Chesapeake’s Monster Hogshooter Well

A couple months ago I wrote a piece on the biggest wells by formation and I just came across one that should have been in that group. Chesapeake’s (CHK) Thurman Horn SL #406H well, located in Wheeler County, TX, produced at a whopping 6,829 BOEPD during its peak production month. While you might be inclined to think natural gas accounted for much of the production given the area, CHK broke out the hydrocarbon production for the first 8-days as follows, 74% oil, 16% natural gas liquids (NGLs) and 10% natural gas.

Well Name: Thurman Horn SL #406H
Operator: Chesapeake
County, State: Wheeler, TX
Formation: Upper Hogshooter/Missourian Wash (9,915′)
Spud Date: May 1, 2012
Peak Month Rate Oil: 4,801 BOPD
Peak Month Rate Gas: 12,172 Mcfpd
Cumulative Oil: 497,635 BO
Cumulative Gas: 2,112,139 Mcf
Latest Monthly Rate Oil: 249 BOPD
Latest Monthly Rate Gas: 2,395 Mcfpd
Source: Texas Railroad Commission/The Energy Harbinger.

While this is a monster well and might even be responsible for the largest 30-day rate of any horizontal well ever drilled on land, there’s a few things that need to be kept in mind. First, this well is not indicative of other wells drilled in the Texas Panhandle Wash play. Most of the wells drilled in this area are much gassier and produce far less oil. In fact, even as prolific as the oil production has been in this Thurman well, it only accounted for 30% of production during its last monthly rate (compared to 70% during its peak month) which shows us that the oil decline in these wells is very high.

What this well does show us is how prolific the Hogshooter (Missourian Wash) formation can be. CHK and Forest Oil (FST) have both drilled a number of Hogshooter wells that have produced impressive amounts of hydrocarbons. If you aren’t familiar with this zone, a comparison could probably be made to the Lodgepole in North Dakota: A prolific zone in a formation that only exists in certain areas and is very difficult to target. Chesapeake itself has approximately 30k net acres it considers prospective for the Hogshooter zone.

Largest Oil and Gas Wells by Formation

Note: Added Powder River Basin well on June 10, 2013

I don’t usually talk about “largest wells” in formations or plays because they aren’t representative of the productivity or economics of a play as a whole. With that said, it’s still good to know where the biggest wells are being drilled because that usually indicates there’s a lot of oil in the area (whether it can be extracted consistently and economically is another matter).

Note: Peak month rate oil/gas is the amount produced in a given month divided by 30 days.

Well Name: Behr 11-34
Operator: Whiting (WLL)
County, State: Mountrail, ND
Formation: Bakken
Spud Date: April 15, 2008
Peak Month Rate Oil: 1,492 BOPD
Peak Month Rate Gas: 1,008 Mcfpd
Cumulative Oil: 911,627 BO
Cumulative Gas: 558,996 Mcf
Latest Monthly Rate Oil: 273 BOPD
Latest Monthly Rate Gas: 242 Mcfpd
Source: North Dakota Oil & Gas Commission/The Energy Harbinger.

Well Name: Jendrusch Unit 1H
Operator: Plains Exploration and Production (PXP)
County, State: Karnes, TX
Formation: Eagle Ford
Spud Date: April 21, 2012
Peak Month Rate Oil: 2,551 BOPD
Peak Month Rate Gas: 3,917 Mcfpd
Cumulative Oil: 341,352 BO
Cumulative Gas: 629,981 Mcf
Latest Monthly Rate Oil: 681 BOPD
Latest Monthly Rate Gas: 1,825 Mcfpd
Source: Texas Railroad Commission/The Energy Harbinger.

Well Name: Frye Ranch 2012H
Operator: Forest Oil (FST)
County, State: Wheeler, TX
Formation: Granite Wash/Hogshooter
Spud Date: March 23, 2010
Peak Month Rate Oil: 2,149 BOPD
Peak Month Rate Gas: 20,630 Mcfpd
Cumulative Oil: 327,782 BO
Cumulative Gas: 6,081,260 Mcf
Latest Monthly Rate Oil: 70 BOPD
Latest Monthly Rate Gas: 1,444 Mcfpd
Source: Texas Railroad Commission/The Energy Harbinger.

Well Name: Livestock 1-25H
Operator: SandRidge Energy (SD)
County, State: Grant, OK
Formation: Mississippian Lime
Spud Date: March 18, 2012
Peak Month Rate Oil: 1,595 BOPD
Peak Month Rate Gas: 3,909 Mcfpd*
Cumulative Oil: 170,398 BO
Cumulative Gas: NA
Latest Monthly Rate Oil: 214 BOPD
Latest Monthly Rate Gas: NA
Source: Oklahoma County Commission/The Energy Harbinger.
*Natural gas data is not publicly available for this well. Rate was computed using IP rates in the completion report.

Well Name: Dolph 27-1HZX
Operator: Anadarko Petroleum (APC)
County, State: Weld, CO
Formation: Niobrara
Spud Date: January 9, 2011
Peak Month Rate Oil: 730 BOPD
Peak Month Rate Gas: 1,595 Mcfpd
Cumulative Oil: 154,287 BO
Cumulative Gas: 568,554 Mcf
Latest Monthly Rate Oil: 71 BOPD
Latest Monthly Rate Gas: 331 Mcfpd
Source: Colorado Oil and Gas Commission/The Energy Harbinger.

Well Name: Anderson 18H-1
Operator: Encana (ECA)
County, State: Amite, MS
Formation: Tuscaloosa Marine Shale
Spud Date: January 15, 2012
Peak Month Rate Oil: 840 BOPD
Peak Month Rate Gas: 267 Mcfpd
Cumulative Oil: 115,991 BO
Cumulative Gas: 35,075 Mcf
Latest Monthly Rate Oil: 169 BOPD
Latest Monthly Rate Gas: 54 Mcfpd
Source: Mississippi Oil & Gas Board/The Energy Harbinger.

