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Michael Filloon  

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  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Shallow Sand,

    We do use debt to PV10 some, and think it is valuable but we place tend to stick with geology and well design as the main driver. We take a look at where they are currently drilling and the specific results garnered from the core right now. Many are "holding on for dear life" by high-grading, and some may be able to through next year. But things get real tricky now that most of the barrels are not hedged and we will really start to see how good wells are as operators start to have trouble making debt payments. If an operator has enough core acreage to make it through 2016, then things get less cloudy with respect to production/oil prices. Some of these operators go away. Others drop leasehold that isn't economic, and can buy up some operators that still have good acreage but not good enough to survive for pennies on the dollar. The problem is names have to be washed out, and when that production is off the table, things stabilize somewhat. The problem is $60/bbl oil is still pretty good in core areas, so those are pretty much what everyone is drilling. When the cores are drilled up, we find an entirely new oil price needed, and operators have to focus on B grade type acreage. There is still plenty of core to drill and that is why we kept saying that production in the US wasn't going to drop much unless we can get down below $50/bbl.

    So basically we take the number of locations drilled and figure out where those wells are. Then develop a production model for the well, and try to estimate revenues from production/hedges. Then we look at whether debt payments can be made. The thing operators like CLR and WLL have going for them is a fairly sizeable position in decent areas, the issue to watch with those names are the uneconomic areas. They will try to get some of those areas held by production so they don't lose initial investment, but that could be an expensive proposition if they cannot find a well design that will be productive there. If I were to guess (estimate) a longer term approach to names, it would be down in the short term until we find a bottoming of prices. After this, many of those names will probably recover and provide for a pretty good year. Then we see worries about acreage that will be let go and a re-evaluation what companies are really valued at. This could produce some pressure to the downside. Then to the victor go the spoils, because at some point he world economy improves and those that are left standing will see much better prices and will begin to acquire large leaseholds again. Geopolitical issues could throw all that out the window of course, but we think there are still very good opportunities in the sector, but it will be a very difficult landscape for those that do not know the industry well.

    Again I would like to say thanks. You have added some very good color here. Hope others have enjoyed it.
    Jul 4, 2015. 12:30 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Pablomike,

    OAS isnt bad either, some of those numbers may be a little skewed given both have oil service and midstream. Seems to help keep some of those costs lower.
    Jul 3, 2015. 03:17 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    shallow sand,

    Thats great! Thanks for doing that, most people just make statements and dont back it up with anything tangible. I will also say our numbers differ some from yours, but we dont generally share a full breakdown of costs with the general public (which is available to investors/shaletrader subscribers). One thing I would say, is if you would like more accurate numbers (like LOEs broken down by play), companies will sometimes share those (at least they do with us). This is why we just calculate how long it takes for a well to payback D&C. But thanks again, the readers do enjoy this type of information as it provides a starting point. The one thing about calculating out costs is everyone has an idea of how to do it, its not rocket science.

    One thing I would like to address (not trying to be argumentative, just throwing out some general data). "From my reading, the typical ND Bakken well will produce about 220,000 barrels of oil and about 200,000 mcf of gas in 5 years." This is real interesting, because we do hear this alot with respect to well performance in the Bakken and whether it is still economic at today's prices. Your data is correct, but includes a lot of older wells that did not perform well due to design. It also includes a large number of wells in Burke, Divide, northwest Mountrail, southern Dunn, Stark, Billings, Western McKenzie, north and western Williams. Much of these areas were looking just ok at $100/bbl. Many of the bears focus on this, but it doesnt account for current production and how these wells produce. I agree with you that IP rates (especially 24 hour through 60 days) are very misleading, but EURs are as well. As you know, IP rates can be skewed through choke size and other factors. EURs can also be skewed depending on math. When we model a well off of current production numbers (not the arps method) and figure the decline curve. We use wells that are in the area and model off of past production. Granted those models are probably conservative given the big push to shorten stages, break up rock closer to the wellbore, increase proppant and fluids but it probably better than using a straight calculation. I have heard many say Bakken wells produce half of all resource in the first year, but average producton number (including older, less productive wells only produce 19%). This average (which seems to be improving) produces half of all resource at around 3 years and 9 months. Another issue clouding the industry is how the decline curve deviates later in well life. Many calculate well declines that are exagerated (thats and assumption) which would end well life abruptly. Using vertical fracs as an example we see something different. Those wells produce 35 to 40 years (usually) and something very interesting (which you may know) happens roughly 8 years out. The induced fractures stop producing. So many think, thats it and we are all done, but it hasnt been the case. At that time the shale matrix begins to produce. This does not have a heavy decline (keep in mind, this is research not me) but declines at only 6%. That is why the decline curve has its shape and why many believe these wells will produce longer. You may also know that vertical fracs in gassy areas have produced for a hundred years, which leads us to believe the gas continues after the liquids production stops. When these wells become uneconomic is anyones guess, but you probably also know that costs are very low once a well achieves payback so high rates are not as important (although wanted).

    What we have seen from operators drilling wells in 2014 and 2015 are a large increase in production from high intensity fracs. We focus on this when looking at specific names to invest in because the economics have changed so much. I do agree with you that some of the Bakken is not economic, and will not be until we see $80/bbl oil again. Since we dont plan to see this real soon, we expect operators to go under and lose leasehold. Some with just be let go in the hopes they can get their hands on it when oil prices improve again. But some areas are still very good. This article is not a good example of this as the company has significant issues, as do many others. Currently, most operators are fine in the Bakken core which includes southeastern Williams, northeastern McKenzie, southwest Mountrail, and northwest Dunn, including Parshall and Sanish Field. But there is a fairly large disconnect between operators that have figured out how to better fracture the shale.

