Thursday, March 13, 2014

TMS Q&A

I've been light on posts lately so I've compiled this Q&A from the many conversations that I've had over the past weeks.


Q: Your blog activity has greatly decreased over the past few months…any reason for that?
KB: In my prior 450 posts, I “sliced and diced” the geology, engineering, land, and economics every which way I could.  The lack of drilling activity is the reason for the decreased content. Stay tuned, 2014 will be busy.

Q: How do you feel about the play at this current juncture?
KB: I am currently the most optimistic that I’ve ever been in the play.  Back in 2010, I felt that the greatest risk was reservoir producibility.  I believed that the most important question then was whether the reservoir would show long term enhancement from hydraulic fracturing.  I believe that the initial rates, produced volumes, and decline curves are very encouraging.  I also believe that the best locations have yet to be drilled in the play.  Yes, I believe that there are better locations than the Crosby 12H-1 and Anderson wells.

Q: Will you tell us where those are?
KB: No. That would make my investors very upset.

Q: What do you think of Halcon’s newly announced position?
KB: I believe that they have a significant position in the play.  The company’s management and technical teams have a strong track record of proving up new plays.  Stay tuned.

Q: What in your mind are the remaining hurdles in the play?
KB: In 2010 as I commenced my “TMS Tour”, there were four major “perceived” obstacles to the play:
  1.  Too much clay – I have argued from Day-1 that the clay was not an issue with regards to producibility of this reservoir.  Initial rates, produced volumes, and decline curves confirm that this is not an issue.  The TMS reservoir is ~100-150’ thick and is incorrectly “lumped” into the entire Eutaw Formation which can be up to 1000’ thick.  The Eutaw represents both the Tusc-A TST and HST.  The TMS occurs in the basal part of the Tusc-A TST where the least amount of clay exists.  Clay increases vertically from the base of the TMS as you transition into deeper facies until reaching the maximum flooding surface (MFS).  High clay content also occurs above the MFS and decreases when transitioning into the HST where the deltas start to deposit sediment back into the basin.  Log analysis and mudlogs indicate that the MFS is a top seal for the TMS reservoir.  Also, total clay and swelling clays have been confused.  Goodrich has provided excellent commentary and data on this.
  2. TOC is too low – In 2010, TOC’s ranging from 1-4 did appear low compared to other emerging plays.  Initial rates, produced volumes, and decline curves confirm that this is not an issue.  The Goodrich Crosby 12H-1 has produced 160 MBOE in 10 months.  The geochemical parameters are very consistent across the TMS-East.
  3.  A frac in the TMS will “frac down” into the wet and permeable Tuscaloosa sands – To date, I’m not aware of any well that has high water production indicating that this has occurred.  In addition, several pilot holes took conventional core below the TMS and confirm very high frac gradients.
  4. Too expensive and uneconomic – This is the final hurdle for this play.  I am confident that the engineers will overcome the current obstacles.  This play has only 34 completions and will see substantial reduction in costs in the future as has been seen in most every unconventional play in the country.  I would rather have mechanical challenges than reservoir rock challenges.

Q: Where is the sweet spot in the play?
KB: One of the great aspects of the TMS play is that there is a significant amount of well data from historical wells drilled to the Tuscaloosa sands.  These data present the opportunity to perform log analysis across the entire play.  Dense well control confirms the spatial variation in the thickness of hydrocarbon saturation across the play.  Keep in mind that the “sweet spots” are defined by the geology and the drill bit at some point will confirm them.  Early drilling activity in Amite County is is mostly driven by lease expirations not the geology.  With Halcon’s announced focus in Wilkinson County, the drilling activity will balance out geographically this year and patterns will begin to emerge.

Q: Are you still not a fan of the TMS-West?
KB: Don’t shoot the messenger (geologist).  The key to the TMS play appears to be the presence of interbedded siltstones and associated natural fractures.  The TMS-East is directly downdip and proximal to the Tuscaloosa deltas.  The distal deposition of silts interbedded with organic shales presents a perfect combination of hydrocarbon storage and source.  The brittleness of the siltstones results in naturally fractured reservoir rock.  The TMS-West lacks the influx of the siltstones and associated fractures.  With that said, continued advancements and scientific surprises continue to occur in these unconventional reservoirs across the country so don’t give up yet.  Recent successes in the Eaglebine play in East Texas present some interesting aspects compelling one to make comparisons to the TMS-West.  Rumor has it that EOG still plans to drill a well in Vernon Parish this year.  Stay tuned. It ain’t over until the…….

