Friday, August 8, 2014

Goodrich Petroleum Earnings Call - Q2-2014

Goodrich did an excellent job yesterday providing an update on their operations in the play. As in prior calls, they provided great detail on their current interpretation of the play.  I don't disagree with any statements that were made regarding the geological and reservoir aspects of the play. 

My recent post regarding "geology matters" was timely.  The significance of porosity and natural fractures is starting to reveal itself.  As mentioned during many presentations, resistivity is not the only variable to evaluate.  I posted a white paper on resistivity a couple of years ago. It might provide some interesting insight. Acquiring leases based on a resistivity isopach map and a mudlog show might prove to be problematic.  The porosity provides storage and the natural fractures provide a mechanism for rapid production of the oil.  It's very likely that the "less fractured" TMS will require a different frac design to achieve economic results.  The mega-frac used on some prior wells with proppant ranging from 700-1000k lbs per stage might be worth trying on this different rock type.  Ultimately, as stated yesterday by Goodrich, the less naturally fractured rock type might present flatter declines and very attractive EUR's and IRR's.  With only 42 completions to date in the play, many more details will be revealed in the future. Keep in mind, that the Eagle Ford play was at 42 completions in 2009. Look what has happened there since then.

I'm currently working on a new white paper addressing this "rock type" theory.  Recent results indicate that there potentially are two "rock types" exhibiting different properties. Both will likely yield attractive economics.  Frac designs will be different for each. The reservoir attributes change gradually presenting a spectrum across the two rock types.  Below is a teaser of details to come in the next few days.  The current theory that depth and porosity/fractures are related is wrong.  With few TMS horizontals drilled to date, it's easy to "connect the dots" based on the current well dataset. Don't forget that there are hundreds of wells that drilled through the TMS over the past thirty years. Those well logs provide a robust dataset to map the reservoir attributes of the TMS.  It's my belief that to succeed across the TMS, you have to understand the distribution of the "silty facies" which impacts porosity and natural fractures.  

The data below illustrates that "Crosby-like" log parameters exist across all depths and below 16000' TVD in some areas. Understanding the spatial distribution of the silty facies will be key.

Data: 133 vertical wells; LAS files

Here are my takeaways from the call (my comments in CAPS):
DRILLING ACTIVITY 
-44 completions; 12 drilling/completing
-delineation wells: SLC, B-Grove, Nunnery
-rubble zone: drill through at steeper angle has become the best practice next series
-Current Drilling: CMR 31-22, CMR 24-13, Spears 31-6, Denkmann; in derisked fairway; developmental wells; Bates pushing northern edge; plan to accelerate development
-depth limit for costs? depth not huge driver; 1000-2000' vertical is not big issue, few days in drilling time; BHP takes more horsepower and pump pressure to get frac off; not tremendous higher expense; no portion of the play is going to be materially more or less expensive; get wells down vertically quickly; deeper requires more horsepower; pad drilling will be the key to costs
-Crosby to Blades: derisked fairway 
-Bates: last delineation; sufficiently thick, thicker than Nunnery; 
-Bramlette well in early 2015 
-Eastern block (Blades area): 3 permits in the queue; 3 spud in 2014 near Blades; Blades good 60-90 day production; two rigs simultaneous at one point in the area
KB: 
-WITH ONLY 44 COMPLETIONS WE COMPARE TO THE EAGLE FORD PLAY IN 2009; VERY EARLY IN THE R&D PROCESS; WALL STREET WANTS 2014 EAGLE FORD LEVEL RESULTS; NOT REALISTIC
-DELINEATION WELLS HAVE PROVIDED NEW DATA TO CALIBRATE TO THE EXISTING LOG ANALYSIS; PATTERNS ARE STARTING TO EMERGE
-DEPTH: DATA INDICATES THAT "CROSBY-LIKE" POROSITY AND NATURAL FRACTURES OCCUR AT DEPTHS EXCEEDING 16000'; DEPTH AND POROSITY-NATURAL FRACTURES DO NOT HAVE A LINEAR RELATIONSHIP
-DRILLING DEEPER: WITH HIGHER PRESSURES IN THE DEEPER AREAS, SHORTER LATERALS MIGHT BE AS PROLIFIC AND ULTIMATELY THE SAME COST OR CHEAPER
-IF I WERE A PUBLIC COMPANY, I WOULD ALSO FOCUS ON THE DE-RISKED AREA OF THE PLAY FOR THE NEXT SIX MONTHS; WALL STREET NEEDS TO EXPAND THEIR HORIZONS PAST ONE QUARTER AND ONE WELL.
-BATES: 104' THICK; SHOULD YIELD AN ATTRACTIVE RESULT; -10950 TVD-SS WILL PROVIDE ANOTHER SHALLOW RESULT PROVIDING MORE PRESSURE AND WATER PRODUCTION DETAILS