    I dont think you are being flip, or even rude. To tell you the truth, these types of conversations generally turn out to be the best for those following. Usually commentors like yourself add alot to the process and I hope you keep commenting. We have been doing this for a long time, and the portfolio managers do a very good job of keeping on top of how these plays are changing. Hope you have a great Fourth! God Bless the USA and all of those that have sacrificed to keep the world free and safe.
    Jul 3, 2015. 03:15 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Rig counts up 12 this week, reversing 29 straight weeks of declines. http://bit.ly/1si3hbl
    Jul 2, 2015. 03:41 PM | Likes Like |Link to Comment
  • Bakken Update: EOG Well Pad Produces Revenue Over $200 Million In 2.5 Years [View article]
    US rig counts may have bottomed. Rig numbers up 12 this week reversing declines for 29 weeks straight. http://bit.ly/1si3hbl
    Jul 2, 2015. 03:40 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    shallow sand,

    You seem very well versed on the subject and thank you for the added color. I think it is great when people take the time to provide views on a subject whether good or bad. Since you have all the well production data, it would be great if you add all of those expenses into the numbers to show the difference in the payback times as opposed to using straight drilling and completion costs. When we do these articles, we wont, but it may be interesting for the readers to see those calculations. Have a great day.
    Jul 2, 2015. 03:33 PM | Likes Like |Link to Comment
  • Bakken Update: EOG Well Pad Produces Revenue Over $200 Million In 2.5 Years [View article]
    With the crude inventory adds in the US, watch the numbers closely next week. Many think we are getting to the end of peak demand for the summer driving season. Oil may be headed lower. http://bit.ly/1si3hbl
    Jul 2, 2015. 12:20 AM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    edlemoure,

    Thanks!
    Jul 1, 2015. 10:51 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    rockyron,

    You may want to re-read the article. None of the production data is considered good at $60/bbl oil. The 90-stage frac did show a big improvement, but still wasn't economic. We don't own it. If they had any acreage near the core it may be a different story, but they don't.
    Jul 1, 2015. 10:37 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Thank you Pablomike. I appreciate it.
    Jul 1, 2015. 07:29 PM | Likes Like |Link to Comment
  • Bakken Update: EOG Well Pad Produces Revenue Over $200 Million In 2.5 Years [View article]
    EIA Petroleum Inventories:
    Crude +2.4M barrels vs. -2M consensus, -4.9M last week.
    Gasoline -1.8M barrels vs. +0.4M consensus, +0.7M last week.
    Distillates +0.4M barrels vs. +1.6M consensus, +1.8M last week.

    Surprising add to crude inventories. Will be interesting to see how low crude will have to go to decrease production.
    Jul 1, 2015. 04:59 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    EIA Petroleum Inventories:
    Crude +2.4M barrels vs. -2M consensus, -4.9M last week.
    Gasoline -1.8M barrels vs. +0.4M consensus, +0.7M last week.
    Distillates +0.4M barrels vs. +1.6M consensus, +1.8M last week.

    The add to crude inventories weren't a big surprise since oil imports were held up last week via the storm. Looks like world production will continue at $60/bbl oil, but it will be interesting how low it will have to go to see a production dip.
    Jul 1, 2015. 04:58 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    shallow sand,

    Thanks for the comments/questions. Its appreciated. I think you may be missing the point of the article, so let me explain. The articles we provide focus on raw well data and production. It shows whether production is improving or not, we subtract the well costs and provide a general idea of well performance. This is just an update on how current wells are producing and well design changes being made. I would like to make something very clear. This is not investment advice. We provide investment advice to clients, but not in a public forum. Only well results. If you would like to back out those costs in comments section, I am sure the other readers would like to see how it affects payback times. Thanks and have a great day!
    Jul 1, 2015. 04:54 PM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Those are the employees I would go after.
    Jul 1, 2015. 10:52 AM | Likes Like |Link to Comment
  • Bakken Update: Emerald Completes 90 Stage Frac In Stark County [View article]
    Pablomike,

    No problem, I don't mind the questions, I am probably not doing the best job of describing the situation. You are well versed in the subject matter, but the way I wrote that probably wasn't the best. In EOG's case, they do fracture shale about as good as anyone, and should because they have the most practice. In EOX's case, the source rock is different so the amounts of sand may be as well. Since this is a test run of the 90 stage frac, and I haven't ever seen them do a high intensity sand heavy frac like EOG, so they probably decided to do a straight slickwater with the 90 stage. I would guess it fractured the shale much better than their standard designs but since they are just testing it (especially in Stark County, which I don't believe anyone has done yet but correct me if I am wrong) they were probably somewhat conservative in the amounts of proppant used. I don't think they wanted to try more sand but probably didn't want to waste it (if it doesn't end up in the fractures, it will come up anyways). EOG sends all of that sand downhole because they know the source rock can accept it by experience. Their design is more of a science at this point where EOX is still testing how it would like to do things. Hope this helps. http://bit.ly/1si3hbl
    Jul 1, 2015. 09:30 AM | Likes Like |Link to Comment
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