Replies to This Discussion

Permalink Reply by obed w odom on February 5, 2013 at 8:35

At the Credit Suisse conference this morning Steve Mueller of SWN seemed to be distinguishing between an "exponential" decline curve and a "hyperbolic" decline curve. He said the current results in the Brown Dense indicate the play would not be economic for an exponential decline but might be economic for a hyperbolic decline like that seen in the Eagle Ford. I'm not sure what the distinction is between the 2 types of decline, but I think the exponential decline has a constant percentage decline, say 65% per year, which would mean production is only 35% of IP after 1 year, 12.25% (0.35x0.35) after 2 years, 4.3% (0.1225x0.35) after 3 years, 1.5% (0.043x0.35) after 4 years, etc.

Hyperbolic decline, on the other hand, probably means the percentage decline per year decreases with time. Tony Allen pointed out to me some actual well histories in, I think, the Bakken, where the initial decline was 65% per year or greater but by the end of the 3rd year the yearly decline rate had dropped to a constant 6.5%. The analyst said this low-decline-rate production was coming from the matrix, which I took to mean unfractured rock. After reaching the 6.5% yearly decline rate, production after 10 more years would have declined only 49%, so we would be looking at a much longer well life.

Permalink Reply by Chester Fairfield on February 5, 2013 at 8:54

I listened to the BD portion of it.  Nothing new.  They are waiting on 120-180 day production for decline curve.  The bigger question is.. even if they can get it economic in this high pressure zone, how large of an area does this cover...   

Permalink Reply by Robert Phillips on February 5, 2013 at 9:14

You never know how large it will eventually be.  For conventional reservoirs geologists generally move along depositional strike to find similar rocks.  That's where I'd be looking. 

Permalink Reply by Land Rat on February 5, 2013 at 9:02

I wonder why they chose to acquire acreage rather than farm out HBP acreage and also why they chose the acreage to the West of the Monroe gas field instead of the East.

Permalink Reply by Chester Fairfield on February 5, 2013 at 9:07

They c hose the acreage based on wells that have been drilled to the BD previously with shows and/or production and cores.  Farming out gets you a smaller % so they were willing to take the risk for a larger %.

 

 

Permalink Reply by Skip Peel - Mineral Consultant on February 5, 2013 at 9:22

IMO SWN overstated the well control in their BD prospective area from day one.  There are precious few wells to depth and, in the majority, they were older wells meaning that if they were logged it was with the technology of 25 to 40 years ago.  To build a leasehold of 560,000 acres (at its largest total) based on the well control that existed (at least on the LA side of the prospect) was taking a significant risk.  I think we will see them drill more wells in the pressure fairway and farmout to others who are interested in other prospective horizons further west.

Permalink Reply by Robert Phillips on February 5, 2013 at 9:43

I agree, they went way overboard based on available info., but this had/has the potential of a new liquids play and that's what they needed.

Permalink Reply by tony allen on February 5, 2013 at 11:43

Skip, SWN did a farmout in 20s 20w in Ar. to Marlin and reserved 25%. Is that in addition to the royalty burden or will SWN only receive the difference?

Permalink Reply by Skip Peel - Mineral Consultant on February 5, 2013 at 11:52

tony, I'm unsure how you mean "reserved".  Farmouts come in many forms with numerous varying details.  Since I'm not an "operator" my knowledge on the subject is limited.  If a lessee assigns development rights under an existing lease the obligation to the lessor remains the same.  So if say 20% of production is owed the lessor there is only 80% left to divvy up and 25% off that would be 55% to the operator of the wells.  I doubt many would feel that was worth their time.  When Over Riding Royalty is granted in exchange for an assignment it is generally in the range of a few percentage points.

Permalink Reply by tony allen on February 5, 2013 at 12:08

I'm not sure of the details of the assignment. If the assignment excludes the LSBD and Marlin produces from a shallow formation, would that hbp the LSBD for SWN?

Permalink Reply by Skip Peel - Mineral Consultant on February 5, 2013 at 12:15

The assignment changes nothing regarding the terms of the lease.  If it's an "all depths" lease any production will HBP all depths.  If there is a standard vertical Pugh clause, production will hold that depth plus 100' and all depths above.  A number of us industry types warned early on SWN could farmout to secure their development rights longer term without paying extension bonuses.  Where's The Baron when I need him?  I seem to remember a comment by him that SWN was not accommodating smaller operators who wished to farmin for shallower prospects.  Maybe their lack of BD success to date has changed their mind.

Permalink Reply by tony allen on February 5, 2013 at 12:29

It looks like it would be a way for SWN to  hbp acreage without spending any money. I don't know the Baron but I know quite a few operators that would like to develop the shallow formations and it seems that would be good for SWN. These minerals would be in the 3D shoot ( they are calling it the Millerton Project) and it is hard to believe SWN would give up any LSBD until after the shoot. If they are participating in it at all.

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