Monthly Archives: February 2013

An Early Look at Range’s Mississippian Results in Kay County

After looking at Range Resources’ (RRC) early production results in the Mississippi Lime, it’s hard for me to understand why the company thinks estimated ultimate recoveries (EUR) from its wells will be 600 thousand barrels of oil equivalent (MBOE).  I read that in their presentation, look at their estimated well cost of $3.4 million and wonder how many investors lick their chops and buy the stock.

When production results for the company’s Balder #1-30N well were released, some believed RRC had found the “sweet spot” in the Lime.  Its acreage is positioned along the Nemaha Uplift in Noble, Kay and Cowley Counties, East of where SandRidge Energy (SD) and Chesapeake Energy (CHK) have been drilling.  While the Nemaha area is shallower and oilier than Alfalfa and Grant counties, there’s also less pressure which appears to be effecting production results as shown by the graph below.

30-Day Production Rates in the Mississippian (Barrels of Oil per Day/BOPD)
Miss-Lime-production-by-County
Source: Production Reports / The Energy Harbinger.
*Based on 13 RRC wells

The above graph shows RRC’s limited results from Kay County compared to SD’s results across the Mississippian.  Of the company’s 13 wells which have been on production for more than a couple months, their average 30-day IP rate is 149 barrels of oil (BO) with an implied 534 Mcfpd (238 BOEPD) based on a 63% oil cut (see bottom for more on the implied rate).  These results are mediocre for the Lime and will need to improve for the company to reach its EUR goal for its program.

Now to be fair, Range is still drilling to hold its acreage, meaning the company isn’t drilling in its best areas but in a broad range of areas which it believes holds the most potential for its acreage block.  Still, when I see verbage like “17 well average EUR is 600 MBOE” on the type curve in its presentation, I’m a little concerned as to its validity.  Even if the company has a handful of wells I haven’t seen, you can look to the performance of the heralded Balder #1-30N well to see the steep oil declines associated with drilling in a low pressure formation.

Production Results from Balder 1-30N (Kay County)
RRC_Balder 1-30N
Source: Production Reports / The Energy Harbinger.
*Natural gas production data is not available to the public for wells designated as “oil wells” in the State of Oklahoma.  These natural gas production results are not the actual figures produced from the well but based on an implied rate calculated from the oil/natural gas rates in the well’s completion report.

The graph above shows the steep decline for oil which is indicative of the larger wells drilled to date in the Mississippian (see my article on SD’s wells).  While natural gas appears to decline in lock-step with oil, these are not actual natural gas figures as shown by the footnote above, but implied figures to give us a better understanding of the economics of these wells.

Regarding economics, the Balder well has produced more than 57 MBO and 134 MMcf of natural gas as of November, 2012.  This well paid for itself in its first six months of production based on a $3.4 million drilling and completion cost (includes SWD well cost).  While the Balder well is a good result, it’s the exception so far in Range’s Miss Lime drilling program which puts its economics/type curve in question.

When you look at the Mississippian as a whole, there’s big wells being drilled from Alfalfa to Kay Counties in Oklahoma in addition to Harper County across the border in Kansas.  We know there’s a lot of oil there, but it appears the industry hasn’t quite discovered the secret to producing oil from low pressure systems.  Once it does, we could have a lot of cheap oil on our hands.

The Economics of EOG’s Older Bakken Wells

This analysis looks at data from 92 of EOG’s Bakken wells which turned to production between January 1, 2006 and January 1, 2009.  The goal of this piece is to start to understand how much hydrocarbons Bakken wells will eventually produce.  Most of these wells were drilled in the Parshall Field which is located in Mountrail County and are some of the better wells the Bakken has produced.  The scatter-plot below shows the spread of estimated ultimate recoveries (EUR) from some of EOG’s longer life wells.

Scatter Plot of EOG’s Older Bakken Wells
EOG_EURs-Bakken
Source: North Dakota Oil and Gas Division / The Energy Harbinger.
Note: Some wells used in this analysis were left off so the graph would be legible.

The scatter-plot above shows most of the wells EOG has drilled have recovered between 200 and 400 thousand barrels of oil (MBO) to date.  The company has drilled very few poor wells with strong EURs overall.

The average 30-day production rate from these wells is 1,081 BO and 465 thousand cubic feet (Mcf) of natural gas or 1,158 barrels of oil equivalent (BOE/93% oil).  The average EUR (to date) is 384 MBO and 176 MMCF of natural gas or 414 MBOE (93% oil).  From this we can draw the conclusion that a well which produces in the 1,000 BOE range during its first 30 days will recover approximately 400 MBOE during its first four to five years of production.  What does this mean from a return standpoint?

If we assume an 82% net royalty interest (NRI) and a price deck of $80 oil and $3 natural gas, the company has earned $26 million from its average well drilled in the Bakken with 98% of the revenue coming from oil during the time-span studied.  Drilling and completion costs for these wells were most likely in the $6 to $9 million range, meaning they’ve returned several times their initial cost.  While this data might not be a direct comparable to other areas of the Bakken, it gives you an idea of the returns which can be expected from the upper-echelon Bakken acreage.

There’s plenty more research to be done on my end with respect to IP rates/EURs in the Bakken and in other formations which will show readers the returns they can expect on wells drilled.  So for instance once The Well Map is a little more dynamic, you’ll be able to infer EURs from the 30-day rates I’ve provided on the map.  I do expect to add more complete production information to the wells in the future.

The Well Map Update (2-4-2013)

I apologize for the “pump-fake” on the new well map features.  Development is taking longer than expected due to my developer’s work load, but hopefully we’ll have something soon.  I also apologize about some data inconsistencies as for a few days the integers from production values weren’t displaying in full after we moved the well map data to a new database.  These issues have been corrected.

I now have North of 2,500 wells up on the website after adding some Encana (ECA), Bonanza Creek (BCEI), Bill Barrett (BBG) and Anadarko (APC) wells in the DJ Basin/Wattenberg Field in addition to 43 Granite Wash wells drilled by Chesapeake (CHK).  All of the Granite Wash wells are located on the East side of the Texas Panhandle in Hemphill, Lipscomb, Ochiltree, Roberts and Wheeler Counties.

These wells include results from several Hogshooter/Missourian Wash wells, the most recent of which is the Stiles 67 SL #22H well which had a 29 day IP rate of 2.0 MBbls of oil and 4.3 MMcf of natural gas, a monster to say the least.  CHK has drilled quite a few wells in the Granite Wash area and I picked the oilier set for the most part.  With that said, there’s a few natural gas wells in the mix to go along with six wells which had 30-day rates of more than 1 MBbls of oil.

As many of you know, Texas doesn’t conform to the township-range-section system that the rest of the country (outside of Louisiana?) uses, so in the location box I put the formation that the well was drilled into.  The industry often refers to these formations collectively as the “Granite Wash,” but know that this is only a generalization as the Granite Wash is its own formation with the rest of these formations sharing similar geological characteristics.  The stratigraphic map below will help you fill in the blanks if you’re unfamiliar.

Granite Wash/Texas Panhandle Stratigraphic Map
Granite-Wash_Stratigraphic-Map
Source: Forest Oil.

I’ll have more on the Texas Panhandle soon and I’ll fill in the Oklahoma side of the Wash as well.  I know a couple of you requested map data on the formation though, so I thought I’d get this up sooner than later.

Braden