Q: Why hasn’t anyone drilled in the deeper part of the play?
KB: Currently, the operators are having drilling and completion challenges at 12000’, so 14000’ is perceived to be potentially more challenging.  Once these mechanical challenges are overcome, I believe that the deeper part of the play will yield significant results due to the higher pressure, GOR, and calcite.  Those aspects might present the opportunity to have shorter laterals resulting in competitive costs and comparable or even better economics than the shallower part of the play. The Devon Lane 64 well had 47 API gravity oil and excellent log parameters.  The flat “oil window” will make the downdip fairway successful. Lease clocks will compel the operators to test the deeper fairway sooner rather than later.  
The Cana Woodford/SCOOP play in Oklahoma is a great example of a deep unconventional play that is yielding attractive results.  Wells in that play have TVD’s in the 16000-17000’ range. 
          Cana Woodford: “The four wells had an average IP rate of 1,437 boepd (24% oil) with high-Btu gas and were drilled to the vertical depth of 15,000-16,000 ft. The EURs for these four wells are likely to be at the higher end of the Company-provided range of 6.6-10.2 Bcfe which imply robust well economics at current forward strip prices and $10 million well cost assumption.”


Q: What is the best length for the lateral?
KB: In every play a point of diminishing returns is determined where the dollars spent don’t equate to the reserves added.  At this point in the play with the drilling and completion challenges, it might be best to focus on ~6000’ laterals that can be drilled and completed successfully and economically.  With success, then pursue longer laterals.

Q: What do you think of the resistivity isopach map that Goodrich presented two weeks ago with their quarterly call?
KB: Resistivity is only one parameter to be considered.  Porosity is very important.  The rock matrix along with the naturally occurring fractures are the key to this reservoir.  I employ Exxon’s “Passey Method” that appears to work very well in this play as it does in others.  Mapping thickness and the mean of Delta-Log-R presents an accurate “sweet spot map”.

Q: You have posted many maps on the blog with a “blue dashed line” outlining the play in the TMS-East.  What does that line represent and why has it changed over time?
KB: On maps released some time ago, the line represented an estimate of the 75’ contour of an isopach of 5 ohm-m or greater of resistivity.  I’ve since replaced that line with a 62’ contour of an isopach of Passey Delta-Log-R > 0.9.  This thickness is a rough estimate of what I consider to be the economic limit of the play (IRR=20%, EUR= 410 MBOE).  The outline will continue to evolve as new data is integrated and the parameters are re-calibrated.  Hopefully, with time, it will expand.

Q: In an internet chat room, one individual presents a conspiracy theory that you change the “blue dashed line” so that you can lease cheaply outside of it. Is this true?
KB: I wish that I were that sneaky.  As I’ve told Joe before, he would be better off spending his precious time researching Area 51 and the JFK assassination.

Q: Why won't you return my phone calls and emails?
KB: I can't respond to every inquiry.  Please use the COMMENT box on the blog so everyone can take part in the conversation.

Q: Do you think that Goodrich’s acquisition of the Devon acreage was a good buy?
KB: I believe that the acquisition was brilliant and strategic.  I believe that the acquired Devon acreage is more geologically attractive than their original position.  Future wells on Devon’s tracts will prove that Devon had very poor frac design and incorrect landing zones.  In hindsight, this transaction will be the deal of 2013.

Q: What price will Goodrich's stock reach if the play is successful?
KB: This blog doesn't focus on the equity markets nor should the content be used to make investment decisions.  Call Jim Cramer.

Q: You used to distribute a weekly Scout Report.  Do you see yourself doing that again?
KB: That report took a lot of time to generate.  I appealed to the masses for donations to my favorite charity to inspire me to continue this free service, but the response was lackluster.

Q: What are your estimates of EUR across the play?
KB: I agree with the range of 400-800 MBOE that the operators have presented.  Pay thickness varies across the play so subsequently EUR’s will too.  The “bullseye” in the play could exceed 1 MMBOE.

Q: When this play reaches “de-risked” status, what will be its best attributes?
KB: I believe that this reservoir has very consistent parameters that gradually change east-west and north-south.  This will present very repeatable results in the future.

