Replies to This Discussion

Permalink Reply by Sarah Randolph on August 3, 2012 at 8:07

Skip, thank you.

Permalink Reply by Matthew Kable on August 3, 2012 at 8:07

I believ

Permalink Reply by Skip Peel - Mineral Consultant on August 3, 2012 at 14:17

Barbara, my following comments are based on the Q&A portion of the webcast.  High pressure by area is key.  Now that SWN has found an area with the pressure they are looking for they will test it with vertical wells owing to the fact that it is 450' thick (too thick to model with a horizontal completion).  They can decide to drill horizontally off either of those two vertical test wells (Johnson and Dean) if they like what they see.  They consider the Roberson and Garret wells to be science wells.  The Roberson is not economic.  The area of the Garrett may be economic for future wells.  Keep in mind that significant capital will be required to build out infrastructure to support future wells.  Not just the cost of drilling the wells.  Productivity must support overall investment.

I was looking for oil production in the 600 bbld range.  However + $10/bbl premium to WTI (West Texas Intermediate pricing) for the 50 degree API oil along with the richness of the considerable gas volume (1200 BTU/mcf) appears to make the possibility of acceptable well economics at  500 bbld reasonable.  SWN would like to see 550 bbld. 

Although I seem to attract some conflicting opinions (along with personal attacks) when I mention it, I am still thinking that we are looking at a prospective fairway far less than 563,000 acres.  Maybe 5 to 6 miles north to south and 12 miles east to west at this time.  I think we will see SWN concentrate their development efforts in this fairway for the remainder of the year.

Permalink Reply by Barbara Keene on August 4, 2012 at 4:32

Thanks for sharing your input on the latest info on the Brown Dense.  I can't imagine a personal attack against you Skip.  You help so many of us who do not know the Oil and Gas industry but are trying to learn.  I cringe when I see comments that seem to bash people.  The line from the movie Bambi comes to mind...  If you can't say anything nice, then don't say anything at all:)  

Along with SWN I had hoped for a greater quantity on oil bbld.  I know SWN has invested a lot of money in the Brown Dense.   I wish the investors on the Q & A asked about the successful frac stages on the BML.  Maybe more information will come out on that as the Doles well information unfolds.  Thanks Skip.    

Permalink Reply by Sarah Randolph on August 4, 2012 at 5:05

Barbara, like you I am one of those who is trying to learn all I can about the Brown Dense and so far, have had fun with it.  I appreciate the different opinions on this site and take responsibility for doing my own research and making up my own mind. 

 

Permalink Reply by Doug Boone on August 4, 2012 at 10:19

As to all the contributors to this site that have had to endure personal attacks I say illegitimi Non Carborundum! We welcome your comments and thank you for the same.

Permalink Reply by Aubrey C. Sanders, Jr. on August 4, 2012 at 6:56

Skip,

Do you have adequate data to speculate on where the fairway will be?  If so, please share it. Personally, I do not think anyone does. Just way too early in the game to answer that question given the size of area with potential. At this point I would not want to condemn any  acreage.

You may note the vast acreage of land that is HBP. For example, Haynesville Field and North Shongaloo-Red Rock.. The big companies holding that acreage may be content to let others  develop information which will "point the drill" to potentially productive areas which they are holding by production. Seems to me that would be the smart thing to do. IMO that if BD proves viable in areas now being drilled it will prove up much of that HBP land and the Boom will commence. 

Permalink Reply by Skip Peel - Mineral Consultant on August 5, 2012 at 7:37

Mr. Sanders, I believe I do.  And that data has been confirmed to date by every move that SWN has made from where they have formed units;  to where they have permitted, drilled and completed wells; to their public comments in a number of press releases and webcasts.

I have never used the word "condemned" in any post regarding the Brown Dense.  It is your term, not mine.  I do not attempt to put words in your mouth and would appreciate the same consideration in return.

1.  Formation pressures are key.  Bottom Hole Pressure is the most mentioned factor throughout the presentation and Q&A by both SWN management and by many of the analysts asking the questions.

Quotes from Steven L. Mueller, SWN

.......as we discussed last quarter that BML well did hit some pressure that's significantly higher than we've seen in the other wells. And you're seeing that in the bottom hole pressure, you're seeing that in the rates and it's given us a lot of encouragement. ........

For context, here are the reported BHPs for the first three wells.

