DrillBit Research

Oil & gas, energy, portfolio strategy
DrillBit Research
Oil & gas, energy, portfolio strategy
Contributor since: 2014
Hmmm. Good to know. Thanks for the feedback.
MLP Investor,
Thank you. BTW if you are interested in an MLP in the SCOOP take a look at Eagle Rock Energy Partners (EROC). They reported earnings yesterday and their conference call is this afternoon (4/30/15). They have a fairly significant operated and non-operated position in the SCOOP.
Randy W. - Thank you for reading the article and your questions. I am far from being an expert in the nature and amount produced water and how it is being disposed of in this area. So the reality is I can't offer any meaningful answers to your questions. I DO follow a landowner's group blog from Grady County and I don't think I've read anywhere in that blog about earthquakes in Grady County. I think if there were a bunch of earthquakes in Grady, folks would be talking about it. In Oklahoma the issue with earthquakes has been north of Oklahoma City around Enid (if memory serves).
Heather,
Once again you are bringing attention to smaller operators who are showing excellent growth and potential. I was fortunate enough to establish a position at the time of the IPO so I have seen enough upside to weather the ups and downs of the market. I have a modest correction to share. You say that Athlon has 23,000 net acres. That is way low. Here are their "vital statistics" regarding their acreage from their most recent presentation:
99% operated, 95% avg WI, and 73% avg NRI
TP Reserves: 58% oil; 23% NGL; 19% natural gas
R/P of ~20 years
164,000 gross (134,000 net) acres
Midland, Martin & Other – 61,000 net acres Howard – 57,000 net acres
Glasscock – 16,000 net acres
Added ~36,000 net acres since August IPO
BTW, I'd also like to recommend that folks listen to a couple of the ATHL conference calls to get a feel for the company. Personally I have found them to be very refreshing in terms of openness, frankness and detail. The CEO basically "takes stage" for the 1st 1/3 of the call and just talks about how things are going. I like the approach and others may too.
User,
Excellent information. Thanks for the updated information on EOGs Zeus wells. I plotted Zeus 1H on the map of Leon, Madison & Grimes counties in the article and according to the plat map filed by EOG the surface location of Zeus 2H is 125' from Zeus 1H (so on the same pad) but the well bore tracks parallel to the 1H 700' apart. I don't think that this could really be a 40-acre test since the field rules for the Aquila Vado (Eagleford) field require 160-acre spacing, except under limited circumstances much too technical and boring to detail here. But if you are a glutton for punishment, Google up "Aguila Vado (Eagleford) field rules" and you can read the permanent field rules for the field that were issued in 2012. My reading of the rules is that you can do a 40-acre well but only if its the last well on the lease and on "left-over" acreage. If you come across other useful information on EOG activity in Madison or Leon county please post it. It would be terrific for the play if EOG determined it was worthwhile to expand its presence.
Thanks for reading. And Earthstone Energy (NYSEMKT:ESTE) which I mention in the article reported earnings this morning. I'd keep an eye on this one (starting with reading any SEC filings about the merger with Oak Valley) for potential investment opportunity. The CEO of the merged company, Frank Lodzinski, has a good reputation for building up companies.
Thanks. Because of the unfortunate delay in getting the article posted (due to backlog, I guess) the article was posted AFTER the EVEP conference call in which they gave the expected update on the Unger well in Lee County. Looks like the well was completed a couple of weeks ago and IP'd at 482 boe on a restricted (15/64) choke. It continues to flow at over 400 barrels a day. So it's too early to declare the well a success but at least its not a failure.
jfsmart,
thanks for the additional research. Interesting. From what I read Venado wasn't adopting "simulfrac" across the board and these two wells were probably a test. Perhaps the technique has improved since 2009 and they're giving it a go here to see what happens. All the more reason to keep track with what happens with Venado in Lee County over the next 6 months. I believe that when Venado was talking that its "new and improved" completion design yielding EURs of more than 400Mboe they were talking about the simulfraced wells. If those two wells end up being more flash than substance then folks will probably get less excited about Lee.
jfsmart,
Thanks for reading and your comment. "Simulfracture" is not a new process and Continental Resources was doing some back in 2009 in the Bakken, apparently. From what I understand, by doing "simulfracture"you can concentrate the horsepower behind the frac into a small area which (I presume) fractures more rock between the wellbores to the advantage of both wells.
Thank you for your comment. It turned out to be a very interesting project. Now on to Fayette County!!!
Don, thank you for a nice run down on Parsley Energy. I initiated a position on IPO day SOLELY on the basis of family pedigree which is not a real smart way to buy stocks, but so far so good. I look forward to reading your articles in the future about PE so I can learn more about its prospects.