Q: Is there still hope for Avoyelles Parish?
KB: Absolutely.  EOG's lack of success doesn't help the cause and I consider them to be one of the best unconventional operators in the country.  I believe that their entire TMS acreage position is not in the best location of the play.  Their core in Avoyelles has strong technical attributes.  Thicknesses in the "bullseye" of the isopach in Avoyelles have thicknesses comparable to the Anderson area in Amite County.  EOG's first two wells landed too high.  Their third, the Paul 15-1, still has a fish in the hole.  The fourth, the Dupuy 30H-1, while not having all stages contributing, should have had better results.  Upcoming activity by Halcon in Wilkinson County will help shift focus to the western portion of the TMS-East.
http://tuscaloosatrend.blogspot.com/2013/03/eog-permits-another-tms-well.html

Q: I keep hearing that 3D seismic will be acquired across the play.  Is that true?
KB: Once the play reaches "derisked" status, I expect 3D to be acquired across the core of the play.

Q: Is the Austin Chalk play dead?
KB: The Chalk never dies, it just has long hiatuses.  My hope is that with success in the TMS, the Austin Chalk will develop into a secondary target.  An acid frac might be the way to go.  Energy XXI's two attempts in Adams County didn't yield success.

Q: Will LSU beat Alabama this year?
KB: Without question….yes.

DISCLAIMER


13 comments:

  1. Great post, Kirk. But, the last Q&A was the best. I am a believer also.

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  2. Kirk:

    Excellent post and update.

    In the Question 7 answer, I believe you somewhat confirmed that the Jarvie "Oreo Cookie" effect is being observed in the TMS. A more easily frac-able storage tank juxtaposed to the source rock yields the better production results.

    I studied his work, just as I have yours. History will record you guys as true pioneers and innovators in the "Shale Gale".

    Thanks John

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  3. John,
    Thank you. Yes, the "cookie" appears to be the key in several plays. I see the same aspects in the Woodbine section of the Eaglebine play and the Bossier Sands in north LA. The sections we geologists used to call "ratty" are now our favorites.

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  4. Hi Kirk:

    Great post. East v West query for you. EOG has a couple wells producing at 450 to 550 BOEPD. What is seen as commercially viable? Sounds like tall cotton to me. Are those wells considered East or West?

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  5. Clem,
    To reach the desired EUR's, I believe that an initial rate has to be above 800 boepd...obviously more is better. With hyperbolic declines, that initial rate is the key to everything. The EOG wells are in the western portion of the TMS-East.

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  6. Kirk,

    According to EXXI's IR director, they were still 'tight holeing' the status of the two Adams County wells. I am not very good at mining the Mississippi reporting agency so I am not certain of what they did or didn't find. I also strongly believe that even if they were successful, they would sell it off on the cheap due to their new acquisition.

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  7. This comment has been removed by a blog administrator.

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  8. Thanks, Kirk for all you have done, and your willingness to share your expertise, insight and valuable time and sweat equity. I hope and pray that you are very handsomely rewarded, and surely you will always be considered one of the principal modern day TMS pioneers.

    Regarding the"sweet spots" that are "better locations than the Crosby 12H-1 and Anderson wells," I would like to pick the letter "T," and buy two vowels - an "A," and an I." :-)

    Seriously, thanks for all of your effort.

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  9. DCM,
    thank you....You should have bought an "E"!

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  10. Merci buckets for the response Kirk.

    I have a follow-up question. In a Goodrich presentation they call out the La Salle Arch. What is significant about the arch? It doesn't sit in any of the TMS fairway maps that have been posted.

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    1. Clem,
      The La Salle Arch is a large geologic feature that creates a structural nose at the TMS level. Originally is was thought that the uplift could have created natural fractures in the TMS. Early on I assumed that EOG built their eastern position directly over the arch for that reason. Their geologist confirmed two years ago that that was NOT the case. I believe its most important role in the TMS is that it represented a paleo high at the time of TMS deposition and focused the ancestral Mississippi River sediments down through the axis of the play. Hopefully my answer isn't too "geologic".

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    2. this should help
      http://tuscaloosatrend.blogspot.com/2012/04/eog-applies-for-first-tms-unit.html

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  11. Thank you. Very interesting... and no, not too geologic. I understand. Appreciate it.

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