spre, allen gilmer on how to find value in the oilfield 2016 11 10 edited

Society of Petroleum Resources Economists

Who we are • First professional international organization specifically dedicated to

the business side of the industry, "Petroleum Economics“

• Formed non-profit, 2015

• Connecting the dots and forging the missing link between many

societies and functional areas – cross disciplinary

• Chapters in Houston, Austin, Paris and London

What we do

• Houston meets monthly - networks, engages industry experts on hot topics; LinkedIn group - access topical content

• Online quarterly journal coming soon

Be a member

• Support the mission, learn and network

• Professional membership is $100; Students $25

An Oilman’s Ideas, Methods, Tips and Tricks…

Allen Gilmer

Society of Petroleum Resources Economists, November 2016

4

Lots Of Wealth Awaiting The Right Players…

EAGLE FORD-

USGS: 5.1 BBOE Economically Recoverable Reserves

UT BEG: 10 BBOE Economically Recoverable Reserves

Texas A&M: 21 BBOE Economically Recoverable Reserves

Drillinginfo: 18 BBOE (Standard)- 25BBOE (w/ Known Operations Improvements)

12-17% Drilled

Sanity Check: BOE In Place /SQ MI: 4-11 MMBOE; 43.3 BBOE – 119 BBOE (20-28% Recovery)

PERMIAN BASIN-

12x thicker source, 7x larger surface area (12x7=84) than Eagle Ford

BOE In Place/SQ MI: 50-180 MMBOE;

12.4 BBOE x 84 = 1.04 TBOE Recoverable

25.35 BBOE x 84 = 2.12 TBOE Recoverable

1-2% Drilled

SAUDI ARABIA- 268 BBOE

VENEZUELA- 297 BBOE

5

$50-$100 Trillion Prize.

What does that mean?

6

How MUCH Is That?

3 to 6 times current US Gross Domestic Product (GDP).

$150-300,000.00 per every Man, Woman, and Child

in the US.

2.5 to 5 times current US Debt.

5 to 10 times Chinese GDP. 25 to 50 times Indian GDP.

0.67 to 1.3 times Global GDP.

¼ to ½ times Total Accounted Wealth of the USA

(Z.1 Report, Federal Reserve)

8

There has NEVER been a bigger or more

important prize in the history of the Planet.

And it’s in Texas.

10

Anadarko

Appalachian

Delaware

Gulf Coast

Mid Con

Midland

Williston

Other

GOM

US Daily Rig Count

-By Basin

11

Anadarko

Appalachian

Delaware

Gulf Coast

Mid Con

Midland

Williston

Other

GOM

100% By Basin

12

100% By Drilling Company

Unit

Trinidad

Southwestern

Sidewinder

Precision Patterson UTI

Nomac

Nabors

Latshaw

Independence

Helmerich & Payne

Ensign

Capstar

Cactus

13

100% By Operator Whiting

Shell

Sandridge

Pioneer

Occidental

Marathon

ExxonMobil

EOG

Devon

Continental

ConocoPhillips

Concho

Chevron

Chesapeake

Apache

Anadarko

14

Oil and Gas 20:1 Oil

Oil and Gas 6:1 Gas

Early Mid Late 2015- 14% 17% 12% 2016- 11% 16%

Early Mid Late 2015- 13% 15% 22% 2016- 9% 19%

Early Mid Late 2015- 16% -13% 2016- 18%

20

Tracking 200+ Breakevens Across the Country:

Necessary to Understand Production Potential Chart shows how much cumulative incremental production could come online at different crude prices.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

-$4

,94

5.9

4

-$5

5.7

5

-$1

8.9

1

$6

.19

$

10

.63

$

23

.24

$

23

.82

$

26

.24

$

27

.26

$

29

.00

$

29

.02

$

29

.02

$

29

.04

$

29

.85

$

30

.40

$

31

.59

$

35

.06

$

36

.64

$

38

.14

$

38

.18

$

38

.64

$

38

.77

$

38

.82

$

39

.29

$

39

.33

$

39

.84

$

40

.17

$

40

.95

$

41

.26

$

42

.37

$

42

.85

$

43

.50

$

45

.25

$

45

.35

$

45

.75

$

45

.91

$

46

.20

$

49

.15

$

49

.64

$

49

.66

$

49

.98

$

50

.56

$

50

.74

$

50

.81

$

51

.33

$

51

.75

$

52

.21

$

52

.90

$

53

.34

$

53

.43

$

54

.59

$

56

.21

$

59

.31

$

59

.88

$

60

.13

$

60

.46

$

60

.72

$

60

.94

$

62

.07

$

62

.23

$

62

.35

$

63

.06

$

63

.58

$

63

.63

$

64

.72

$

64

.91

$

65

.15

$

66

.72

$

66

.72

$

66

.85

$

69

.22

Cum

ula

tive

In

cre

me

nta

l Pro

du

ctio

n b

y Y

E2

02

0 (

MM

Bb

l/d

)

Breakeven WTI Price ($/Bbl) @ 20% MARR, $3/MMBtu

Natural Decline from 9/2016-YE2020: 2,179,646 Bbl/d

21

Ceiling on Crude Oil Prices:

$55/Bbl WTI Means Production Growth in the US Granular understanding of economics & production potential helps guide price forecasts.

