Friday, July 26, 2013

George Mitchell Dies at 94

Legendary geologist, George Mitchell, passed away at 94 years old.  Not only did he pioneer the "unconventional reservoir" horizontal-fracking boom, but he also exhibited a great "gut feel" for the real estate business.  Having been a resident of his development, The Woodlands, for 15 years, I can say that he was a man of great vision.  It went well beyond the oil patch.  His investment and revitalization of Galveston Island has been significant.  The country and the oil industry will be indebted to him for many years to come.


TMS Cumulative Production

In late 2007, as Encore was initiating an exploratory horizontal program in the Tuscaloosa Marine Shale, we invested $35,000 to have Dan Jarvie's team at Humble Geochemical Services evaluate drill cuttings in seven Tuscaloosa wells.  As I initiated my "TMS Tour" in late 2010, I received significant negative feedback with regards to the TMS' lower TOC's and Ro's.  The geochemistry portion of my presentation used to last thirty minutes.  It's interesting now to review the table below for the confirmation that this rock gives up a lot of oil in a short period of time.  Earlier this week, my TMS presentation had one geochemistry slide.  As in many other plays, the geochemical parameters have surprised many.


Thursday, July 25, 2013

Encana Earnings Call - July, 2013

Here are the highlights from Encana's earnings call yesterday.  Their comments are very positive with regards to the current status and future of the play.

Douglas James Suttles - Chief Executive Officer, President and Director
We are also putting new emphasis on our portfolio of emerging liquids plays. We are taking a rigorous and measured approach to funding these plays, evaluating each of our positions against their commercial potential, scale, and ultimately, their strategic fit. We are closely monitoring key performance parameters such as well cost, flow rate and ultimate recoveries against very specific targets. Of note, we continue to be encouraged by our Duvernay results and the early results in the TMS.

Greg M. Pardy - RBC Capital Markets, LLC, Research Division
Okay. And maybe just the last one. Doug, you touched on the TMS and the Duvernay. I know it's still earlier stages with both those plays. But is there any color you, or Jeff rather, could just add on, on progress on those plays right now?

Douglas James Suttles - Chief Executive Officer, President and Director
Yes. Greg, let me ask Mike and Jeff. Maybe Mike cover the Duvernay, then Jeff will cover the TMS.

Jeff E. Wojahn - Executive Vice President and President of USA Division
Greg, it's Jeff. The TMS has performed very well in the last quarter. We've had a number of significant events that have occurred in the quarter. I think one of the key drivers for us is to look at our drilling performance and our overall cost performance. In the last 3 wells, we have, by and large, met -- hit our targets, our target cost projections for the play, normalized for completion intensity. So that's very good news, and that was something that we struggled with in the past. One other item I should add on the TMS as well is that we have 2 wells, Anderson 17-1, Anderson 17-2 that are currently being completed and being brought on stream. And we'll have results coming up soon. And obviously, there's industry activity going on right now, and we've been monitoring that closely as well. One event that occurred to TMS this year that was very significant for us, that I may remind everyone on is House Bill 1698 that was passed by the Mississippi State House and Senate. And that was a reduction from 6% to 1.3% on the severance tax. And that equates to about a $700,000 savings per well. So the short on the TMS is things are progressing well. We're feeling much more confident on our ability to execute on our cost structures. We have a line of sight to our long-term projection of $12.8 million, and we feel the upcoming 2 Anderson wells are really going to be indicative of the future of the play.

Jeff E. Wojahn - Executive Vice President and President of USA Division
Sure. Current production is about around 14,000 barrels a day on oil, 9.1 thousand on NGLs. And our growth is really widespread. You're going to see growth in our NGLs and condensate in the Piceance Basin and Jonah. And to a lesser extent, you'll see growth coming from some of our emerging plays, like the San Juan, Eaglebine and TMS. But it's really broad based and primarily coming from, what we call, our base commercial assets.

John P. Herrlin - Societe Generale Cross Asset Research
Great. And then just the last question for me, I was hoping to get an update on how you guys are thinking about the Eaglebine, the well results you've seen so far, maybe a little update on the EURs? And then I guess my second question would just be on the TMS. I know you talked about the initial well results being encouraging. I was hoping to get maybe a little bit more color on how those results are tracking versus your expected EURs in the play given some of the longer production data you have?

Douglas James Suttles - Chief Executive Officer, President and Director
On the TMS, I think as Jeff described earlier, there were 2 important elements to that program this year. One is to demonstrate that we could drive our cost down fairly substantially, and the good news is in our most recent wells, we're proving that we can. The latest 2 wells, which have a new frac design, are literally just starting up right now, and so we'll share that as those results become available.

Brian Singer - Goldman Sachs Group Inc., Research Division
Great. And my follow-up, Doug, and I followed up to, I think, an earlier question that Bob Brackett had asked. What is the importance of increasing oil in the production mix strategically, and what is the level of confidence that there is sufficient organic opportunities within the portfolio to make that happen?

Douglas James Suttles - Chief Executive Officer, President and Director
Brian, I think that -- this is one of the questions we're asking in the strategy, is I think that as over the last couple of years, the company has tried to increase the amount of liquids in its portfolio. But it's one of the questions we're going back to as we look at strategy and where does that fit. I think as you've heard, we have a couple of opportunities that are emerging in our portfolio, which do have real scale potential in them if we can demonstrate the right sort of economic performance. And that's, in particular, the Duvernay and the TMS because we have very large acreage positions there. Some of our other positions are more modest as you recently heard Jeff described in the DJ Basin. This will be one of the things we address in the strategy is what role liquids play and if we believe they play an important role in the future, what would be the plan to actually make that happen.
Your next question comes from the line of David Snow with Energy Equities, Inc.

