By now we’re all used to the latest analyst opinions on the prospects of share price gains for publicly traded companies in the oil and gas space.
Company X drills an extension well on a sweet spot trend and underperforms on well tests, and the stock sinks. Company A goes to the fringe areas of a play to escape high lease pricing, drills a well and –BOOM—they prove up a 50% increase in IP results and first 6 month decline rate forecasting, and they are Wall Street’s darling-du-jour.
What no one seems to be paying attention to, or giving companies credit for, is the uphole (or downhole) potential that can be unlocked in all those conventional reservoirs that are held by unconventional production
For example, if you pull all the production from a polygon that outlines Eagle Ford production in South Texas
you’ll find, once you export the production from the DI webapp and sort by reservoir name, that conventional reservoirs have produced about 2X Eagle Ford gas production and oil cumulative volumes that are comparable to the Eagle Ford.
Geologic and geophysical data densities have exploded in unconventional play areas. While the focus has rightly been on the geology of the unconventional target reservoirs—Eagle Ford, Niobrara, Haynesville, Bakken—tens of thousands of new wells, and untold square miles of new 3D seismic, open hole logs, and near bore microseismic, have greatly improved companies’ ability to identify and exploit uphole conventional completion targets.
This conventional lagniappe could ultimately provide the strongest economic foundation for an operator’s future operational cash flow, and given the longevity of production, can provide a great hedge against depletion timing risk—drilling and completing high-decline horizontals in times of less than ideal wellhead pricing.
To get a sense of how intermingled these opportunities can be, look at Pioneer Natural Resources operated production in Live Oak county.
Focusing in the Lower Wilcox production established at Sinor Nest field (blue wells), the median cum BOE for these wells at around 8,000’ is just over 460,000.
Median cum BOE for the Eagle Ford in their wells is just over 280,000.
Now…the MONEY SHOT…median oil EUR for the Wilcox is nearly 850, 000BBL.
Median Oil EUR for the Eagle Ford on the other hand is around 186,000 BO.
With relatively flat decline in the Wilcox it’s easy to understand the favorable EUR stats for the conventional Wilcox…in this area.
Conventional targets won’t be uniformly distributed over all unconventional acreage, but they will/can be an important element of the production prize secured by smart buyers in M&A acquisitions or public equity purchasers.
For example this map shows the presence of Olmos and Wilcox reservoirs, sized by first 60 month BOE over or adjacent to core Eagle Ford production.
Mapping Olmos thickness (over 50 separate reservoirs) shows that gross Olmos thickness in the Eagle Ford trend thins to the north and east, but that even in areas with less potential gross pay there is economic Olmos production.
And, there’s additional potential downhole as well—as this map of the Edwards first 60 month BOE production shows:
So the guidance is simple….recognize that unconventional drilling has added massive amounts of open hole logging and seismic data to the knowledge base of conventional reservoirs, and take note of the uphole and downhole potential of current unconventional producing reservoirs. Be prepared to ride that HBP potential in the future!
Exploit the fact that $/barrel, mcf break evens can be much lower for shallower conventional wells, and be prepared to profit from that conventional HBP potential well into the future!