Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on November 5, 2013 at 5:32

If SWN is predicting $6M per development well then it would appear that they still intend to drill horizontals.  If they do not then we can revisit the question of whether large drilling and production units designed for horizontal development should be allowed when an operator in fact drills vertical unit wells.  In the case of the  L SMK RA SUA;SHARP 22-22-1, 1280 acres. 

The pressure fairway will require further delineation by step out drilling however the SWN maps IMO give a pretty good idea of the prospective area when coupled with their statement that they think it covers 100,000 to 150,000 acres.  My rough estimate from several months ago was ~138,240 acres.

Permalink Reply by Barney Fife on November 7, 2013 at 6:12

The unit established for the Sharp well was 1280 acres.  Since this well was only drilled and completed vertically and not horizontally, will Southwestern still produce the vertical well on this large of a unit?  I'm sure they established it as 1280 acres based on assumption of them drilling a horizontal well.  It doesn't seem right to produce it vertically on 1280 acres.  Anyone know anything differently?

Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2013 at 6:37

Barney, the unit application and field order contain the wording that has become standard boiler plate for denoting development by horizontal drilling.  And the $6M per well cost projection would make sense for a horizontal well, not a vertical.  If SWN can not come up with a well design that makes horizontal drilling economic and then chooses to go forward with development with vertical wells that will be the first instance of which I am aware and a question for the Commissioner to decide.  I have been looking into how an appeal of the field order might be possible.  At this point case law seems to indicate that in order to file an appeal of the field order a party with standing (a mineral interest in the unit) must have filed an objection to the unit application prior to the Commissioner's public hearing which resulted in approval of the application.  IANAL.

Permalink Reply by Paul Peterson on November 7, 2013 at 9:24

Skip, after reading the q&a again from swn conference call I am still thinking they are saying the verticals will cost $6M. They state that due to problems, science, extensive coring that the sharp well cost $10M, SWN goes on to say that the hollis well was almost clean with a little bit of mechanical problems it would come in under $7M. SWN stated a clean well should be around $6M. I don't know what is driving the cost of a vertical well up whether it is due to the way they are completing or fracing? I know Mr Sanders and others have posted the well cost should be lower but it makes me wonder if this is related to a new design or completion they are using?

Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2013 at 9:41

Paul, $6M makes no sense for the cost of a vertical well.  $6M is a good cost for a horizontal well.  Keep in mind that one half the cost is to complete (frac) the well.  The process and cost is vastly different for a vertical compared to a horizontal well with a long lateral.  SWN has a drilling subsidiary, DeSoto Drilling.  If they can't drill and complete a vertical well of this depth for somewhere in the range Aubrey has mentioned that would be a surprise.  Plenty of other operators drill horizontal wells of this depth and lateral length for less than $7M each.  SWN spokesmen have been unclear in their public comments before and I think that this is another example.

Permalink Reply by Paul Peterson on November 7, 2013 at 10:00

Skip , thanks for the reply. I know you and Aubrey know a lot more than I do about the cost to complete a vertical well. Maybe you are correct that they misspoke, the reason I would think they did not is that they were plain in the fact that at this time they would be drilling only verticals. I guess this is another question that will come out in the future. My question has a novice was if they didn't mis speak what if anything could cause the wells to be this high. And Skip, I do know they were including frac in there $6m does Aubrey's estimate include all cost to complete the well.

Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2013 at 10:37

Paul, you're welcome.  You would have to ask Aubrey concerning his cost figures but as he is a Working Interest in XTO wells in this general area and to this True Vertical Depth I suspect his figure is generally accurate and turn key.  Imagine the difference in a vertical completion of a stimulation zone of a few hundred feet in one stage and a 3,000 to 4,000' horizontal completion zone with multiple stages.  The first takes a day and a modest amount of water and proppant.  The other  6 or more days depending on the number of stages to be pumped.  That horizontal well could have 12 to 15 stages as opposed to 1 and use 12 to 15 times the water and sand.  The vertical portion of a well is generally the quickest to drill as the pipe is turning the bit.  When the driller kicks off to drill the curve a downhole mud motor is turning the bit and the process is called sliding because the drill pipe is not turning.  The ROP (rate of penetration) is less while sliding so it could take almost as long to drill to the toe of the lateral from the kickoff point as it did from the surface to the kickoff point.  In other words, a horizontal well would cost approximately twice that of a vertical just to drill.    

Permalink Reply by obed w odom on November 7, 2013 at 10:47

I do remember Mueller saying drilling in the high-pressure region would be more expensive, due in part to heavier drilling mud being required.

Permalink Reply by Skip Peel - Mineral Consultant on November 7, 2013 at 10:50

Is Mueller still  acting as spokesman in the  Q&As?

Permalink Reply by obed w odom on November 7, 2013 at 11:03

Yes, he still is the main spokesman, with some help from Bill Way.

Permalink Reply by Two Dogs, Pirate on November 7, 2013 at 11:01

Not if you want to write it off.

Permalink Reply by tony allen on November 7, 2013 at 14:23

There's several things that go into it. Certainly, how we're frac-ing and what we're seeing on the frac-ing side is giving a little encouragement. Really, it just goes back to historically what we've found to date. If you go back to our third well that we drilled, that's the first well we drilled in a high-pressure area. That well has continued to produce fairly well. And it looks like cash on cash, we'll get our money back on that well. The -- I think it was the fifth well that we drilled was -- it's called the Dean well. It's a vertical well. And again, it won't make much rate of return, but it will make a little bit rate of return. And then you've got this well that we just drilled, and to put this well in perspective, with what we think the production curve is going to be going forward. This well actually cost us $10 million to drill. It had some issues that we had on the drilling side, and we also had a lot of science. But at $10 million, this well is still above our 1.3 PVI that's our economic hurdle. The Hollis well, the well that we just finished and just put on production, had a little bit of trouble up-hole with a zone getting through it, but it was basically a clean well. That well today, after we've done all the fracs on it, is less than $7 million, and we think we can get that down to $6 million. Well, $6 million well with any rates anywhere near this, is a high, like 1.8 to 1.9 PVI, which is high, high 80%, 90% rate of return type numbers. And when you look at the map, where those 3 wells are across the area, that covers well over a township. And that's why I said early on that we're

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