...but a very interesting, and pretty recent presentation about the future of the TMS...
Thanks for posting, John. Over optimistic in my opinion. Here is why: It is true that the TMS wells are among the most expensive and technically challenging. The current discounts for field services and materials will not last. As production ramps back up in more economic plays, the companies supplying those basics will raise their prices accordingly. TMS exploration is unlikely to see any discounts by the time crude prices rise sufficiently to make operators consider the play. Only a relatively small portion of the prospective area is derisked, maybe 10 or 15% of what was touted in the early going by a number of operators. Although TMS economics are challenging in the "core", they are hardly imaginable outside of it. One of the big problems for the TMS is lack of adequate infrastructure. Outside of areas where wells have been drilled new pipelines and associated facilities will have to be paid for in addition to those very expensive wells. Here is an example of where well costs stood when the price of crude started falling and discounts became available. Keep in mind these well costs do not include the infrastructure required to produce them.
TMS WELL COST
DVN LANE 64H #1 - LA - (243108): $9,987,064.00 Vertical Well
DVN BEECH GROVE PLT 68H #1- LA - (243337): $20,995,465.00
ECA WEYERHAEUSER 73H #1 - LA - (243414): $18,694,813.00
DVN SOTERRA 6H #1 - LA - (243765): $19,605,086.00
DVN RICHLAND FARMS 74H #1 - LA - (244122): $21,388,904.00
DVN WEYERHAEUSER 14H #1 - LA - (244518): $17,886,656.00
DVN MURPHY 63H #1 - LA - (244560): $25,772,882.00
DVN THOMAS 38H #1 - LA - (244870): $19,855,870.00
ECA WEYERHAEUSER 60H #2 - LA - (244934): $18,990,788.00
DVN WEYERHAEUSER 72H #1 - LA - (245147(: $26,316,610.00
ECA WEYERHAEUSER 60H #2 - LA - (245328): $18,619,704.00
EOG DUPUY LAND CO 20H #1 - LA - (245329) $9,136,147.00
EOG PAUL 15H #1 - LA - (246125): $11,560,307.00
GDP WEYERHAEUSER 51H #1 - LA- (247041): $18,678,090.00
GDP BLADES 33H #1 - LA- (247207): $14,459,643.00
GDP BEECH GROVE 94H #1 - LA- (247705): $16,489,125.00
GDP SLC INC 81H #1 - LA- (247644): $18,867,221.00
GDP VERBERNE 5H #1 - LA-(248323): $16,386,437.00
GDP WILLIAMS 46H #1 - LA-(248405): $14,249,021.00
GDP KENT 41H #1 - LA-(248117): $11,896,111.00
GDP VERBERNE 5H #1 - LA-(248323(: $16,386,437.00
GDP WILLIAMS 46H #1 - LA-(248405): $14,249,021.00
* Well cost from operator reports filed with the LA Office of Conservation
SN BLOOMER 2H - MS - (AFE): $19,288,310.00
** Sanchez AFE from client who is mineral owner in the drilling unit
Good thoughts, Skip - thank you. I didn't see any info related to infrastructure costs and well costs noted in the presentation, which are critical to that analysis. Having said that, I would like to point out that as development of these unconventional plays occurs, typically the costs come down while the production comes up.
I agree with costs coming down and production improving as a general evolution of unconventional plays however the variable that must be taken into account, and is proven across all the major unconventional basins, is the fact that there is relative wide variation in rock quality. In the Haynesville Shale basin there are four recognized categories: Core - 10 BCF and up per well, Tier One - 8 BCF and up, Tier Two 6 BCF and up and Tier Three - 4 BCF and up. For companies fortunate to hold Core and Tier One acreage, they can make a slim profit by drilling now. Tier two probably requires something north of $3 or above and Tier three $4 or above. There is rock quality lesser than Tier three but we never discuss it because the price to make it economic is unknown and likely not in the foreseeable future. The most experienced TMS operators have voted with their feet - they are gone with the exception of Encana. I think they would have divested long before now if they could find a buyer.
Yup! Out of curiosity, what are lease prices in the TMS core area these days?
Let me mention, as a geologist, that the core area is partly defined by the ability to frack the rock - right along the LA/MS border in the Florida parishes, and in MS are the places that come to mind. Are you seeing related activity in Central LA as well?
There are no current TMS lease offers as far as I know. There have been some reported instances of lease extension options being exercised and some of leases expiring. Once again specific location is important to speculating why. A number of exploratory wells were drilled in the TMS/Louisiana Eagle Ford trend across central LA 2012 through 2014. We followed a number of them here on GHS and those discussions remain in the site archive. None of those wells proved economic and the interest in exploration disappeared over a relatively short time frame.
John, I have maintained a spreadsheet of TMS horizontal wells in both states for some years. I've done a fair amount of research in both states' O&G databases. The only observable TMS development currently is by Helis in St. Tammany Parish on the far southern end of the trend. There is a Main Page discussion on that now and more related discussions in the archive.
Hi, James. I'm a little confused. Is it the primary term of the lease that would expire early next year or the extension period that would expire? Regardless it's good to know Halcon values your area sufficiently to make you a new offer. Hard to give you an informed answer without knowing the terms of your original lease but a slightly less bonus is fine and to be expected. The bonus is the least important term of your lease. I'm not familiar with the "Franklin Post" unit as that is not how drilling units are designated however if there is a well in that unit then Halcon would likely consider the rest of your minerals proven and there would be existing infrastructure to serve that well. Both would make your minerals more valuable to Halcon under the current circumstances.
James, the Franklin PST Prop H1 is the unit well for TMS RA SUV, Greenlaw Field. Although the last report to the state was Shut In, Dry Hole - Future Utility on 2/20/15, the well was fracked and turned to sales on 12/12/14 according to the SONRIS Lite well file. An entry in the file also states that a WH-1 (completion) report has been received but the Initial Production portion of that report is blank. There is no production entered in the well file.
PERF AND FRAC 11996-17900 AO WITH PLUGS IN BETWEEN. D/O PLUGS; RIH W/ 2 7/8" TBG & PKR ASSY. SET SAME @ 10900'; TURN WELL TO PROD
PER INFO WH-1 & SCHEMATIC RECD 2/18/15; (ST:31)
Thank you for the info, Skip -'preciate it!
You're welcome, John.