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.
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)
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.