Tag Archives: Permian Basin

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

Excerpts from Earnings Transcripts (DVN, NBL, SD, CRZO, MRO, AREX)

I regularly spend time digging through earnings transcripts as I research the various companies and formations I write about.  While it’s currently post earnings season, I thought I’d post a few notes from earnings calls from several companies I’ve recently looked at.  These notes aren’t necessarily the most important points from the call, just ones that interested me.

Devon Energy (DVN)
* D&C six wells in the Cline Shale with “highly variable results.”  Plans to drill 30 more exploration wells in the formation testing various intervals.
* Regarding variability of the Cline results, the company mentioned it’s testing different areas of acreage position and different intervals to see which work best.  It’s confident the play will be economic.

Source: Q4 Earnings transcript (Click here for transcript).

Noble Energy (NBL)
*Plans to test 350k net acreage position in NE Nevada with vertical wells.
*Plans to test 1.8 MM net acreage position in offshore Nicaragua.  (Noble, Niobrara, Nevada, Nicaragua…what’s with that?)
*Will spud exploration well at Karish (follow up from Leviathan 4) in the Eastern Mediterranean.
*Plans to drill 5 to 10 wells in Northern Colorado (North of Wattenberg) where company has 230k net acres (versus 290k net in Wattenberg).
*2013 Drill plan for DJ Basin is to spud 300 wells.

Source: Q4 Earnings transcript (Click here for transcript).

SandRidge Energy (SD)
*90% of rate-of-return (ROR) of a Mississippian Lime well is recovered in its first five years.
*Lowered EUR estimate in Miss Lime to 369 MBOE from 433 MBOE.
*Company projects to move well cost in Miss Lime below $3 million (not including SWD) by end of 2013.
*In 2012, the company produced 10.1 MMBOE (45% oil), a 163% increase compared to 2011.
*2013 plans include D&C 581 horizontal wells and 74 SWD wells in the Lime.
*Agreement with Atlas Pipeline Partners allows for capture of NGLs from Lime.

Source: Q4 Earnings transcript (Click here for transcript).

Carrizo Oil & Gas (CRZO)
*In the Niobrara the company is producing 800 net BOPD on 33 gross wells with five more gross (2.4 net) awaiting completion.
*Plans to test Niobrara down to 80-acre spacing .
*Niobrara wells are 80% oil.
*In Guernsey, Ohio (Utica Shale), CRZO expects 50% to 75% oil cuts with the remainder wet gas (Antero, PDC and Gulfport wells cited).
*50% of the company’s NGL production in the Eagle Ford is ethane; company also makes point that 90% of revenues from Eagle Ford are from oil.

Source: Q4 Earnings transcript (Click here for transcript).

Marathon Oil (MRO)
*70% of Eagle Ford wells will be drilled on pads in 2013.
*D&C costs in the Eagle Ford are now averaging $8.5 million but company expects this to drop to $8.1 million over the near term.
*Bakken wells are being completed at $8.5 to $8.8 million.

Source: Q4 Earnings transcript (Click here for transcript).

Approach Resources (AREX)
*Estimated 2,000 gross drilling locations in the horizontal Wolfcamp play (includes A, B and C benches).
*Average well should be in the 450 MBOE range with D&C costs $5.5 to $6.0 million.
*Expects to recover 85 to 90 MBOE in first year of average well.

Source: Q4 Earnings transcript (Click here for transcript).

Noble Nets $320 Million in Sale of Non-core Assets in the Permian

On July 24, 2012 Noble Energy (NBL) agreed to sell certain producing properties in the Permian Basin to Sheridan Holding Company (private) for $320 million.  The properties were producing 1,500 barrrels of oil equivalent per day (BOEPD) which implies a daily per barrel value of $213,333.

Per Basin Multiples (TTM Production Data as of 3/31/2012)

Kodiak (KOG) and Sanchez (SN) are pulling up the average production values in this analysis, so ignoring those two valuations we can clearly see that NBL received good value for their properties.  Even though the properties were producing 90% oil and liquids, a much higher cut than the Permian Basin companies looked at in the above analysis, the valuation is still 20% and 36% higher than Bakken pure-plays (who have similar oil/liquids cuts) Northern Oil & Gas (NOG) and Oasis Petroleum (OAS), respectively.

Check my post on Concho’s (CXO) purchase of Three Rivers Operating (private) on May 13, 2012 for further acreage comparables in the Permian.

I should note that while NBL received good value, its acreage was quite a bit more developed than the acreage of my comparables.  The acreage sold contained 250 wells on 11,000 acres, which equates to 44-acre spacing per well.

How is the Market Valuing Different Oil and Gas Plays?

When I analyze stocks I look for two things: an industry that I believe will thrive over the long-term and value.  I don’t have models to predict the future prices of oil and natural gas, and even if I did, I doubt they would be very accurate; however, I do believe in the long-term viability of the industry or I wouldn’t have bothered starting this blog nearly three months ago.  When looking for value in oil and gas stocks, I first look at how investors are valuing each play.  The easiest way to do this is to look at reserve and production multiples.

The trouble with valuing an individual play is that there aren’t a lot of “pure-play” companies in the oil & gas industry.   Most companies have operations in various plays across the U.S. and abroad, so their reserves and production valuations have several different plays factored in.  Companies like Kodiak (KOG) in the Bakken and Concho (CXO) in the Permian are great examples of pure-plays that make analysis easy.  A play like the Eagle Ford is more difficult to value, not only because it’s so new, but because it has attracted companies from all over the globe, most of which had existing production and were looking for oil and liquids rich assets.