Richard, thank you for another excellent update on Halcon and what is happening in East Texas. Here are a couple of added points that may be of interest. Back in 2008 Apache did several vertical recompletions just to the northeast of Somerville (in Burleson) that ended up being completed as gas/condensate wells. After that very little else was done in the area until Halcon's Stifflemire well. That is one reason why Stifflemire is such an important well. Stifflemire is very close to Comstock's permitted Curington 'A' 1H well (only 1.5 miles down-dip), whereas Comstock's permitted Mach 'A' 1H well is very close to those Apache gas/condensate wells.
Right now I see a verified oil-window trend line extending from Apache's McCullough-Wineman EF 2H (30.64573,-96.20341), Apache's Hullabaloo 2H (30.551044,-96.4149100), Apache’s Leone 2H (30.535613,-96.362791) and Halcon's Stifflemire (30.412049,-96.637455) with that line probably moving down-dip as more wells [e.g. Halcon's Kaiser 2H (30.383584,-96.657566), Apache's Rae 1H (30.610819,-96.257239) and Comstock’s Henry ‘A’ 1H (30.447132, -96.489921)] come on line. Right now my opinion is that the gas/condensate window runs on a trend on the north side of Somerville Lake. We shall see, of course.
Thanks for your comment. One nice thing about the ETEF for APA (besides the nice size acreage block) is that most, if not all, is HBP with EverVest/EVEP Austin Chalk wells. This means that APA could easily dial back its program if oil dips below $90. Right now with WTI over $100 they are going back into the play with renewed gusto. Of course, having a 50% partner helps too.
Correction submitted. Thanks.
Steve, I see you picked up on Whiting’s new completion method using
coiled tubing (CT) conveyed fracture stimulation. Whiting’s test showed an IP rate 73% higher (1,607 boepd) than the initial well in the unit (open annulus/sliding sleeve) and 40% higher than the 2 cemented liner wells. According to Whiting: “This new completion design better isolates the perforations to more effectively fracture the reservoir.” I’m wondering if we’re witnessing the beginning of a whole new round of completion design upgrades in the Bakken. The fact that this test took place over in Montana is going to raise some eyebrows.... in a good way.
Richard, another very good and timely article about one of my favorite plays. The news this morning from Goodrich was very welcome considering all the issues with their wells over the past several months. Some in the investment community took these difficulties as a sign that the TMS was going to be "too difficult" and "not commercial". But others have recognized that eventually the engineers were going to figure it out and the play would make money. The Blades well is good evidence that they are "breaking the code". And the fact that this well is in the acreage GDP acquired from Devon speaks volumes on Devon's poor results. Better operators = better results.
Anyway, the Seeking Alpha community and other investors are lucky to have you as a resource. So thank you.
Well I hope its not the same geologist that steered them to Western Louisiana first.... or to Utica.
Another terrific, informative article on the development of the East Texas Eagle Ford.
Thanks for your response. I also want to emphasize to your readers how significant your find of the Brollier #1 is. That is not a well that screamed "Eagle Ford" from the permit (and so it was good detective work on your part to see that it is connected to the Eagle Ford). This well was completed in the Eagle Ford (according to the company) and turned out to be a gassy well (and a solid one at that) and so leaves no doubt as to were the edge of the play is going to be. Obviously it's not where Stifflemire well is (which is good news for Halcon and Clayton Williams) but its looks like you are 100% on the money that the oil window transitions quickly into gas as one gets downdip into Washington County.
<<I would say that I would want to see first-year cumulative production in the 110-120 Mbo range to feel comfortable that the project will make an attractive return. But this is just my personal "back of the envelope,">>
Richard - I had to chuckle at this because quite frankly I use the same back of the envelope; except I'm a little more liberal in that my cut-off is more like 100MBoe (if well cost is <$10MM) But it is good to see knowledgeable people like you aren't afraid of the envelope.
An excellent update. And kudos for finding the Brollier 1H well and its relationship to the delineation of the play. My map, however, says that Brollier well is more like 20-25 miles due south of Stifflemire well, not 10. But hey, that doesn't lessen the importance of finding the edge of the 'oil play' part of the East Texas Eagle Ford. I too, have a question regarding your statement that "significant upfront investments still need to be recovered, and the 50% single-well return estimate may not capture all the costs that might exist at the project level." What that statement is telling me (pending further explanation from you) is that Halcon is somehow deliberately under-stating its project costs in order to make the IRR look more palatable to itself and the investor community. In my limited experience the whole point of going through the IRR exercise is to put together ALL project costs so that you can get a true (or truer) read on where best to deploy capital. If you are just "faking it" you are just hurting yourself. So what "project costs" do you think Halcon is not considering? I look forward to hearing your further thoughts.