Well Name: Federal 16-10/3FH
Operator: Helis (Private)
County, State: Converse, WY
Formation: Frontier
Spud Date: July 16, 2011
Peak Month Rate Oil: 1,198 BOPD
Peak Month Rate Gas: 1,461 Mcfpd
Cumulative Oil: 270,530 BO
Cumulative Gas: 272,705 Mcf
Latest Monthly Rate Oil: 281 BOPD
Latest Monthly Rate Gas: 258 Mcfpd
Source: Wyoming Oil and Gas Conservation Commission/The Energy Harbinger.

For those of you who use the prototype version of the The Well Map, this is the type of data you’ll be able to access using the full version which will launch this summer.

Disclaimer: These are the largest wells in the above formation that I’m aware of. If you know of larger ones, feel free to disclose.

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

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

Seeing the Forest through the Debt

Forest Oil (FST) hails from the lineage of noble companies who attempted to increase shareholder value by using financial leverage to increase natural gas reserves during the bull gas market that was 2005 to 2008.  Unfortunately for this lineage, the prolonged period of low natural gas prices that ensued has companies like itself, along with Chesapeake Energy (CHK), Quicksilver Resources (KWK) and GMX Resources (GMXR), et al selling off assets to finance debt like they’re Nicholas Cage.  As an analyst and investor, these are the stories I find exciting because of their potential as a value stock.  I’m not looking for the best run company with the best assets, I’m looking for the best run company with the best assets at the best price.  With that said, screw a sexy company like EOG Resources (EOG), let’s delve into the world that is *cough* Forest Oil.

My research for this piece began with FST’s third quarter 2012 earnings call, which was held on Tuesday October 30, 2012.  I don’t think I’ve listened to a more melancholy earnings call during my admittedly brief analyst career.  Debt aside, at least on paper, I think there’s a lot to be excited about with this story.  The company has 40k net of solid Eagle Ford acreage, 109k net in the Texas Panhandle where it has drilled eight monster Hogshooter wells and an East Texas gas asset that provides its portfolio with plenty of natural gas upside.  I do understand Forest’s attitude, a debt-to-market cap of nearly 200% will keep even the most optimistic financial teams up at night.  So, what are they doing to manage their debt levels?

If you aren’t familiar with Forest’s debt levels, it had total debt of $2.1 billion as of September 30, 2012.  The company is taking a common sense approach to lowering its debt, the first step of which was to refinance half of the six-hundred million it owes in 2014 by issuing lower rate notes which will mature in 2020.  This frees up some near-term liquidity for FST, whose next principal payment isn’t due until 2019 (the company is on the hook for $1.5 billion during 2019 and 2020).  FST will also net approximately $270 million from non-core asset sales which it expects to close on in November and use to lower its debt.  After the refinancing and asset sales, the company will have approximately $1.8 billion in debt outstanding which translates to a debt-to-market cap of 190%.

The remaining $300 million the company will pay in principal in 2014 should be covered through the divestiture of its 114,500 net acres in the Delaware and Midland Basins of West Texas/SE New Mexico.  As shown by the table below, the average acreage value for assets in this area is $4,316 which values FST’s acreage at $494 million.  Even if FST receives a valuation near the lower bound of the sample size, it will still cover its expected principal payments in 2014.  It’s my view that this company should be soluble through the end of fiscal year 2018, but surviving beyond that will require the type of fiscal austerity that would impress even the Greeks.

Recent Permian Transactions

Forest seems to have finally figured out that it doesn’t have daddy’s credit card anymore and needs to start showing some financial constraint.  Its Q4’12 capital budget is approximately $84 million, down 50% from Q3.  For fiscal year 2012, spending will be an estimated $624 million, $59 million less than in 2011.  Next year, spending figures to decrease significantly as the company attempts to spend within cash flow.  It only generated $286 million in cash flow during the nine months ended September 30, 2012 and  if cash flow is flat year-over-year (conservatively speaking), the company will have $381 million to spend next year.  While that’s not the type of spending trajectory we want to see for a potential investment, at least Forest is taking its medicine.

The company’s survival beyond 2018 will be dependent upon its ability to develop its existing asset base while spending within cash-flow.  On paper, it has a great asset in the Eagle Ford with 40k net in Gonzales County, but its results there have been disappointing to date.  Based on the data I saw from the Texas Railroad Commission, the company has one good well in Holmes 1H which has produced more than 100k barrels of oil in just under a year, a handful of economic wells and just as many poor wells.  It’s not unusual for a company to have inconsistent results at the beginning of a drilling program, but I would have liked to see a few more good wells from its Eagle Ford program.  I still think this acreage will turn out to be productive for the company, but FST’s struggles there to date are something to monitor.

The company has had much more success in the mid-continent, where according to its Q3’12 earnings call it has recovered nearly one million barrels of oil equivalent (~70% oil) from eight hogshooter wells during the past year.  This acreage is the company’s prized asset, but it’s going to need its Eagle Ford acreage to be economic for it to survive.

The company’s reserves are currently trading at an EV/Mcfe of $1.46, which is quite a bargain considering its assets.  However, I’m not sold on its ability to develop its existing assets at this point and to be honest I don’t need to be as this company’s stock doesn’t look to be moving up anytime soon.  Also, management seems to be comfortable with maintaining a debt level circa $1.5 billion, which would still put its debt-to-cap North of 150%, a little too high for me.  If you already own the stock, there’s probably no reason to sell as it’s already trading near its bottom.  I’m not touching Forest, but if the debt doesn’t bother you it might be a stock to keep an eye on down the road.