At first glance, Sanchez Energy (SN) is the perfect Eagle Ford comparable.  It’s an Eagle Ford pure-play, but it’s an early stage company that the market is expecting significant reserve and production growth from over the next several years.  Because of these expectations, its multiples are high which throws off my Eagle Ford valuation.  I did consider throwing SN out of the analysis, but I had a tough time justifying this because their core acreage is in Gonzales County where two Bakken companies, EOG Resources (EOG) and Magnum Hunter (MHR), have been drilling gushers and I want to get a sense for the valuation of that acreage.

While SN may bloat my Eagle Ford valuations some, keep in mind that Marathon (MRO) spent $3.5 billion purchasing 141k net acres (~25k/acre) from Hilcorp a little over a year ago.  By year-end 2011, the acreage was expected to have 46 wells on it producing 12,000 net BOEPD (80% oil and liquids) giving us a valuation of $291,667 per flowing BOEPD, 22% less than the $355,234 per flowing I calculated based on my peer group.

See valuations by basin/play below to get sense for how the market is valuing each play:

The first point to make here is the “well duh” observation: the gassier the basin, the lower the valuation.  It should be no surprise that the North Dakota Bakken is receiving the industry’s best reserve valuations, because the play is in more advanced stages (thus less risky) than the Eagle Ford, DJ and Permian, and more oily than the Marcellus.  While the Eagle Ford is more gassy than the Bakken, it’s downspacing potential has led EOG to nearly double its reserve estimates.  In addition, the play has several resource windows and the potential for stacked pay zones which is undoubtedly driving up valuations.  The DJ and Permian Basins also have stacked pay zones, which has led to a revival of both Basins in recent years.

Companies are now going back into these Basins using updated completion techniques (horizontal drilling, fracking, etc) to exploit the previously unrecoverable resources.  Large cap E&Ps Noble Energy (NBL) and Anadarko (APC) aren’t spending billions in the Niobrara over the next several years for no reason.  With valuations in the Bakken and Eagle Ford extremely high, I think it’s worth looking at these other plays for value.  Below are the peer groups I used in my valuations by play above.

1: SYRG reserves based on 8/31/2011 year-end

The companies used in the analysis above are either pure-plays in a specific basin/play or have current operations focused in a certain play.  Aside from SN, KOG is another company whose valuations are outliers.  KOG is an early stage company that has several years on SN.  KOG’s production has done what SN’s investors are hoping its production will do: explode.  And when I say explode, I mean increase nearly 5-fold from May 31, 2011 to May 31, 2012.

SM is an established operator, producing in a premier shale play, but with a low production valuation.  Why might this be?  Its reserve life (reserves divided by annual production) is only 5.5 years versus the peer group average of 17.39.  The market isn’t buying that SM will be able to replace its reserves quickly enough to maintain production.  The company is in the process of shifting assets from the Cotton Valley and Wyoming gas Basins to invest nearly a billion dollars in 2012 drilling in the Eagle Ford and Bakken-Three Forks.   The company has over 200k net acres in each of these plays, so if you believe in the acreage, the present could represent an opportunity to buy SM on the cheap.

Based on pure value, we should all be buying Marcellus companies right?  EQT’s stock price has increased 20% from its lows this spring when natural gas prices dropped below $2 per Mcf.  EQT has the largest reserve base in this analysis, located in one of the most economic plays on the planet.  The economics of the Marcellus are so good that the company boasts 25% IRRs at $3.00 gas and 50% at $4.00 gas.  On an energy equivalent basis, those numbers blow the Bakken out of the water.

 

Stock Price Appreciation by Play (Part 1)

Today I looked at three companies who are either pure-plays in a particular basin, meaning all of their production comes from basin x, or whose production is primarily from a particular basin.  What I predictably discovered was that investors are favoring oily companies in oily plays, such as Kodiak (NYSE: KOG) in the Bakken Shale, versus a gassy company in a gassy play, such as Cabot (NYSE: COG) in the Marcellus Shale which I will discuss tomorrow.

The purpose of this post is to inform readers about different companies and different plays and how investors are valuing each company and each play.  This summer I plan to do a more in-depth analysis on each play that will be accompanied by economics based on commodity price decks.  For now, here’s some historical data that will tell you how companies have been fairing in three different plays across North America.

1.  Kodiak in the Williston Basin: KOG is a mid-cap company who is a pure-play in the Bakken Shale.  Its stock price has nearly doubled over the past twelve-months, driven by an increase in daily production of over 300%.  More importantly, 91% of the company’s production was oil in Q1’12, and this stat won’t change as the company continues to drill away at its impressive leasehold in North America’s premier shale play.  If you’re bullish on oil, you’re bullish on KOG.

2.  Approach in the Permian Basin: AREX is a small-cap company who is making big waves in the Permian Basin.  The Permian weighted company’s stock price is up 63% over the past 12-months, but notice it hasn’t been driven by production increases.  Instead the company has increased its oil cut in production to 62% from 41% as it has ramped-up development of the Wolfcamp zone (see map below) in the Midland Basin (Eastern Permian Basin, Texas side).

Permian Basin Stratigraphic Map

Source: AREX 2012 Corporate Presentation

3.  DeeThree Exploration in the Alberta Bakken Shale: DTX is a micro-cap company whose primary asset base is in the Alberta Bakken, which is located in Southern Alberta and Northern Montana.  The Alberta Bakken is an emerging oil and gas play and DTX’s recent well results in the play have provided a boost to its stock price.  DTX has approximately 200,000 acres in the Alberta Bakken, most recently acquiring 9,400 net acres in the play for a modest $167 per acre.  If the company can continue to deliver quality well results, it could be in position to have a big 2012, benefiting from what could be a very economic play for the company.