Thursday, September 12, 2013

Encana Provides An Update

Encana provides an update:

CALGARY, ALBERTA--(Marketwired - Sept. 12, 2013) - Encana (TSX:ECA)(NYSE:ECA) President & CEO Doug Suttles will provide an update on the company's strategy development process today at the Barclays CEO Energy-Power Conference in New York City.

Encana engaged internal and external advisory teams to conduct a rigorous assessment of the company's assets and identify the company's strengths and challenges to inform the strategy development process.
"Initial insights from the independent research combined with our internal analysis showed that Encana's strengths include our vast amount of resources, our robust knowledge of market fundamentals and a proven ability to develop and operate plays very cost-effectively relative to our industry peers," says Suttles.
In particular, the assessments found that Encana is excellent in the development of very large scale and complex resource reservoirs.

The assessments also identified several areas where significant changes are required to be successful. Encana has more inventory in its portfolio of plays, particularly dry natural gas, than can be optimally developed. The company must focus its portfolio and concentrate capital in the assets that leverage its strengths and generate the strongest returns. Further, the organizational structure must be fully aligned with the strategy going forward.

"The resounding message I have received from our shareholders and staff through surveys, focus groups, meetings and interviews across the organization is that they are ready for change and maintaining the status quo is not an option," says Suttles. "I have every intention of making significant change in the areas where improvement is required."

The company's strategy, supported by a strong balance sheet, will be built on four core competencies:
1. Resource Identification - It is critical to have world class skills in this area and focus efforts on the highest quality plays and leverage Encana's operating skills.
2. Market Fundamentals - Encana expects that future oil and natural gas prices will remain volatile. Understanding hydrocarbon type differentiation and regional factors will become increasingly important. This knowledge must be strongly linked to portfolio decisions and capital allocation.
3. Capital Allocation - Capital decision making must be centralized, focused, completely aligned with strategy and driven by returns.
4. Operational Excellence - The company's internal and external assessments demonstrated that the difference in capital and operating efficiency between the top performers and the industry average in core plays with scale can be twenty percent or greater and that Encana has consistently performed amongst the best competitors in these areas. Leveraging the company's development expertise will be crucial to achieving higher returns.

In addition, maintaining a strong balance sheet will be critical to consistent delivery of strong financial performance and to support the company's ability to capture new opportunities.

"Over the coming weeks, we will be finalizing our strategy and building our implementation plans. Many of the building blocks for success are in place, but in several areas significant change is required," says Suttles. "I am confident that the organization is ready for what lies ahead and I'm fully committed to driving the necessary change that will get Encana back to winning."

Doug Suttles' presentation to the Barclays conference will be webcast live today (Thursday, September 12) at 10:25 A.M. Mountain Time (12:25 P.M. Eastern Time). The live presentation and presentation materials will be available on Encana's website at:
 http://www.encana.com/investors/presentations-events/


TMS Vendor Expo

Take note of this upcoming event:



The TMS Expo Committee would like to extend an invitation to your company to participate in the 1st Annual Tuscaloosa Marine Shale Vendor Expo. Your attendance will greatly benefit your company and the many clients that are in attendance. The Expo will be held on Wednesday, October 16th and Thursday, October 17th, 2013, in Summit, MS, and is hosted by The SMCC Training Center. This event is designed to help bring together the suppliers, exploration companies, truckers, safety consultants, operators, producers, hospitality, tourism and those who provide technology solutions to help develop a more efficient supply chain.

For more details:
http://www.smcc.edu/files/workforce/pdf/tms.pdf

Monday, September 9, 2013

TMS Market Sentiment

For all of the TMSers, it's been quite a roller coaster ride over the past few years.  The "highs and lows" have exhausted many, but the "little shale that could" continues to impress.

Examining market sentiment always provides some interesting lessons in psychology.  In most cases, understanding the "mass psychology" of the herd is the key.  The herd always moves in mass, and at times, very quickly.

Many believe that Goodrich Petroleum's stock price (GDP) is a great barometer for the TMS.  When comparing operators, Goodrich has the most leverage in the play.  The recent Devon acquisition would indicate that they are "all in" with regards to the TMS.  Stock prices are indicators of sentiment.  When the herd is positive and greedy, prices rise.  When feeling negative or fearful, prices decline.  

Having now authored this blog since March 2011, I have the ability to track viewing activity.  With these data, I can examine historical trends in usage.  The chart below integrates the monthly closing price for GDP and page views on this blog.  This geologist concludes that there is a nice, tight correlation between these disparate datasets.  I don't believe that one controls the other, but they are two separate indicators that align and indicate the trend of TMS market sentiment. 



To take it a step further, I've added recent transactions (yellow) on the chart below.  These offer additional evidence that there's been a significant shift in sentiment of late.  Whether you call the Devon sale "distressed" and the Sanchez deal "too close", the trend is still apparent.


