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Permalink Reply by Quattro 23 hours ago

So Page 5 - is that saying they have drilled that many Bossier wells?  Or is that possible to be drilled?  I am a little confused (as usual).

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Permalink Reply by Skip Peel - Mineral Consultant 11 hours ago

Quattro, it is easy to be confused but we are here to attempt to make it a little less so.  Yes, there have been a significant number of Bossier wells drilled on the LA side of the fairway.  I'll apologize in advance for the length of my reply.

Here is my takeaway from the Page 5 data.  Every unit has an operator that drills, operates and reports the wells.  I can not think of any instances, although there may be a few, where an operator holds all of the mineral leases in a drilling unit.  If a company, in this case Comstock (CRK), has 878 Haynesville (HA) wells they operate, they hold ~73.5% of the leases in those units while others hold 26.5%.  CRK holds lease rights in units drilled, operated and reported by other companies where they are a non-operating working interest. In that case.  The hold 14% in those 700 HA wells listed as “Non-Operated”.

CRK operates 820 Bossier (BO) wells in units where they are the operator and hold a ~79.76% of the mineral rights.  Comstock likely designed and drilled the vast majority of these wells but Haynesville companies regularly swap or sell unit operatorships so the number drilled is likely a little less than 100%.  Since the Office of Conservation did away with its one operator per unit rule, there are also a number of units where two companies operate.  The original unit operator operates and reports the original unit well and possibly additional unit wells (short laterals) and an operator from an adjoining unit that drilled long lateral (HC) wells that include the other operator’s unit operates and reports those HC wells.

On the Louisiana side of the Haynesville fairway, the state does not require that operators designate which wells are HA and which are BO.  The depth definition of every HA drilling unit, with a handful of exceptions, includes the Mid-Bossier Shale and the Haynesville Shale.  Since shale wells are different from conventional reservoir wells, it makes sense to group the two together for the purposes of regulations and reporting.  This of course makes it challenging to know which horizontal wells are landed in the BO and which in the HA.  They are all considered and labeled as HA by the state.  The only time that an operator may choose to label which wells are HA and which BO is in their applications for alternate unit wells.  It makes sense and saves money for a company to apply for a group of alternate unit wells at the same time although there is no plan to drill them all together at one time.  When a company applies for a group which has both HA and BO laterals, they can choose to label the laterals to avoid any confusion in regards to mandatory minimum setback requirements.  No HA well may be closer than 330’ from an east or west unit boundary line and no closer than 660’ from the closest HA well.  Since an alternate well application is a flat, two-dimensional representation of the lateral paths, a well group with both HA and BO wells will have well paths too close together to meet the setback requirements.  Therefore, some applicants choose to label the laterals (HSV or BSSR) to make it clear that the laterals are separated in depth.  Not all companies do this but those of us that look at alternate well applications on a regular basis can tell when two laterals are too close to one another to meet regulations and one or the other must be a BO lateral.

Since the graph includes a break out of lateral lengths, I take this to be wells that have been drilled although it is possible that it combines wells that have been drilled with wells that are permitted to those lateral lengths.  BO wells have been drilled for years but fly below the radar of mineral owners because they are not designated differently from HA wells.  It makes sense for companies like CRK who have been drilling the shale since the play’s beginning to have high numbers of BO completions since they have fewer operated drilling units.  I suspect that CRK’s ratio of BO to HA wells is the highest in the play.

Mineral owners considering a sale should have a grasp of BO wells in general as a section/unit with both Haynesville and Mid-Bossier shales will have twice the well laterals as a section/unit that only has economic Haynesville shale.  Mineral buyers are looking for long term investment opportunities that include all the wells they expect to be drilled in a unit.  For that reason, they closely scrutinize the production potential of BO wells by location.  Buyers do not want to discuss or debate the value of those BO wells with mineral rights owners.  They prefer to ignore them in their valuation calculations and their purchase offers.  Buyers look to acquire mineral rights that include economic Mid-Bossier rock because it increases the potential profit of their investments. At this point in the play much of the northern half of the LA Haynesville fairway, the part that does not have economic Mid-Bossier rock, is much more developed than the southern half.  The dividing line between economic and non-economic Mid-Bossier is difficult to define because it is dependent on the price of natural gas.  For example, if the breakeven price for a HA well in a given section is $3 per mcf, it may take a price of $4.10 for a BO well to breakeven.  Of course, to make are decent rate of return, either example would need to be greater by a factor of 10 to 20%.

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