Tag Archives: mississippi lime

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

Verticals could be Key to Mississippi Lime Development

Most people probably associate the present and future of the oil and gas industry with horizontal wells and monster frack jobs in deep formations. That concept is driven by the idea that most of the shallow oil that’s easy to get to has been exploited, leaving deep plays in tight rock as oil’s last frontier. I’d respond to that argument with Lee Corso’s famous line, “not so fast my friend.”

The industry’s technological advances haven’t just improved horizontal drilling, they’ve improved vertical drilling as well. For instance, it’s now possible to drill a vertical well into a targeted zone and fracture the rock similar to a horizontal. This is an effective way to delineate acreage in formations that are characterized by multiple producing strata with “trapped” hydrocarbons like the Mississippian Lime, versus a resource play like the Bakken.

To illustrate this, SandRidge’s (SD) well results on the Western side of the Mississippian are all over the board. They’ve drilled wells like the Puffinbarger 2-28H which produced 51 thousand barrels of oil (MBO) in its peak month alongside a plethora of wells which never topped 1 MBO in a month. Out East it’s a similar story with Range (RRC) whose landmark Balder well produced 19 MBO in its peak month, but it has also drilled a number of wells which won’t top 19 MBO in their first year of production. The results are indicative of a play with high concentrations of oil in small areas “trapped” by faults, synclines, etc. versus widespread oil across a large area.

These companies will tell you it’s a numbers game and the good wells more than make up for the bad ones. Even if this is true and companies are earning an acceptable IRR from their drilling program, is it really the best use of investor capital to be drilling a large number of expensive, uneconomic wells or is there a better way?

Austex (AOK) is a company that’s taking a different approach to the Lime. While the big companies are using data from the Lime’s old vertical wells to “delineate” acreage (the formation has a lot of historical production), it’s drilling new vertical wells with new technology to find oil. Once a high producing area is found, clusters of verticals can be drilled at 20 to 40 acre spacing. It’s early on, but the results of the program (see below) are looking solid.

Austex’ Vertical Well Results
Austex_Results
Source: The Energy Harbinger / Oklahoma Corporation Commission.
1Production results during first six-months of well.
2Natural gas production isn’t publicly available. This number was calculated based on assumption of a 30% natural gas cut during the first 6-months of production.
3Cost per barrel calculated as estimated well cost divided by first six months of production.
4Estimated revenue generated from well during first 6-months of production. Assumed 85$ oil, $3 natural gas and 80% NRI.
5Cletus 20-5, Blubaugh 20-4 and Blubaugh 20-1 all share tank batteries with a second well making actual production from the individual wells difficult to determine. The production numbers shown are averages.

The above table shows Austex’ vertical wells aren’t only consistent but they’re also nearly paying for themselves in six-months. These wells were all drilled in Township 25 North, Range 1 East, Section 20, so it’s obviously a strong section for the company and may not be indicative of results across the play. Austex is a small company and doesn’t have the capital to drill a large number of wells at this point, but it will be interesting to measure consistency on the wells as the program develops. The company has 5,500 acres in this area, known as its Snake River Project, and plans to develop it at 40-acre spacing.

When we contrast Austex’ results with those of Range’s horizontal program in the same area, we see they lack the consistency of the verticals.

Range’s Horizontal Well Results
Range_Results
Source: The Energy Harbinger / Oklahoma Corporation Commission.
1Production results during first six-months of production.
2Natural gas production isn’t publicly available. This number was calculated based on assumption of a 30% natural gas cut during the first 6-months of production.
3Cost per barrel calculated as estimated well cost divided by first six months of production.
4Estimated revenue generated from well during first 6-months of production. Assumed 85$ oil, $3 natural gas and 80% NRI.

Range’s horizontal program boasts results which include the Balder 1-30N which is a best in class well (vertical or horizontal) and the Dark Horse 26-6N which might never recover its original cost. The company is probably drilling these wells to hold its Mississippian leasehold which consists of 160k net acres, so it’s not necessarily targeting its best acreage. With that said, why not drill more verticals whose cost per barrel of $61 per BOE (see footnotes above) is much less than the $243 per BOE it’s paying for horizontals?

PetroRiver Oil (PTRC) is a micro-cap E&P whose acreage, located along the Nemaha Ridge in Southeast Kansas, is in the same geological area as Austex. The company’s team is made up of some of the key engineers and executives who designed Austex’ vertical program. Due to Austex’ success, it’s likely they’ll take a similar approach. Petro is definitely a company to keep an eye on in the Lime as they’re well positioned in a play with a lot of upside.

The Mississippian has gotten some bad press from companies like SandRidge and Range, as both have pumped the markets on the play’s economics and probably taken the wrong approach to development. While it’s not prudent to make decisions based on a few solid well results, I believe the geological characteristics of the Lime make vertical wells (at least initially), the best method to develop the play.

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.