Both Wall Street and U.S. operators have been very slow to migrate to this play.  The tide appears to be rapidly turning.  Goodrich's target of $5000 per acre might be the next quantum leap.

Friday, September 6, 2013

Houston Business Journal Article



A recent article in the Houston Business Journal:


Goodrich Petroleum president shares Tuscaloosa Marine Shale plans


It would be tough not to notice the action heating up in the little-known Tuscaloosa Marine Shale as Houston energy companies have been scooping up assets in the Louisiana-Mississippi basin.
Houston-based Goodrich Petroleum Corp. (NYSE: GDP) has led the way into the Tuscaloosa. Goodrich has been there for almost three years, diligently drilling to prove out the hydrocarbons and lowering the cost to drill along the way.
During the past 18 months, the company has expanded its footprint there, buying Oklahoma City-based Devon Energy Corp.’s (NYSE: DVN) 185,000 acres, which made it the largest leaseholder in the basin. The net cost comes out to about $245 per acre, according to information from Goodrich.
Rob Turnham Jr., president of Goodrich, explained some of the economics behind the Tuscaloosa in a recent interview.
In the early days of the Eagle Ford, a company could buy an acre for $2,000. Now that the play’s reserves have been proven, the price has shot up to $25,000 per acre.
“That’s our model” for the Tuscaloosa Marine Shale, he said, adding that at just $5,000 per acre, the value of Goodrich’s position in the Tuscaloosa would be about $1.6 billion. That would put shares of Goodrich at close to $45 each.
As of closing time Sept. 4, Goodrich shares were trading at $23.50 a piece, up more than 5 percent from the previous day.
“It’s significant, there’s no question, to the potential value to the company,” he said. “Even at the lower price per acre, it’s significant for the company and the shareholders.”
And as the cost of drilling in the Tuscaloosa goes down, the economic benefit climbs up. Over time, the drilling can happen faster, which reduces costs. Also, pad drilling, in which several wells are drilled from a single concrete pad site, speeds along the process and makes it more cost efficient — saving as much as $1.5 million per well, he said.
Turnham explained that the Eagle Ford and the Tuscaloosa are the same geologic age and share similar characteristics.
“Give us a year or so, and we should be well on our way to driving the cost to $10 million” per well, he said.
One thing the plays in Louisiana and Mississippi have as a benefit that the Eagle Ford does not is a severance tax incentive policy. As Turnham explained, during the first two years of drilling in Louisiana, there is no severance tax on the sale of the oil produced. The kicker, though, is that the Louisiana tax shoots up to 12 percent after two years. Mississippi has a rate of about 1.3 percent for the first 30 months of production, he said. In Texas, the rate is 6 percent.

Wednesday, September 4, 2013

The Geologic Recipe

There's been a lot of discussion lately regarding the "completion recipe" for the TMS.  The Crosby 12H-1 confirmed a new "recipe" for success in the play.  The Smith and Anderson wells provided further confirmation.  More tweaking will continue on upcoming wells.  All eyes are on Goodrich's CMR-Foster Creek well.

The "geologic recipe" ultimately defines the spatial distribution of reservoir quality and the success of the play.  With hundreds of historical well logs from deep Tuscaloosa sand tests, one can already define the sweet spots and spatial distribution of the rock's characteristics.  The drill bit follows and confirms.

The key to the geologic formula is:

PRODELTA = INTERBEDDED SILTSTONES/SHALES = BRITTLE = NATURAL FRACTURES = RESISTIVITY & POROSITY = HYDROCARBON ACCUMULATION = ECONOMIC RESULTS

As the "east vs west" debate raged a couple of years ago, a case was made that the TMS-EAST had too much clay.  Yes, the TMS-EAST is downdip of the Tuscaloosa delta.  These distal, silty deposits are the key piece to the productivity of this reservoir.  Throw in some great organics to the "hydrocarbon kitchen" and you have an attractive play.  So delta proximity is a positive.  What was overlooked was how important the presence of quartz is with regards to the storage capacity and brittleness of the reservoir.  The brittleness in this rock has enabled it to form excellent natural fractures.  What was also incorrectly perceived and misunderstood is the change in clay/quartz percent as you transgress up the vertical section in the Tuscaloosa A TST (transgressive systems tract).  Historically, the TMS has been "lumped" together as 400-1000' of section typically called the Eutaw Formation.  When one focuses on the high TOC reservoir target (75-150'), the geologic details are much different.  The basal portion of the TMS has much more silt due to it's lower position in the TST.  Resistivity is only one variable. Understanding the spatial and vertical variability in porosity is significant.

Lastly, the vast amount of well control and data confirms that the characteristics of this shale are very consistent.  Thinning of high TOC TMS gradually occurs north, south, east, and west.  This will result in production consistency and enable the operators to predict reserves with accuracy as the play shifts to development mode.






Note the natural fractures at both 12572' and 15205'.