Discussion On Central Louisiana Oil & Gas Activity
What happened to the question I asked earlier? It was here last I checked and now it is gone? Again - Why do you think so many units (+100) were applied for recently in Ms. but only a handful in La. ? Is it because the MSOGB is allowing +2000 acre units and the forced pooling laws favor the operators in Ms.? Could you share any facts or theories on this.
I'm not sure what happened to your earlier comment. Regarding MS vs. LA, several things immediately come to mind:
1. Mississippi has some of the most pro-operator regulations in the world. 2. The depth of the primary objective is not only helpful in cutting down drilling time, the wells end up costing less for the same reason. This makes it more economical.3. Economics. Severance taxes are lower in Mississippi and this also affects the bottom line.4. Larger units do in fact HBP a larger resource base that can be further exploited in the future at the WI owner's leisure.4. There could be other geological and geophysical reasons that I am unaware of and I defer to Kirk to expand on that.
Thanks for your reply Clay. I certainly agree with #1 and #4 (1st # 4). As for # 3, I believe they get nearly as good a severance tax break in La. as they do in Ms.Per #5 (Second #4) I still can't understand why they need units so large since they are drilling 8000 ft or less ft. laterals and usually they are 5000 ft. to 7000 ft. In summary, I believe #1 should be: Capturing as much acreage per well as possible and doing it cheaply by using forced pooling laws in Ms. But that sounds like their taking advantage of the landowners and bad because it short stops any other operators from getting in? I believe the landowners could have benefited from more competition for their acreage. The MSOGB must not see it that way. I thought they were supposed to protect the landowners, as well as encourage development. Guess I am not seeing the complete picture. It would be nice if the MSOGB or a rep of the operators would make the picture from their perspective more clear, because I would rather feel better than I do now about what seems to be going on. IMO
The landowners don't have anything to do with it. The MSOGB was set up to protect the correlative rights of all the WI, Mineral Owners and Royalty Owners and to govern the efficient development and prevent waste. The surface owner doesn't have a stake except that they may have some of their surface used to a reasonable extent. Well, the larger units will end up conserving more surface once we get to manufacturing stage. The TMS will end up being Exhibit "A" regarding how deregulation and lower taxes is actually good for responsible development at a breakneck speed. The essence of this competition is not lease bonus prices, it's about development and exploitation of a resource. Mississippi wins the first battle versus Louisiana, but do they win the war of currying favor for responsible development? We shall see.
You believe tying up very large acres with one producing well has nothing to do with the unit applications being + 2000 acre units and it is all about preventing waste and efficient and responsible development ? Interesting. Why did they ever limit unit sizes in the 1st place - to keep operators from abusing the HBP laws? Those reasons don't exist anymore?
My beliefs don't have anything to do with the rules and regulations governing Oil & Gas development in Mississippi or any other jurisdiction. Good or bad, this is the operating environment in Mississippi and all the mineral owners, royalty owners, non-operated working interest and operated working interest owners are competing and operating under the the same set of rules and regulations in Mississippi and Louisiana, respectfully. The fact is, Mississippi has attracted more activity than Louisiana and the reasons I've stated seem to have something to do with it.
FM, it looks like your original comment was on the Goodrich operational update post. My thoughts are this. The original drilling activity focused in Amite Cty was due to lease clocks ticking (mainly Encana/Denbury/Encore leases). Initial success in the Anderson area resulted in a perception that this area is the "core" of the play. Then the Crosby success shifts the focus to Wilkinson. Underwhelming results in recent delineation wells causes the financial quants to "shrink" their perceived "core' of the play. Upcoming activity in northern St Helena and Tangipahoa will cause perception to expand to include these areas as part of the "perceived core". The core was defined by the geology a few million years ago. Drilling "core area" and "core of the thickest reserves" are not the same thing early in a play. A lot of the recent unit apps are related to operators fighting for operatorship in the MS units. MS is shallower than most of the LA part of the play. St H and Tangi are as shallow. We can't blame the operators for shifting focus to offset locations at shallower depths. Wall Street no longer has interest in building companies. It's now "what well have you drilled for me lately". I see slow expansion of the drilling focus area over the next year. We'll see a lot less risk taking.
The depth difference between 12,500 ft and 14,500 ft. doesn't appear to make that big a difference in well costs - not enough to stop them from drilling wells that are already costing $15 million. 3- 4 days extra drilling time is inconsequential. Also, I though I heard GDP recently downplay the notion that the Beech Grove and SLC were underwhelming performers even if Wall Street doesn't see that. GDP said the lower IP rates of the SLC and BG were attributed to fewer natural fractures in the area of these 2 deeper wells, but, they in fact expect the decline rates to be slower and the EURs to be as good are better than in the shallow depth higher ip wells. You also said, I thought, that depth will not dictate where the most natural fractures would be found. If that is true then we should expect to find some deeper wells with a lot of natural fractures and resulting very high ip rates and possibly lower decline rates due to higher pressures. We agree apparently that the "core areas" may change. I can see your point about less risk taking currently driving the selection of areas for the next wells back to the shallower proven areas, at least for those who are out on a limb for capital like GDP. But, I also think the approval of these abnormally huge and technically unnecessary huge units are primarily designed to HBP as much acreage as possible. Hoggish HBP over reach and expiring leases has more to do with where and why all the huge units are being formed than it does with geology or risk aversion at the moment in my opinion. Lets be honest, the operators love holding big acres on-the-cheap and that is understandable from their $ perspective. It is happening aggressively before our eyes in Ms. The industry can't expect landowners to automatically accept without question what appears to be going on with the simple explanation from operators that it is in our best interest to have development at breakneck speed and we should trust them when they say that their holding huge areas with one well is all about responsible development and reducing surface impact. That doesn't pass the smell test for most landowners.