Roberson         2750 Bottom hole pressure    103  bbld

Garrett             4100 Bottom hole pressure    301 bbld

BML               5700 Bottom hole pressure     421 bbld

 

2.  Natural Gas Liquids (NGLs) are important to meeting the economic threshold.  Given SWN's comparisons to the S TX Eagle Ford, some of the best wells should occur where the oil window meets the wet gas window.  Not just from improved formation pressures but for better well economics owing to liquid rich gas. This is the first BD completion where SWN has touted the NGL production.

 

Steven L. Mueller

The kind of stabilized Btu for that gas is about 1,200 Btu gas, so there's significant NGL in it. And then we talked about on the oil that we should get a premium price. We did sell some oil at WTI plus $10 off of the lease, and the reason for that is there's 4 refineries in the area, about 135,000 barrels a day of refining capacity, 1 is in Arkansas and 3 in Northern Louisiana. And they really would like to have the oil condensate that comes off of this. So both the gas is going to be rich and we'll have some NGLs with it and the oil has a premium price to it.

 

3. Oil gravity is a good indicator of target thermal maturity.  One of the indicators that the combination of petrophsical factors are right at a specific depth is the gravity of the oil.  My sources predicted that 50 degree API gravity should occur where those conditions existed.

Excerpted quote from the SWN announcement of the BML completion results:

The company’s third well, the BML #31-22 #1-1H located in Union Parish, Louisiana, was drilled to a vertical depth of approximately 10,400 feet with a 4,300-foot horizontal lateral and was completed with 19 successful fracture stimulation stages in June. After 41 days of flowing up casing, this well’s highest 24-hour producing rate to date was 421 barrels of 50o API oil per day, 3,900 Mcf of high Btu gas per day and 836 barrels of water per day (43% of load recovered to date) with a calculated flowing bottom hole pressure of 5,700 psi on a 24/64-inch choke.

Steven L. Mueller (webcast excerpt)

Well, first well from what we saw on it is not economic, and really, at some point in time, might be hooked up that would need some other encouragement in the area to lay the gas line and do all the things to hook that well up. So the first well, just consider it an experimental well. Second well may get hooked up and we're looking at that right now. But again, the idea wasn't necessarily to make money off of any of the first 5 or 6 wells that we had out there. The idea was to learn as much as we could. So like in case of the second well, when we saw the high pressures in the third and saw similar type gas and oil, again, the first well had 38-degree gravity, the second and third had 50 and 52 gravity.

Please note that there is no reference, negative or otherwise, to other areas of the prospective Brown Dense AOI.  If you would care to make a case for those areas please proceed.  I assure you I will respect your opinion.  My opinion which is informed by the input of two qualified and experienced geologists is strictly my own.  They have "no skin in the game" as they do not own minerals in the BD AOI.  IMO, their interest is strictly professional curiosity.  They made comments and predictions before well results were made public.  Both have been spot on to date.

Permalink Reply by tony allen on August 6, 2012 at 6:19

Skip,

Do the geologist know where the oil window meets the NGL window? If so can you post a map? Do the geologist not believe any othe area of the BD AOI could have the same charateristics as the BML well? I don't understand how the whole productive LSBD area in N. La. and  S. Ar. can be defined with less than 10 wells being drilled. When they made their predictions did they discount all of Arkansas as well as Webster and Claiborne Parish?

Why did SWN's geologist not figure this fairway out before they allowed their company to lease 560K acres? They could have saved SWN millions of dollars.I have read many times it could take  50  wells or more to define the boundaries of this play. Were the productive boundaries of the HS, EFS and the Bakken proven with just a few wells? It just seems like we need more drilling before we know the boundaries of the  LSBD as it covers hundreds of miles of potentially productive areas. Please tell those of us outside Union Parish why we are out of the play. Skip,I am not attacking you nor am I trying to kill the messenger. You have always been spot on with you insight and predictions and I have always repected your opinion.

Permalink Reply by Skip Peel - Mineral Consultant on August 6, 2012 at 7:06

tony, SWN appears to be in the process of defining a depth which is the confluence of those two zones. It's not a discreet line but more like a depth range and it exists across much of the SWN AOI. SWN is methodically drilling that depth range in these current wells looking for areas of higher pressure. The question now seems to be, does higher pressure exist as a continuous fairway or in discreet areas within the depth zone fairway?

