HOW MUCH UNLEASED, DEVELOPABLE ACREAGE REMAINS IN THE HS PLAY FOR MAJOR OPERATING COMPANIES NOT CURRENTLY ACTIVE

I HAVE LONG SPECULATED ON THE BOUNDARIES OF THE HS PLAY AND THE AMOUNT OF UNLEASED ACRES THAT REMAIN AVAILABLE FOR THE ENTRY OF NEW, MAJOR OPERATING COMPANIES. THE GENERALLY ACCEPTED CURRENT BOUNDARIES INCLUDE HUGE LEASEHOLD HELD BY PRODUCTION. LAND SPECULATORS ALSO HOLD SIGNIFICANT ACREAGE. THE REMAINING UNLEASED ACRES HELD BY LAND/MINERAL OWNERS MAY BE ISOLATED AND NOT ATTRACTIVE TO NEW MAJOR DEVELOPERS BECAUSE IT IS NOT SUFFICIENTLY CONTIGUOUS FOR DEVELOPMENT PURPOSES. AS A MEANS TO ILLUSTRATE MY THEORY, I AM INCLUDING A TOWNSHIP MAP OF NW. LA. THAT DEPICTS THOSE TOWNSHIPS WHICH CONTAIN SECTIONS THAT HAVE BEEN UNITIZED. PLEASE NOTE THAT ALTHOUGH NOT ALL SECTIONS MAY BE INCLUDED IN DRILLING UNITS, MUCH OF THE SURROUNDING ACRES ARE UNDER LEASE OR HBP. I DO NOT KNOW THE ANSWER TO THE QUESTION I POSE BUT I THINK IT IS WELL WORTH COMMENT AND DEBATE AMONG THE MEMBERS. THE HS PLAY IS RAPIDLY MATURING AS TO SIGNIFICANT PROSPECTIVE AREAS NOT LEASED, HBP OR NOT UNDER THE CONTROL OF THE LAND/MINERAL OWNER. AT THIS TIME, MY OPINION IS THAT ANY NEW, MAJOR OPERATING COMPANY CAN ONLY ENTER THE PLAY IN A SUBSTANTIVE MANNER BY ACQUIRING THE EXISTING LEASEHOLD OF ONE OR MORE CURRENT OPERATORS WITH SIGNIFICANT LEASEHOLD. IF SUCH WERE TO OCCUR, WOULD IT HAVE ANY MAJOR IMPACT ON BONUS OFFERS EXCEPTING RELATIVELY LOCALIZED INSTANCES?

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Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 2:47
Jay and Grice. Nice system. Thanks for the link, Jay. A good reminder that advanced technology is not limited to deep, horizontal wells.
Permalink Reply by Grice on November 19, 2008 at 3:10
Skip, for the record, I credited nothing towards the introduction of CTRS technology. But, since that technology has been around for years, I question the use of the word "new". FYI: I believe Anadarko first used it in late 2000. I think Mr. Reynold's company will be able to make great contributions to the area, and I wish him the very best.
Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 3:16
Grice, record amended. To a rookie like me, it was new. And of interest. How about you and/or Jay offering up an explanation why so many shallow oil wells continue to be drilled in the Caddo Pine Island Field. Most that I see report production of 1 barrel of oil a day. I realize that they are relatively low cost wells on leaseholds long HBP but it seems curious.
Permalink Reply by Grice on November 19, 2008 at 3:36
As you may be aware of, when it cost more to operate a well, than the amount you can recover from production, operations come to a stop. Many early wells stop producing "economically", so they were plugged and abandoned. When a well was P&A, it did not necessarily mean there was no more oil in the well. It possibly represented that it was a losing venture to continue working the well. Since the time those wells were P&A, more cost reduction technology has been introduced. With the introduction of that technology, the cost of operations has been reduced, and the remaining oil can now be produced in an economical way. Given the cry for more oil needed, those old wells (and even some new ones) offer a minor relief to the oil demand. I have read where 1 bbl/d production would fill a tanker ship within a years time. While this may seem relatively small in nature, at this stage of the game, every drop counts. Now that we can retrieve the oil in a more cost effective way, it only seem reasonable that we will put that technology to use.
Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 3:48
Grice. Do the technical advantages that lower operating cost and create profitability work at $50/barrel? I did not find the new shallow oil wells in the Caddo Pine Island to be surprising when crude was $135.
Permalink Reply by Jay Reynolds on November 19, 2008 at 3:58
Re the number of shallow wells drilled in Caddo Pine Island. Really, the number is only a tiny fraction of the numbers drilled in the 80's when promotion was running rampant. Most of the drilling you see now is infill drilling by operators who do their own drilling. An exception is the development of the Nacatoch A Sand with min-fracs as has been occuring around Hosston (Kirby Oil) and along the Vivian-Hosston Road (hwy 2) by the Hales and Caldwells.