2,000 feet is just as big a deal as $2MM dollars in time, steel, cement and drilling fluid. Maybe there isn't much of a difference between Little League Baseball and Major League Baseball, because it's all baseball, right? The fact is, there is more money at stake in MLB even though LLB still makes a lot of money every year.
Unit size is a blade that cuts both ways. Obviously the TMS Operators arguments for large units satisfies the MSOGB, and the regulations have evolved in recent years to accommodate 8,000 foot laterals.
Clay, They don't need + 2000 units with legs 2 miles long to put in an 8000 ft. lateral. The majority of laterals so far have been 5k-7k ft. and some less than 5k ft. 8k foot laterals can easily be done in a 1000 acre unit. GDP was asked about the cost of the deeper wells like the SLC and the BG and they downplayed it because drilling times and efficiencies have decreased so much. They can drill +500 feet a day, so an extra 2000 ft. only takes 4-5 days extra and the laterals are the same length so fracking costs aren't any different. Drilling 14k- to 14.5k, where a lot of the TMS lies is not that much more expensive and could yield more oil. The SLC was 13,800 ft. TVD. I don't agree that they need any units over 1000 acres or that drilling deeper is a 2 million extra cost. No argument I have heard yet makes any sense except the +2000 acre units in Ms. are anything but a land grab. The blade you are talking about cuts only one way and the operators are reaping the harvest as fast as they can swinging that blade. I am no expert but I don't see any benefit whatsoever for anyone other than the operators who will be holding tens of thousands of acres cheaply and indefinitely until they can flip them. I want the operators to make a lot of money but it appears to me they are being hoggish. You don't see any of that? As far as the MSOGB approving, I don't think anyone actually believes they are acting as independent decision makers in this process.
I meant o say drilling times have decreased and efficiencies have increased so much.
Needing is one thing, having is a whole another thing. Operators are not the only one to benefit. Non-Operated Working Interest Owners will benefit equally...
Do you have any idea how many decades Mississippi has played second fiddle to Louisiana development? We are talking decades. Why do you insist Mississippi forever be the bridesmaid? Maybe you have a motivating interest? The MSOGB does have a motive. It's called economic development and jobs. Commerce. Energy. Resources. And yes, severance taxes.
revision: northern St H and Tangi are as shallow
FM,This play struggles to compete with others across the country due to higher costs and mechanical challenges. The severance tax holiday, LLS pricing, and large units help ease the pain. You can have 1000 acre units, but the operators will head back to Texas, Ohio, N. Dakota, and Pennsylvania to enjoy better economics. Your choice. Remember, zero times one billion equals zero. You can have your 1000 acre units but you'll end up with zero. Wilkinson County is one of the poorest in the nation. I would bet that the average citizen there would vote for whatever increase there chances of activity in their region. Trust me, you should be thankful that you have this handful of companies risking their entire future on this play.
FM,With regards to the depth topic, I use a football analogy since Clay used baseball. If you're a coach of a football team, would you prefer 3rd down and 2 or 3rd down and 22? I think I know your answer. Adding the extra vertical depth is perceived as just adding to the challenges. My strategy would be to go confirm repeatability of 6000' laterals at 12000' and then gradually increase both.
That's a superior analogy. I would prefer 1st and goal, but I'll take 3rd and 2 any day.
FM,Yes, I've always believed that depth and fractures have zero relationship.
Technically, you wouldn't end up with zero Kirk, you would end up with Louisiana. Mississippians don't want to be told how Texas and Louisiana regulates, because Mississippi regulates like Mississippi. It's going to be like that for a long time, or until a lot of New Yorkers move down and change Mississippi into New York style Oil & Gas regulation, because that works great.
So I am reading here that both of you think Ms. landowners should be kissing the rear ends of the operators for giving them an opportunity to let the oil companies get rich at their expense. Interesting perspective, but I don't think the average landowner is that gullible. 2000 acre units are unnecessary and uncalled for and unfair to the landowners no matter what spin you try to put on it. I am very disappointed in your attitude and dishonesty. You guys are really a hoot.
Landowners negotiations have nothing to do with the Mineral Owner.
The Oil, Gas and Mineral Lease between the Lessor and the Lessee is a contract, and there are provisions in that contract regarding pooling, unitization and the formation of units; including spacing or the size of the units. Before you continue spouting off about something you have minimal knowledge of, maybe you should educate yourself a little more.
Can any one tell me if they are drilling in either R6E T1sec22or R6ET2nS14? I can't find a legend