Monthly Archives: December 2013

SandRidge’s Mississippian Wells are Improving

The Mississippian Lime has put companies and investors alike on a roller coaster ride during the last couple of years. When SandRidge Energy (SD) and Range Resources (RRC) started hitting big wells such as the Puffingbarger 1-28H and Balder 1-30N (see below), EUR and IRR projections ballooned to 600MBOE and more than 100%, respectively. Subsequent drilling has shown that these wells are more the exception than the rule, leading companies to slash their expectations considerably.

Big Wells in the Mississippian Lime
puffin-balder-misslime-well

Source: The Well Map.

The Lime’s inconsistency has led some companies to leave the play and some to dial back expectations, but there’s reason to believe companies are finally starting to figure out its eccentricities. SandRidge saw production results improve approximately 20% from 2011 to 2012. These results coupled with a decrease in wells costs have increased the economics of the play.

SandRidge began drilling in the Lime in late 2010, meaning their oldest wells have produced for about three years. The company is currently estimating that its wells pay out in two years, so we took a look at their oldest producers to see if those estimations are accurate.

The average well the company turned to production prior to 2012 has produced 26 MBO (thousand barrels of oil), 197 MMcf (million cubic feet of natural gas) and 4 MBNGL (thuosand barrels of natural gas liquids). Assuming $88 oil, $4 natural gas, $40 natural gas liquids and an NRI of 80%, these wells have grossed $2.5 million in two years.

Revenue by Hydrocarbon

Miss_Revenue-by-Hyrocarbon

Source: The Energy Harbinger / Oklahoma Tax Commission.

This data tells us that SD’s early wells didn’t pay out in two years based on a $3.2 million well cost. While that’s an important data point, investors should be more concerned with the results from the next thousand SD wells than the first 100. So let’s compare these results to what we’re seeing from the company’s newer wells.

Average Production by Well During First Year (2011 to 2012)

miss-production-graph

Source: The Energy Harbinger / Oklahoma Tax Commission.
*Natural gas production converted to barrels based on 6:1 energy equivalency.
**Assumes 12% of natural gas stream is NGLs.

While natural gas production has remained flat, oil production by well increased approximately 20% from 2011 to 2012. This is important because oil is responsible for roughly 73% of a well’s revenue. If the 2012 wells continue to produce 20% higher than the 2011 wells, they’ll gross $3 million by their second year. SD is currently modeling sub $3 million well costs for the Lime wells, which means their newer wells are paying back in two years. A two year payback period is on par with most major oil plays in the United States.

At this point, we’re not sure why SandRidge’s newer wells are producing more oil. It could be that the company is able to focus on its better areas after it delineated it acreage or the new frac designs they’ve cited in their earnings transcripts are paying off. Either way, the production improvements make it a stock to watch for the future. To that end, Range is also tweaking its frac designs and has reported strong results in the few wells it has used to test the design.

If you track the Lime, you’ve probably heard of Petro River Oil (PTRC) who held its IPO earlier this year. The company has 85k net acres in the Mississippian and 32k net acres in a heavy oil play in Missouri. It recently attracted outside capital when Petrol Lakes (Chinese investment group) purchased $6.5 million in stock from Petro River. If you like micro-cap stories, these guys have an impressive management team which makes it a stock to watch.

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The San Juan Basin: What You Need to Know

General Information
Why I should care: It’s a new horizontal play with some interesting production results.
Geographical location:  Northwest New Mexico.
Producing formations: Gallup, Mancos.
Main operators: Encana (ECA), WPX Energy (WPX).
Leasehold: ECA (176k net), WPX (31k net).
Average well cost: $4.5MM.
Average Royalty: 18%.

Average Peak Month Production by Formation
Gallup (27 wells): 275 BOPD and 406 Mcfpd (81% Oil).
Mancos (9 wells): 194 BOPD and 265 Mcfpd (71% Oil).

Source: www.thewellmap.com / New Mexico Oil Conservation Division.

Average Peak Month Production by Operator
ECA (27 wells): 215 BOPD and 409 Mcfpd (74% Oil).
WPX (6 wells): 391 BOPD and 318 Mcfpd (87% Oil).

Source: www.thewellmap.com / New Mexico Oil Conservation Division.

Average Peak Month Production by County
Rio Arriba (3 wells): 173 BOPD and 332 Mcfpd (56% Oil).
Sandoval (14 wells): 354 BOPD and 545 Mcfpd (79% Oil).
San Juan (16 wells): 175 BOPD and 271 Mcfpd (79% Oil).

Source: www.thewellmap.com / New Mexico Oil Conservation Division.

Largest Well by Cumulative Production
San-Juan-Basin_Biggest-Well

Source: www.thewellmap.com.

Smallest Well by Cumulative Production
San-Juan-Basin_Smallest-Well

Source: www.thewellmap.com.

Economics
Assuming $90 oil, $3.50 gas, 80% NRI and $4.5 well cost, a company needs to recover approximately 60 MBO (thousand barrels of oil) and 65 MMcf (million cubic feet of natural gas) to break even. Of the 10 wells that have been producing in the play for two years or longer, 3 have broken even. These three wells had peak production rates ranging from 275 BOPD and 718 Mcfpd to 535 BOPD and 854 Mcfpd. These ranges give us some parameters which will alow us to judge the ecoomics of new wells coming on.

The average peak month rates for wells spudded in 2013 are 329 BOPD and 400 Mcfpd, numbers that are similar to our early wells that have broken even. While it’s very early in this play, I think there’s reason to believe the average San Juan Basin well will pay back in two to three years which makes it competitive with current major plays from an economics standpoint. Will it be as big? Highly doubtful, but it could provide a nice production/earnings bump for the play’s early entrants.

The Well Map Update (12-3-13)

Testing is finished with The Well Map and we’re going to go live next week. Here’s what you need to know:

*There’s roughly 13k wells on the map and we’ll be adding more each week.
*The 13k wells include areas such as the Bakken, Eagle Ford, Miss Lime, Powder River Basin, DJ Basin, Piceance Basin, Permian Basin, Granite Wash, Marcelllus and Utica.
*We’ll be updating existing data and adding new data all the time. Wells from the San Juan Basin, SCOOP and Marmaton are coming soon.
*For quick analysis of the data we’ve installed several filters including operator, well name, formation, wellbore, spud date, state/county and production ranges.
*Once data is filtered, the filter summary averages the data filtered which allows the user to pull data points such as average production by operator, formation or state quickly.
*The map will be free, all you have to do is sign-up.
*If you want to stay up to date on the new wells we add each week and crunch raw data, we’ll be offering several newsletters containing just that, these start at $50/month.
*To stay up to date on new features and launch information, like us on Facebook and follow us on Twitter.

Thanks for your support,

The Well Map Team

The-Well-Map