Latest Utica Structure Map: HK 9/5/12 Presentation at Barclays Conference

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Permalink Reply by Ron D. Jockefeller on September 8, 2012 at 9:32am

Floyd Wilson, who gave this presentation which is available HERE both as audio and a PDF, provided much new information about the Utica including:

Assumed D&C (Capital Costs per Well) of $7.0 million.

Assumed Spud to Production of 120 days.

Assumed Gross EURs per Well and per window type:

   Black Oil

      Oil 295 (MBbl)

      NGL 19 (MBbl)

      Gas 189 (MMcf)

   Transition

      Oil 248 (MBbl)

      NGL 199 (MBbl)

      Gas 2,000 (MMcf)

   Wet Gas

      Oil 174 (MBbl)

      NGL 332 (MBbl)

      Gas 3,300 (MMcf)

Assumed Acreage Prospectivity of 70%.

Assumed post-frac rest period of 60 days.

2H12 Rig Count: 1-2

2H12 Planned Wells: 4-6

HK is focused on NE Ohio and NW Pennsylvania and are spudding their first two wells in Trumbull county OH and Venango county PA.

There are IRR sensitivity graphs in the PDF for all 3 windows.  Enjoy !

Permalink Reply by Bluflame on September 11, 2012 at 5:03am

  If you run the revenue numbers on the EUR's using current pricing, the wet gas window is the most attractive. All three windows provide attractive returns, especially considering the revenue is front end loaded. Of course, this could change quickly!

  

BluFlame

Permalink Reply by Ron D. Jockefeller on September 8, 2012 at 6:28pm

The 346 number is the total for the Black Oil window and is shown in units as "(MBoe)" which means thousands of barrels of oil equivalent, not millions.  But that's an easy mistake to make.  The common habit of converting oil into units of gas and vice versa based on energy content (6 Mcf of natural gas = 1 Bbl of oil) is extremely unhelpful and VERY commonly used.  If you multiple each side of that equation by a thousand you get 6 MMcf of gas = 1 MBbl of oil.

So the math on that 346 number would be 295 MBbl oil + 19 MBbl = 314 MBbl in liquids.  Then divide the 189 MMcf of natual gas by 6 to get 31.5 MBoe for the gas.  Then add that 31.5 to the 314, and you get 345.5 MBoe which rounds up to 346 MBoe.  Voila.

Permalink Reply by Ron D. Jockefeller on September 8, 2012 at 6:45pm

To expand on why Boe and MMcfe annoy me so much.

A barrel of oil is worth, say $100.

A barrel of NGLs is worth, say $35 and is presumed to be energy = to 1 barrel of oil.

An MMBtu is worth $3, and 6 MMBtu = 1 barrel of oil, which implies $18 on a boe basis

So if NGLs are worth 1/3rd oil on an *energy content* equivalent basis, and natural gas is worth only 1/2 of THAT on an *energy content* basis, then why bother with the whole equivalency exercise?  A well that is almost all oil could be worth 6 times as much in value as one that is almost all natural gas, even if they are producing equivalent amounts of energy expressed in barrels of oil or in barrels of gas.

Using energy equivalency measures is extremely misleading.  Just break it down like HC did here. And I applaud them for that.  

As an analogy I would suggest that we don't value citrus plantations by converting limes, lemons, and oranges into their grapefruit energy equivalency.  We price them all separately because they are separate products.  So are oil and gas.  

Maybe this is just a pet peeve, but it's hyper-annoying to constantly have to disaggregate values that should never have been combined in the first place.

Permalink Reply by Utica Shale on September 9, 2012 at 8:13am

Ron,

 To summarize the BOE prices ...

 1 bbl Oil = $100

 1 boe NGL = $35

 1 boe Nat Gas = $18

 

 Wow, is Nat Gas cheap on a BOE basis !

 

Permalink Reply by Ron D. Jockefeller on September 9, 2012 at 9:47am

Exactly.  So the next question:  WHY?

Simple answer:  logistics.

