the company experienced a significant improvement in performance; from Sept 9th 2009:

Corridor Resources Inc. reported the initial results of fracturing and flow-testing of the McCully L-38 and P-47 wells located in the north-eastern segment of the McCully natural gas field in southern New Brunswick. The wells were fractured with liquid propane followed by flow-back and initial flow test operations. This was the first time that fracturing with propane was conducted in the McCully Field, as completion operations in previous years had mainly used combinations of water and methanol as the frac fluid. The positive results are attributed partially to reservoir characteristics and partially to the successful application of propane as the frac fluid.

In the following slide from an April 2011 presentation given by Mr.Robert Lestz, Gasfrac CTO, we see that production results using LPG fracking process are clearly superior:

Click to enlarge
(Click to enlarge)

Ever since their first trial of propane fracs, Corridor has adopted propane fracs as their fracking solution of choice. As of their latest press release from December 21st 2001, the company continues to be very pleased with the results:

Corridor is currently considering a plan to stimulate multiple intervals of the vertical Corridor Will DeMille O-59 shale gas appraisal well using liquid propane. This fracture stimulation technique proved to be successful in the Green Road G-41 well as reported in previous press releases. Corridor is very pleased with the results to date from the Will DeMille O-59 shale gas appraisal well. The completion of this well would be part of Corridor's continuing program to advance a shale gas pilot project in the Elgin area.

In July 2011 World Oil magazine published a detailed technical article on Gasfrac technology and its application in Corridor Resources McCully field:

Angle Energy (OTCPK:ANGZF) - LPG Fracking beats oil fracs

Angle Energy Inc. is an exploration-focused oil and natural producer. The Company is a mid-cap energy producer focused on exploration and development of light oil and liquids-rich natural gas in the Western Canada Sedimentary Basin, including the Cardium, Viking and Deep Basin.

In mid-2010 Angle expanded its acreage in the Viking formation in Alberta; the company describes the formation as follows:

The Viking is deposited in the Harmattan area as a series of stacked shoreface sequences, providing gross sand thicknesses of up to 20 meters with light oil saturation. Minimal historic production has occurred to date from only the uppermost shoreface sequence in the area, resulting in a large, undrained oil resource with high reservoir pressure to be exploited.

Angle Energy fractured its first well with Gasfrac LPF fracking technology in the summer of 2010, subsequently it announced the following results:

Angle commenced drilling the first horizontal test into the Viking oil play in the Harmattan area early in the second quarter. The horizontal leg of 800 metres was multi-stage fracture stimulated using GASFRAC® propane fracturing technology. Completion and testing operations on the well were concluded on June 12. Angle conducted an extended 9 day flow test, recovering over 1900 barrels of light crude oil (37 degree API) during the test at flowing rates as high as 375 bbl/d oil and 1.6 MMcf/d gas, with stability during the last three days of the test at flowing rates of 220 bbl/d and 1.0 MMcf/d gas (387 boe/d). As oil was not used as a carrying fluid to fracture the well, all oil recovered is new oil from the Viking formation.

8 months after publishing the above the company provided another update confirming the superiority of the LPG fracked well:

Angle is encouraged with the light oil production performance from the key horizontal (100% working interest) well the Company drilled in Harmattan, which is exceeding the type curve performance (based on nearly six months of production data). The well is producing approximately 150 boe/d (83% light oil, 10% natural gas and 7% NGLs) at a low decline rate of 17% per year.

In July 2011 Angle provided further details. This time however the company tested oil fracking along with LPG fracking. Upon completion of the trial, it seems that the oil fracs have failed while LPG fracking produced strong results:

Angle has completed and tested three Viking horizontal wells in the first half of 2011, two with oil-based fracture treatments and one with a propane-based fracture treatment. In the Company’s first quarter operational update on April 18, 2011, initial test rates from the first two oil-based fractured wells were announced and appeared initially encouraging. When clean up operations re-commenced, the wells

demonstrated low productivity. As a result, the oil fracture treatments were not considered to be effective.

The most recent Viking drill was completed using a propane-based fracture fluid. Pipeline conditions allowed for flow back of this well in-line, in order to recover and re-sell the propane load fluid. The well was flowed on clean up for a total of 98 hours, and recovered the majority of the load propane during flowback. Final test rates on the well were 3.1 MMcf/d of natural gas, and 47 Bbl/d of light oil, at a flowing tubing pressure of 300 psig.