Good one! I hear you. Just because you have a recipe isn't a guarantee that the cake won't be half-baked.
I agree. The IRR of 40% is a "base case" taken from "six wells representing the current industry practices" with the "b" factor "based on 3 wells with over four years of production history". Since these are "older wells" it represents a conservative approach to the type curve.
Halcon also presented a "better case" in the TMS with EUR of 792 MBoe with an IRR of 65%-75% based on $12MM well cost and $90 oil. That is based on Halcon's expected/hoped for improvements in its development approach. I did not include this curve in the article because it is more speculative.
By way of comparison, Halcon's new type curve for East Texas Eagle Ford (El Halcon) is 452 MBoe with an IRR of 40%-45% based on 9MM well cost and $90 oil. Halcon is very happy with the returns in El Halcon and they have the same, or better, expectations for the TMS.
ECA is certainly a good way to play the TMS. To date it is, by far, the biggest player in terms of production. It has 10 producing wells, last I looked (compared to Goodrich's 5) and has produced 74% of all the barrels of oil produced from the TMS so far, according to the MSOGB. However, the pending criminal anti-trust charges in Michigan are a real concern and would cause me to avoid the stock at present.
The TMS is an oil play. Industry results to date show 94% oil. I do not know the answer to your "expected pay" question.
The TMS will have zero impact on HK this quarter productionwise. Newsflowwise could be different since they will have completed their first Horseshoe Hill well by the time of the 1st quarter conference call and there may be rumors about results before then. Drilling on this first well will be completed this week. The result from GDP on the CMR 8-­5H-­1 was good and the market saw it that way too. Keep in mind it was only a 5,300 foot lateral which is short and they still got initial IP of 950 boe. It would appear GDP took this "baby lateral" because they needed/wanted to avoid a "bad well" at all costs.
Petethebeet -
I think the first thing I might do is make sure I read articles by SA contributors like Steve Zachritz, Richard Zeits and Michael Filloon. You can learn a lot by reading their articles and they are straight-shooters, in my opinion. Second, I think I would choose a particular "play" such as the Bakken, Niobrara or Permian, etc. and just start reading up on it. Its amazing what you can find by Googling stuff up. Don't know what an "offset well" is? Google it. Don't know what "EUR" or "IRR" means, or why we care? Just Google it. If you really want an education on the geology of a play then I personally have learned a lot by reading Kirk Barrell's blog about the TMS at http://bit.ly/1dB8UbK as well as his business website http://bit.ly/1dB8UbQ. Barrell has been involved in the TMS for years and seems have data on every core from every well ever drilled there. He creates fairly understandable graphics too. Good Luck.
Sail - Let's just say that I disagree with the main premise of that article. The TMS is less unproven than people think because of the large number of cores that have been taken over the years. All you have to do is read Kirk Barrell's exhaustive writeups over the years to understand that. There have been mechanical issues which has frustrated investors, but that has nothing to do with the geology and the engineers will figure out a fix to the mechanical issues. Personally I think Halcon made a hell of a purchase and just in the "nick of time" before losing the opportunity. Once the play gets rolling I'm sure will see EURs higher than El Halcon. But by that time the cost per well in El Halcon will drop making the play still competitive for capex dollars. Going to be an interesting year.
Thanks Steve - point well taken. That said, I still think the trend has been down since November because of difficulty bringing wells online. I thought Halcon was going to be able to complete some wells in January but that was apparently not the case since the well count is the same. I think, however, that some drilling activity has continued so operators probably have a hefty list of completions to do once the weather cooperates. We shall see.
Hudinero, congrats on your lease to CXO. I am long in part because of their large acreage position in Reeves (and elsewhere) with multiple formations to target. I assume your land is north of I-10 and west of 17 in what CXO calls its "Big Chief" production area, because that is where it has a lot of activity. Am I correct?
Excellent article. I particularly appreciate you pointing out benefit of "science" to increase returns. I have become a firm believer in the use of technology to better identify drilling locations. Helps to avoid mistakes.
I did spot a typo you might want to correct: <<Lusk, Deep, and Red Hills counties in New Mexico>>. You meant "production areas", not "counties", I'm sure. Don't want some poor chap trying to Google "Lusk County, NM". Ha Ha.
Long CXO and PXD.
Richard,
Another terrific article about the increasing activity in the East Texas Eagle Ford. Halcon continues to "ramp up" with yet another Burleson County permit in the works. This new one: Tahoe 1H located about 2 1/2 miles south of Brazos River on County Road 229. Still in Mapping but pad will be located at: 30.587066,-96.539202.