David Snow
I'm wondering about the, I think, you said $12.9 million long-term TMS well cost. Evidently, you've gone away from those TMS 90 and TMS 150 super fracs to a somewhat less-intensive frac. And I guess that you're starting to look at successfully doing wells above the rubble zone. And I'm wondering if that combination doesn't lower the cost of your target just a little bit.

Jeff E. Wojahn - Executive Vice President and President of USA Division
There's a lot of parts to your question. This is Jeff Wojahn, I'll try to answer some of those questions. We have made a significant amount of technical improvement or understanding of the reservoir. One of the trials that we did this year was to try out slick water frac-ing technology versus a hybridized gel program. And we've come to -- and this is a good thing. We've come to the conclusion that the way to go forward on the play is through hybrid gel jobs. So we have used the terminology, TMS 150 or 90, and that represented the amount of pounds of sand that we were using in our trials. Generally, we are continuing with the same level of sand intensity regardless of whether it's hybrid gel or slick water. Really, the slick water and hybrid gel component are related to the transfer mechanism rather than the amount of sand that we put in the wellbore. And we continue with those trials today. In regards to the placement of the well, what we have observed is it's a very important not to drill into the rubble zone because that's where we have lost circulation issues. By and large, as we increase the intensity of our fracture stimulation program, we feel that we create more stimulated rock volume, and ultimately, treat the entire pay zone more effectively. In regards to the above the rubble zone or below the rubble zone, I think we're gathering information on both. But what I've seen relative to the micro seismic information and what the teams believe relative to their modeling, work is that we really are affecting -- effectively stimulating the entire interval. So we're making good progress technically on where we're going, and I think we're headed down the right path.

The entire transcript:

Monday, July 22, 2013

Woulda Coulda Shoulda

Today Goodrich Petroleum announced the acquisition of additional acreage in the TMS Play.  While not stated, one can assume that they acquired Devon's acreage position.  It appears that Sinopec, Devon's partner, has elected to stay in the project.

"Goodrich Petroleum Corporation (the "Company") today announced it has entered into a definitive agreement to purchase a 66.7% working interest in producing assets and approximately 277,000 gross acres in the Tuscaloosa Marine Shale ("TMS") for $26.7 million, with an effective date of March 1, 2013, subject to customary closing adjustments. The remaining 33.3% working interest owner in the producing assets and leasehold has elected to retain its interest and participate with the Company in developing the assets. The acquisition is subject to customary due diligence and is expected to close on or before August 22, 2013.

The gross oil production associated with the properties averaged approximately 750 barrels of oil per day for March 2013.  At closing, the Company will own approximately 320,000 net acres in the TMS when combined with its current position. The Company will prioritize the acreage with the ultimate number of retained acreage to be based on geologic location, timing and amount of lease extension payments, and future rate of development of the play. 

The Company plans to fund the acquisition with its senior credit facility, which along with available cash had approximately $190 million of available liquidity pro forma at March 31, 2013. Upon closing of the transaction, the Company's borrowing base will increase by $18 million to $243 million."

Press Release:

I conclude that this is a brilliant, strategic move by Goodrich to expand their position in this emerging play.  Devon's operational approach, and now their sales price, will baffle many for years to come.  I commend Goodrich for their confidence in the play, their team, and the gusto to expand their position.  This acquisition makes them the largest acreage holder in the play.  The Devon acreage provides a better balance to Goodrich's existing acreage from a depth perspective.  I believe that the deeper acreage with higher GOR's will present excellent results.  The company's position now covers a greater span of the oil/gas window.  In addition, the core of Devon's position will produce better results than some of their existing fringe acreage.  Due to the mature state of Devon's leases, Goodrich will need to quickly rationalize the combined portfolio and get a few rigs active.  Having Sinopec stay in the project is also very positive.  It will be interesting to see if Sinopec will be offered the opportunity to expand into Goodrich's existing position.

With a large amount of the Devon acreage expiring, it's hard to calculate an accurate price per acre sales price.  Sinopec's buy-in with Devon on five projects in January, 2012 at $5000 per acre might have been a little high.

I have to think that in the near term, many operators will use my favorite Jim Mora quote, "Woulda, shoulda, coulda".

Friday, July 5, 2013

TMS Production - Cumulative vs Time

The cumulative production curves from the most recent TMS wells continue to impress.

Thursday, July 4, 2013

Texas Oil

The Eagle Ford  will have significant impact on U.S. oil production in the future.
"As of February, the most recent month for which international oil production data are available, Texas would be the 12th largest oil producer in the world if it were a separate country, only slightly behind Kuwait and Venezuela. This is due to an oil boom that's added the equivalent of the Bakken formation in North Dakota to the state's output in just the past 16 months.:

Tuesday, July 2, 2013

Upcoming TMS Completion Results

The Tuscaloosa Trenders are anxiously awaiting the four upcoming TMS completions.  The Goodrich Smith 5-29H #1 represents the shallowest TMS test to date at a subsea TVD of -11,150'.  The Anderson 17-2/3 wells will be a good test of "repeatability" for Encana just adjacent to their excellent wells, the 17-1 and 18-1.  EOG's frac design will incorporate much more slickwater versus gel compared to their prior two completions.  Their third completion will test the western edge of the play.

From what I understand, all four frac jobs will be designed similar to the Goodrich Crosby 12H-1. Four simultaneous successes will continue to validate to the play.