Later this year Angle is expected to provide further details on its latest LPG fracked well. However, if previous LPG fracs undertaken by Angle are any indication, it is highly likely that this well will continue to show encouraging results.

Abraxas Petroleum Corporation (NASDAQ:AXAS) – LPG fracking unlocking a new basin

Abraxas Petroleum Corporation is an independent energy company engaged in the acquisition, exploitation, development and production of oil and gas in the United States and Canada.

On Nov 10th 2011 Abraxis announced in its Q3-2011 conference call, that it has used propane fracking for the first time:

Also in West Texas, in Koch County, nearby in our Canyon Sand development operation, our Sadie A #2, again we own 100% of that, the 6,400 foot vertical well to test the Canyon Sand package. We did a successful propane gas frac on that well. It finished Tuesday. Flow back started yesterday. It's still flowing back very well, recovering the propane gas and starting to show some oil and, in all probability, some formation gas.

In the subsequent Q & A session, the company CEO Mr.Bob Watson, expanded on the reason why they have opted to try Gasfrac LPG fracking process:

Yes, we did a propane gas frac on it on Tuesday. The frac went great and the flow back started yesterday. So we're -- this is an experimental well for us. Obviously, propane gas frac is the first one Abraxas has ever done. I think it's the first one ever attempted in the Canyon Sands, but it just seemed like that that reservoir had the characteristics where propane gas fracs have been highly successful in other areas in North America.

In response to another question, he expanded further:

Well, the main theory is these Canyon Sands are -- have clays in them and they're very susceptible to damage from water. So our main purpose was to completely eliminate fracing with water. We think that by fracing with propane we will enhance the permeability over a water frac. The propane's obviously expensive to buy but that well is tied into gas sales immediately, so we're actually producing that propane back in a gaseous form and selling it down the pipeline so we get some of our frac cost back. It's a novel approach. It's been successful in some other areas in North America and we wanted to give it a try to see if it might help unlock the code to developing the Canyon Sands.

Abraxas is expected to further details on their propane frac during their upcoming Q4-2011 earning release by the end of Q1-2012.

Sonde Resources (NYSEMKT:SOQ) – LPG fracking beats water based fracs and unlocks a new field

Sonde Resources Corp. is a diversified global energy company engaged in the exploration for, and acquisition, development and production of, petroleum and natural gas with operations in Western Canada, offshore Trinidad and Tobago, and North America.

In the summer of 2011 Sonde decided to undertake a test of three different fracking methods at their Mannville oil pool in Alberta. The purpose of the tests was to test the economic viability of re-developing the entire pool using horizontal drilling and multi-stage hydraulic fracturing technology. Sonde opted to compare three different fracking and casing techniques:

  • Well 3-4 was completed with cemented liner and fracked with gelled propane (Gasfrac);
  • Well 3-5 was completed with an “open-hole” packer system and water fracked;
  • Well 14-14 was completed with cemented liner and water fracked.

Fracturing on the wells was completed between late June and September 2011; final well (14-14) was placed on production the last week of September.

In January 2012 Sonde reported that the only economic well out of the three was Gasfrac propane fracked well; the other two water fracked wells were either uneconomic or marginally economic. The company specifically mentioned: “Water fracs damaging reservoir”.

Sonde is contemplating using Gasfrac LPG fracking to proceed with the field development in 2012.

The above five examples are just a small sample of the hundreds of customers Gasfrac has worked with over the last four years. Unlike the smaller and medium size operators Gasfrac’s major customers such as Husky Energy (OTCPK:HUSKF), Apache (NYSE:APA), Devon Energy (NYSE:DVN) , Murphy Oil (NYSE:MUR) or Chevron (NYSE:CVX) rarely discuss their operations technical details in public, but if Husky Energy’s $150m-$200m a year long term contract signed with Gasfrac in September 2011 is any indication, those majors are obtaining similar superior results with Gasfrac LPG fracking technology.

It is worth noting that in each example above Gasfrac technology was chosen due to its superior technical and economic characteristics. However, increasing environmental issues with water based fracking, such as the earthquakes that was supposedly caused by waste water injection wells in Youngstown, Ohio, will further encourage the oil and gas industry to consider alternative fracking methods such as LPG based fracs.

Having a solution that is both environmentally sound and economically superior is a rare combination that LPG fracking technology enjoys.

Disclosure: I am long OTC:GSFVF.