You are correct that it will take more wells to define the area of potential. What the first group of wells by SWN and others seems to have determined it that the Brown Dense is not a classic resource play. That means it is not relatively consistent in reservoir characteristics, especially formation pressure, over a wide and continuous area like the Haynesville Shale. The areas of high pressure would seem to be key to making a commercial Brown Dense well. IMO wherever the optimum depth range (thermal maturity - ~50 API degree gravity oil and high btu Natural Gas Liquids) exhibits minimum, as yet undetermined, formation pressure, there may be a reasonably good chance of making a commercial well. However SWN has not cleared that hurdle yet. Considering their lowered threshold for an economic well at 500 to 550 bbld and rich btu gas, they are getting pretty close. I'm hoping that the DOLES 30-22-1 H #1-ALT meets those criteria. If so then the learning curve is advanced and we should see other wells in this general area to test different drilling and completion designs. When SWN knows just what they are looking for in reservoir characteristics I expect they will drill a number of science wells across their BD prospective leasehold looking for areas that fit the model. We will have to wait to see if those science wells are concentrated along the oil window/wet gas window convergence zone or if SWN tests updip and downdip from there. Hopefully there will be other areas that fit the reservoir requirements but that determination could by years off.

Since you are in Moorehouse Parish, I will add that thermal maturity as a function of depth can be thrown out the window, to some extent, owing to the Monroe Uplift. There may be areas across the uplift that have thermal maturities similar to those at significantly greater depths to the west. In other words deposition and burial occurred which created a particular level of thermal maturity and then those formations were thrust up to much more shallow depths. The Monroe Uplift is XOM territory and if SWN makes a commercial BD well then hopefully we will see more exploration from them. XOM certainly does not appear interested in the BD at this time. Once SWN drills successful BD wells I expect XOM will look at the reservoir parameters and know whether any of their Monroe Gas Field leasehold meets the requirements.

Permalink Reply by conebreadcuz on August 6, 2012 at 7:07

There are others who apparently do believe that the lbd will be good outside union parish. Evidenced by the leasing activity in Webster, Claiborne, and Lincoln parishes lately, there is at least one company that believes the southernmost edge of the Lbd will be the most productive place to be. It sounds as if they are willing to put a lot of money out there to find out. I was told a minimum of 12-15 wells, will be drilled to prove or disprove their theory. 

Permalink Reply by Dion Warr, CPL on August 14, 2012 at 6:11

Tony:

It is important to understand that although "non-invasive" E&P techniques (3D seismic, etc.) has certainly made for substantial gains in information prior to the bit touching the earth, particularly in looking for structural / stratigraphic anomalies and exploiting resources that otherwise would not have been found as easily, the value of actual cores and logs, as well as performance of certain test wells, ie. the "science well", cannot be overemphasized.

 

From a land perspective, if SWN had placed a high value on this play from the beginning (it appears all but certain that they did), they would want to define a "general area" where G&G felt that the appropriate conditions would exist to exploit and produce economically viable wells, surround it with a buffer zone, and then acquire as much of that area as would be possible.  The "buffer zone" accomplishes two goals.  First, it allows for a certain margin of error to be established such that failure of initial exploration efforts in the primary areawhich may point to an offsetting area as a better prospect will not result in the defeat of those followup efforts.  Second, it establishes a boundary around the primary area that would prevent other prospective efforts from getting in on the play, even accidentally, after doing the early work required to prove up the play.

 

The resource plays have resulted in the prospect areas having to be assembled so sufficiently large as to allow the E&P to embrace the larger areas encompassing the reasonably viable geologic limit of the source rock.  Unlike "conventional" plays, the conditions for defining that limit are not necessarily as limited as to special circumstances which give rise to the creation of a trapping mechanism which serves to pool the hydrocarbons which have migrated from the source rock: the target is the source rock itself.

 

The result of the target moving from trap to source rock is that the plays have scaled analogously upwards from "trend lines" to "fairways", with prospect areas in such plays increasing from ranges of hundreds (or thousands) of acres in conventional plays to tens and hundreds of thousands of acres for resource plays.  Thus their land and lease commitment was going to be high, and SWN knew this going in - they have obviously hedged for play size and exposure by bargaining for increased time (ie, extended primary terms and option periods) to allow for this play to unfold over an extended timeframe.

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