GEOLOGY
-showing variability: rock properties important; better perm increased fracs = better performance 
-east-west: 10500-14000' tvd - most prolific; cover 90% of GDP acreage
-will see variability; variability in first 45 days due to fractures
-natural fractures vs depth: B-Grove and SLC not as much natural fracturing based on drilling
-1200-1500 initial rates are probably due to more natural fractures; -geologic data presents no difference in rock properties including SLC and B-Grove
-depth is an open question as this point 
-any way to map natural fractures? difficult; have been working with Schlumberger to run logs that analyze fractures; have been doing some work regarding fracture identification; 
-3D seismic in planning, not sure if it will have resolution to see fractures; frequent in occurrence (1 every 1.5-2';see on schlumberger log); vertical in nature; contained within TMS section); will be trial and error; possible build frac model with logs through time 
-Isopach map: it is important; where the thickness cutoff is; Nunnery thinner, IP less, possibly due to thickness; substantially thick in SLC and BG, plenty of thickness, comes back to matrix por/perm coupled with natural fractures; trial and error; drawing bullseye considered more "core in nature"; overlay porosity with resistivity (Passey)
-thickness has bearing on EUR, predicated on matrix performance; high IPs driven by natural fractures 
-GOR surprise that not more gassy? not seen anything yet suggesting gas phase to play; Lane: conventional core RO slightly higher thermal maturity; see more gas down there, way up in black crude oil; entire play way up in % of black crude oil
KB:
-MY UPCOMING WHITE PAPER WILL ADDRESS ALL OF THIS
-THE GOR IN THE SLC, BEECH GROVE, AND WEYERHAEUSER 51H ARE ALL ANOMALOUSLY LOW. THERE APPEARS TO BE SOME RELATIONSHIP BETWEEN ROCK TYPE AND GOR.

PRODUCTION & ECONOMICS
-type curves holding
-type curves yield economic returns at current prices 
-conclude that better wells have more fractures; wells with IP < 700 boepd exhibit flatter declines; due to less fractures but similar matrix porosity 
-correlation with proppant per lateral foot and results 
-Beech Grove curve crossed over the type curve after 30 days
 -nice evidence of benefit if you have lower choke early on; reservoir wants to surge, push fluids through formation at a fast pace; see benefits early on for conservative choke management; -SLC: 0.7 psi/ft; 10000 lbs of BHP, more prudent to be conservative, adjust choke over time; 
-Nunnery: run tubing and put on jet pump; nice response;
KB:
-PRODUCTION PROFILES ARE ENCOURAGING
-MANY MONTHS OF PRODUCTION ARE REQUIRED TO MAKE FIRM CONCLUSIONS ON B-FACTOR AND EUR.

COMPLETION 
-550k/stage average now making best wells with right spacing and hybrid job
-nice correlation between proppant/ft and projected EUR
-too much fluid per proppant has worse results; hybrid with gels after fluid introduction 
-250-270' frac intervals; blades: 250' spacing 
KB
-AS MENTIONED ABOVE, DIFFERENT ROCK TYPES WILL LIKELY REQUIRE DIFFERENT FRAC DESIGNS
-THE FRAC DESIGN FOR THE POROUS NATURALLY FRACTURED TMS APPEARS TO BE PROVIDING CONSISTENT RESULTS

JOINT VENTURE
initiate soft process for partners; early phase discussions 3 rigs running; accelearate with JV or raise more capital delineation phase over: drill in proven fairway;
-JV price: min $5000/ac for all, higher for core
KB
-BRING ON THE $5000/ACRE VALUE. GEAUX GOODRICH!!


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