Via Halcon Conference Call. They will participate as a WI in other operator's wells.  Current well results and costs don't work with current crude prices 

DEVELOPING

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Good question, Kevin. There are a number of unknowns. Everyone is simply guessing. The key to understanding the future, as is obvious to most, is what will the price of oil be in 6 months, a year, or long. What will OPEC do? tc above offers a valid assessment of certain operators that might be dancing with the unknown. Floyd's quick pivot and the publicity of such cuts both ways. Could be those who are deep on the inside for what the acutal price of oil could be in a year, even if they are basing their assumption on invalid inside data from hidden sources, will not cough it up. Weirdly, some lowly landowners might know if their 2-year options are paid before the end of 2014. That alone will offer some insight. I'd bet that in halfway decent TMS locations, the options will be paid. Maybe only in the fringes with high gambles will the leases not be renewed, but even this is doubtful since the leveraged risk was at such low acquisition pricing on the primary lease terms. So since such low upfront bets have already been paid, why cut and run until a better understanding of the price of oil clarifies within the next 6 months or year. The options and leaseholds are sensible risks, unless a company has a cash flow or debt problem.

 

Brings back memories of 1997 & 1998. The Austin Chalk was the big thing back then, the TMS looks close today. Several operators could go bankrupt if all their eggs are in the same basket with the TMS. Looks like it is all up to OPEC, like back then.

Skip,

I agree 100%. The Saudi's are the key. I think there is a concerted effort, like in the 90's, to price the shale drillers, in this case, out of the market. It just depends on how long they can afford to hold the price down and what effect the price has on these companies. If you see a number going bankrupt then they will have attained their goal. But the oil will still be here. 

Oil price is half of the equation.  Well cost the other.  Obviously the ROI (Return On Investment) has to be there for companies to invest in development.  The challenge in resource plays as you know is the requirement to drill and to HBP the leases (for those other than yourself I'll add that HBP is a common industry term for Held By Production).  The investment in leases (not just what is paid in bonuses to mineral lessors but all the associated land costs) and other sunk costs such as pre-drill infrastructure are at risk if wells are not drilled. 

When commodity prices fall below a level that will provide a profit for the more expensive exploration wells an energy company must make a tough choice to continue operations at a loss in order to secure the future benefit of held acreage with multiple well locations or pull back and wait out the commodity price decline.  The aging of existing leases and the option for extending those leases must be balanced against how much land is leased but un-drilled  and how many wells (and time) it would take to HBP the entirety or some targeted portion.  The business model is front loaded on the cost side and back end loaded on the profit side.  If a company can HBP enough good rock in the early days of a play they potentially have secure reserves to drill for years to come.  Or to sell at a profit for other opportunities.  The major Haynesville Shale operators got caught by the abrupt decline in natural gas prices while they were in the HBP phase of development.  Now the same situation is occurring in the TMS.  Other than the economic difference in the commodity prices (oil vs natural gas) the major difference is that the Haynesville Shale operators had the ability to fund their deficit operations.  GDP and HK do not.

There would need to be a much higher level of drilling activity to drive down well costs.  With HK pulling rigs that would leave 7 if the other operators maintain their current rig count which under the circumstances would be somewhat surprising.  The only option for some may be to drill infill wells in their best rock where they can produce a barrel for the least cost and just let the clock run on their un-drilled acreage. 

The energy business comes with great risk and potentially great financial rewards.  Even the best companies make mistakes or get caught in unforeseen circumstances.  Though technology has made resource plays the prime focus of many energy companies it can not mitigate all the risk.

Interesting article in Wall Street Daily blog:

http://www.wallstreetdaily.com/2014/11/11/u-s-fracking-industry/

One possible response to encourage US oil production, in the spirit of energy independence, could be an import tax or duty on imported crude.  On first analysis that might seem like a fine idea, but the responses that might come from OPEC and other potential importers would likely be economically hostile, and varied. Whether helpful intentions would be effective, harmful or irrelevant is something I haven't thoroughly considered.   There are so many moving parts regarding international oil pricing and the oil market and market influences.  Moreover, oil prices influence if not drive many if not most other markets (stock and debt markets, commodities including futures prices, etc.) The derivative effects of an import tax or duty might be bad to awful for the U.S.  Moreover, add in national political agendas on such things as alternative energy forms, some public officials' hidden desires to create government subsidies for special interest constituencies, etc. and the answer to how things play out is far above my pay grade.   I suspect we'll hear more about duties or taxes on imported oil, moving forward.

CEOs Tout Reserves of Oil, Gas Revealed to Be Less to SEC

in Oil & Companies News 11/17/2014

Lee Tillman, chief executive officer of Marathon Oil Corp., told investors last month that the company was sitting on the equivalent of 4.3 billion barrels in its U.S. shale acreage.

That number was 5.5 times higher than the one Marathon reported to federal regulators.

Such discrepancies are rife in the U.S. shale industry. Drillers use bigger forecasts to sell the hydraulic fracturing boom to investors and to persuade lawmakers to lift the 39-year-old ban on crude exports. Sixty-two of 73 U.S. shale drillers reported one estimate in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg. Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher. Goodrich Petroleum Corp.’s was 19 times. For Rice Energy Inc., it was almost 27-fold.

“They’re running a great risk of litigation when they don’t end up producing anything like that,” said John Lee, a University of Houston petroleum engineering professor who helped write the SEC rules and has taught reserves evaluation to a generation of engineers. “If I were an ambulance-chasing lawyer, I’d get into this.”

Experienced investors know the difference between the two numbers, Scott Sheffield, chairman and CEO of Irving, Texas-based Pioneer, said in an interview.

The SEC requires drillers to provide an annual accounting of how much oil and gas their properties will produce, a measurement called proved reserves, and company executives must certify that the reports are accurate.

No such rules apply to appraisals that drillers pitch to the public, sometimes called resource potential. In public presentations, unregulated estimates included wells that would lose money, prospects that have never been drilled, acreage that won’t be tapped for decades and projects whose likelihood of success is less than 10 percent, according to data compiled by Bloomberg. The result is a case for U.S. energy self-sufficiency that’s based more on hope than fact.

Judy Burns, a spokeswoman for the SEC, declined to comment on what drillers say during investor presentations.

A Rice Energy spokeswoman declined to comment on the difference between the numbers. A spokesman for Houston-based Goodrich Petroleum didn’t return calls and e-mails seeking a comment on the subject.

Link to complete article:  http://www.hellenicshippingnews.com/ceos-tout-reserves-of-oil-gas-r...

New headline  "PER SEC THERE IS NO MORE NATURAL GAS IN THE HAYNESVILLE".  Under SEC guidelines if you don't have definitive plans to drill a well within 5 years then you have no natural resources on your acreage.  We all know there is NG under the Haynesville acreage that is HBP, but per SEC regulations companies can't claim most it.

If the SEC really wanted to help the small investor, one of their tasks, they would revisit the whole BOE conversion.  To allow companies to convert 6mcf of NG into 1 bbl of oil does more to confuse small investors about the worth of reserves than talking about reserve potentials.  The SEC needs to wake up and realize that the price conversion between NG and oil hasn't been 6 to 1 for years. 

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