The economics of drilling a new Nacatoch B Sand well, the type normally drilled, can be quite good because of flush production, frequently paying out in a couple of months. Unfortunately, the Adverse Mobility Ratio is very poor because of the very high differential viscosity of the crude oil (approx 20 gravity) and the produced water and the very low differential density of these two fluids.

The IP rates for these wells may be quite good (relatively speaking) at 40-100 BOPD quickly falling to something like the rate you see in the paper. The tendency of this water drive formation to water channel/cone so quickly is the reason there is still such a high percentage of the OOIP (Original Oil In Place) in this zone.

Put another way, just because a "Stripper Well" is classified as making less than 10 BOPD doesn't mean that our stabalized production figures are anywhere close to that. My average "good" well makes about 99.8% water or about 2/3 BOPD.

Many months operations are just breakeven or slightly better, the challenge at this time being to come up with a less expensive way to equip the 1,000's of unequipped shallow wellbores in the region (done) and to increase the rate at which the formation releases the bound oil through econmical, site specific EOR (Enhanced Oil Recovery). I'd say we're about 75% of the way to having that nut cracked. That should make for a happy royalty/mineral owner since my royalty burdern is 25%.
Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 4:06
Jay. That helps a lot. Thanks. However I suspect that your use of industry terms is confusing to many members. It is always a challenge to make technical topics understandable to laymen. Many following this thread may get lost in such discussions without a little help.
Permalink Reply by Jay Reynolds on November 19, 2008 at 4:50
Skip,

I have tried to insert the words relating to the abbreviations I have used, any others should be found easily via Google. The term "Adverse Mobility Ratio" though can get some clarification right now. Basically, it's just and equation/expression that refers to the tendency of a reservoir to produce one fluid moreso than another. In this case, MUCH MORE water than oil.

If there is other elaboration you'd suggest I'll see if I can help.
Regards,

JR
Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 4:57
Thanks, JR. Yes that is one that I did not grasp. In your particular case we are venturing into production information that is materially different from most of our previous discussions that focused on ng production. I have been curious about the dynamics involved in shallow oil production. Your responses have helped quite a bit in that area.
Permalink Reply by Skip Peel - Mineral Consultant on November 19, 2008 at 2:40
Jay. You are in an enviable position going forward. I have thought for some time that your area is probably within the boundaries of the HS. Possibly within the Fairway. Owing to the circumstances that you explain quite well, this is a part of the play that is more challenging to develop. And therefore solid data will be some time in emerging. More wells are being drilled to HS depths in North Caddo and the results released to date are encouraging. Once it is established that the area meets prospective criteria, I think experienced, capable operators will take on the task of solving the title issues you mention. The HS play is still quite young. And there has been sufficient development opportunities in the core areas of the play without any real need to concentrate in areas heavily HBP and with the challenges you mention. A few unleased landowners may receive significant bonus offers as operators attempt to consolidate sufficient leasehold to develop in your corner of the play. Far more are HBP and will benefit but to a much lesser extent as few will receive bonuses as their old leases do not contain vertical Pugh clauses and they are held under older, lesser royalty percentages. I imagine that there are a number of small independent producers who will do quite well in the future when the attention of the larger operators turns in your direction. Good Luck.
Permalink Reply by The_Baron on November 19, 2008 at 9:20
Thank you for the link Jay,

At first I thought it might be joke link, for exotic dancers or somthing.

All kidding aside, your right, some of the title on old leaseholds will be exciting at best. I'm already seeing more and more landmen going from buying leases to trying to cure title.
Permalink Reply by P.G. on November 19, 2008 at 3:49
Wouldn't market price for leases become determinant upon new uses for NG?
What would the drilling companies be willing to pay should politicians warm up to T-B Picken's plans and there becomes a need for more production?

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