If you want to move crude oil or the refined products that come from crude oil, that's a relatively easy process, since they are liquids at standard atmospheric temperatures and pressures.  You can move liquids on trains, trucks, boats, donkeys, etc.  The reason that oil prices are roughly the same around the world is that moving oil from A to B is relatively easy.

But if you want to move natural gas from A to B... ummm.   Gas may be $3 at the Henry Hub in Louisiana, while it's only 50 cents in the northeast corner of Pennsylvania while it is $15 in Tokyo.  "Hmmm...." thinks the arbitrageur in you "... I smell profit."  But, alas, there is no easy way to get gas from PA to Tokyo.  So there are big differences around the world.  There used to be *giant* regional differences intrastate and around the US, which are called "basis spreads" but those have mostly closed.  There's still a huge oversupply in PA, but that problem will take care of itself in a few years as producers slow down drilling in the NE corner of PA.

NGLs are comprised mostly of ethane (C2), propane (C3), 2 forms of butane (C4), and natural gasoline (itself comprised of the 3 forms of C5 and some C6s and some C6+s).  Even though those are liquids at room temperature (and slightly higher than room pressure), which makes them easy to transport, they are not commonly used as a transportation fuel in North America, so they are worth a lot less than oil on an energy equivalent basis.  The gap between a barrel of NGLs and oil will close in a few years as propane export facilities get completed and as the petchems complete ethane crackers (to make ethylene: the precursor to many plastics and organic compounds) in the next 3 years.

Permalink Reply by Nancy LeNau on September 17, 2012 at 2:39pm

Ron, Thank you... You are a wealth of information !  I live in Hookstown, PA. , Beaver County, on a small farm of 76 acres. My Husband had a forced retirement (meaning he lost his job).. That's ok.... he was just a few years from it anyway. I like having him here on the farm. I have saved my money for an indoor horse riding arena for training my stallion. Now, Just hoping we can afford the taxes for this new building.  May I ask.... your opinion ...  does it look good for us here for drilling?  Not sure what we have here in the shale plays.   Many Thanks in advance and God Bless......  Nancy

Permalink Reply by Ron D. Jockefeller on September 17, 2012 at 4:43pm

Hi Nancy:

Yeah, Hookstown is pretty close to the border, and you've probably got some wet gas there + you are very near where a lot of infrastructure will be.  I'm no landman, so I won't guess what your land is worth, but I think you'll get an offer soon if you haven't already.

-RDJ

Permalink Reply by Utica Shale on September 18, 2012 at 1:43am

Ron,

  Thank You for the information. Yes, I agree, Spot Prices will vary from location to location. We have local gasoline stations that sometime vary by $0.20 per gallon or more. I just paid $3.69 per gallon last night at Murphy Oil and Shell had a sign for $3.89 per gallon! It won't be long before Murphy goes UP or Shell comes DOWN or both.

 

 I am still amazed at how cheap Propane is per BOE ...

 1 bbl Oil = $100

 1 boe NGL = $35

 1 boe Nat Gas = $18

 

Permalink Reply by james on September 9, 2012 at 2:27am

Its neat that Halcons well is only about 1 mile from my property in Venango County, I hope they hit a gusher.

Permalink Reply by james on September 9, 2012 at 2:41am

Fang, I stopped at the site and got the landmans number and called him about leasing our familys 1500+acres and he said someone would call me, that was over a week ago and nothing yet?

Permalink Reply by Ron D. Jockefeller on September 9, 2012 at 9:57am

This map was created from thousands of cores acquired from drilling the Knox formation. It shows the depths of the formation, county+state lines, well sites, and the types of hydrocarbons in the formation.  None of that is going to change much at all at this point.

What the map does not show is whether any particular area is commercially viable.  Just because, for example, Summit county is shown as being partially in the black oil window does NOT imply that there will be COMMERCIAL quantities of black oil that are recoverable profitably using currently know production techniques.

This is a map that shows geology, not profits and not land values and not lease rates.  And this map will not get anyone fired.  You can feel free to ignore it, but it's essentially complete.

What you should maybe not ignore, but at least take with a grain of salt, are the assumptions in the rest of the presentation that show presumed production, presumed market prices, presumed IRRs, etc.  Those numbers are good estimates, but are very likely to change.

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