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Permalink Reply by Craig Cooper on September 27, 2013 at 8:22

IMO, the first thing to keep in mind is that the 'E' in EUR = 'Estimated' so 'the EUR' should not be taken literally. It is a general indicator of potential performance and when normalized for completion & production practices can be used to compare well-to-well, area-to-area, reservoir-to-reservoir, etc relative performance or potential. EUR will often vary from area to area within the same reservoir as well as throughout the life of a specific well. As you might expect, EURs will become more accurate over time as actual production is recorded.

The practical answer to your question is to plot Haynesville production rate & cumulative production vs time for as many wells in the area of interest as you can and have a look at the trends. It is often better to use monthly vs daily production. This will provide a crude (pardon the pun) projection of production along with its corresponding EUR.

There are a number of ways to estimate UR but almost all are based on measurement of production vs time + mathematical projection of production into the future. Though the mathematical projections are rooted in empirical data, they can become relatively sophisticated and take into account rock properties, fluid properties, fluid flow, pressure, et al in order to better predict production vs time and UR. These things must be accounted for because they influence production and cause the actual rate as well as the rate of production decline to naturally change over time.

Historical approaches are based on conventional reservoirs and are not applicable to shale / unconventional reservoirs without modification. A number of approaches have been recently developed within E&P companies and Universities; e.g. John Lee & Anh Duong with ConocoPhillips, Texas A&M, Oklahoma. Summaries of Lee's & Duong's approaches can be found in SPE papers 134231 & 137748 fyi.

The determination of EURs requires both 'art' and science.

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Permalink Reply by Steve P on September 29, 2013 at 17:00

Been away for a week or so, so I'm just catching up with this most informative discussion.  One impression from this discussion - backing up pretty far in the discussion - investors face all types of deals.  Generally speaking, when one is faced with an investment in O&G, a huge factor in the formula is % of making a producing well.  At this point, if one is within some fairly well established boundaries, then "making a well" is not the question - the only question is how good a well.  So, I go back to the hypothesis put forth - would I invest $9M if I thought I could only make $14M?  That's a pretty good return when you know that, at worst, you only break even after 5 years.  If I can consistently invest in wells in the HS and know that  my return will be between 0 and 40% PROFIT (as opposed to a total loss of my investment), most investors I know would sign up for that.

If only I had some leases and $9M to spend on a well!

 

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Permalink Reply by Skip Peel - Mineral Consultant on September 30, 2013 at 2:09

It's all perspective.  Those who are investors but don't drill wells may look favorably on a return that may be much less attractive to someone who does.  If you have capital to invest in E&P and you have multiple opportunities to do so the decision is often based on calculated ROI.  And if that ROI is more favorable in some other play or plays owing to liquid production as opposed to dry natural gas then it makes perfect sense to eschew investment in an asset that is HBP and can be monetized at a later date under more favorable market conditions.

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Permalink Reply by Dion Warr, CPL on September 30, 2013 at 5:32

Steve P:

The problem usually is that any potential venture that would look to market to "you" (the individual) as an investor usually marks up the entry cost as an investment to a retail level that only the best wells results in a good individual investment.  Even on a traditional promote level, e.g., carried quarter, the individual investor's potential upside becomes thin.

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Permalink Reply by adubu on September 30, 2013 at 5:52

steve P, Dion and Skip---- I think most operator especially larger one with public stock looking at If they are investing  buying leases $$$  and then about $10 Million to drill first well then they need a least a 4-1 ROI potential not just a 40% potential. These type deal are rarely promoted to small retail investor. The small guy will get option for promotion on small deals 1-4 well vertical drilling that are in 1-2 Million range, but small investor be cautious you only get the risk deals wild cats that promoter makes money even if hole is dry.The good plays not promoted they are family only deals

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Permalink Reply by Mark Pomeroy on September 30, 2013 at 9:09

Yes, it is all about risking and costs.

If you could drill only 6 BCF or better wells at a cost of $9 million, you would have a very attractive rate of return, particularly if the $9 million included all your costs, not just well cost.

If you drilled some 6 BCF wells, but averaged 3 BCF, it wouldn't be attractive. Also, good wells can be turned into bad investments with the proper promote.  As you suggest, a good promoter will sell off his risk so that it is difficult for him to lose money. 

 

 

 

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Permalink Reply by adubu on September 30, 2013 at 9:33

Mark--- operator must  calculate in WI 100% ( assume operator has 100% of lease)   ALL cost plus   royaltys paid on any production so his ROI is not as  good as it look to the lay public .( needs ~3.5 BCF at $3.5 gas to get paid out-- assuming 20-25% R on leases)  Operator doesnot receive any net profit untill pay out occurs, then gets < 3 for 4 if royalties 25%

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Permalink Reply by Mark Pomeroy on October 1, 2013 at 0:44

Yes...but why would an investor, as a minority working interest owner, calculate return a different way?  Often, his interest will be burdened with a promote, but the method is the same.

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