As long as the oversupply persists & stocks remain high, WTI can’t sustainably rise above $55/Bbl.

0

2

4

6

8

10

12

14

16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Cru

de O

il P

rod

uction

(M

MB

bl/d

)

- $0-5 $5-10 $10-15 $20-25 $25-30 $30-35 $35-40 $40-45 $45-50 $50-55

$55-60 $60-65 $65-70 $70-75 $75-80 $80-85 $85-90 $90-95 $95-100 $100+

$55/Bbl WTI

22

0

1

2

3

4

5

6

7

8

9

10

2014 2015 2016 2017 2018 2019 2020

Cru

de O

il P

rod

uction

(M

MB

bl/d

)

Forward Curve Implies Crude Grows, Gas Does Not

0

10

20

30

40

50

60

70

80

2014 2015 2016 2017 2018 2019 2020

Dry

Natu

ral G

as P

rod

uction

(B

cf/d

)

Rest of US

Permian

Eagle Ford

Williston

Anadarko

Denver-Julesburg

Rest of US

Marcellus

Haynesville

Anadarko

Permian Eagle Ford

Utica

The addition of 200+ rigs back into the fleet means crude oil production is slated to grow.

At the forward curve, natural gas production would decline, which is inconsistent with demand

expectations. Price response is likely.

Crude Oil Production Dry Gas Production

6 Month Actual Oil Production Map 6 Month Oil Native Production Map

(Normalized Engineering)

Example: Eagle Ford, McMullen Co.

Drivers of US Future- Optimizing Future Production


6 Month Actual Oil Production Map 6 Month Oil Native Production Map

(Normalized Engineering)

$150 million in engineering costs

that provided NO positive ROI.

$100 million in engineering costs

that could have produced $1.5

billion in additional PV6 value

Drivers of US Future- Optimizing Future Production

25

Production Model

• Production is a function of the petroleum geology of the reservoir interval and of the

operational decisions made to produce the interval

Production = f ( geology, operations )

Production = S F( xi )

Where F( xi ) is the relationship between the each variable and production

• So how do we get these relationships?

• How does production change with changes in lateral length, azimuth, number of

stages, volumes of proppant and treatment, etc.

• How does production change with changes in porosity, depth, thickness, resistivity,

density, etc

Strike (N-S) Cross-section

N S

N S

Flattened on Top of

Marble Falls

Dozens or Hundreds of Rock Property Maps and Volumes

28

Relationships to production

• We prefer to “discover” these relationships from our local data, and then evaluate

whether these relationships make sense and are meaningful

Porosity Lateral Length Stages Azimuth

Gamma Ray Deep Resistivity Treatment Proppant

Thickness Shallow Res Density Depth

29

Creating the Regional Optimization Function

Density Gamma Ray

Porosity

Deep Res

Shallow Res

Thickness Depth

Fixed Operational Values • 310 degrees direction

• Length: 10,200 feet

• 29 stages

• 3,160,000 lbs proppant

• 8,300 gallons treatment

Predicted 12 month Cum Oil

+ =>

Change the operational values =>

Change the predicted production

Yields 30-50% Improvement

Plus

many

more…

30

Even better… Well by Well Optimization

Complex, but yields 0-50% improvement over optimized “Regional” D/C/S Design.

Examples of 1st Principle Testing…

•well 1 (center well) was treated with a 10-ton Mongoose tool in a cemented

liner for a 24-stage completion on a 1300-m lateral. Treatment fluid

consisted of Nowferr Iron Control/Corrosion Inhibitor/Non-Emulsifier/Anti-

Sludge, Foam Preventer, with a 15% Acid Blend.

well 2 (easternmost well) used a sliding-sleeve for 16 stages on a 1300-m

lateral. Treatment fluid consisted of a Slurried Gellant, Clay Control Surfactant,

Breaker N, and CXB-2 Crosslinker.

•well 3 (westernmost well) used a 10-ton abrasive jet system in a cemented liner, and

set packers to isolate zones for 24 stages on a 1100-m lateral. Treatment fluid

consisted of Slurried Gellant, Clay Control Surficant, and Breaker N, with a 15% Acid

Blend.

32

•well 2 this well was also treated at lower average pressure compared to wells 1 and 3. It looks like the slurry rates however were a little higher for well #2

Well 1 Well 2 Well 3

Sliding Sleeve!

50-150% Better Production… (in this case!)

Or increasing frac effort while reducing “Disturbed Rock Volume”…

Great way to increase P3 Reserves…

Optimized Well Spacing Combined Production Map… ID Positive, Negative and 0 interference locations.

Or staying away or targeting fault systems…


Probabilistic determination of faulting


Distance to Faults versus BOE


70K BO

140K BO

40

50% Better?

41

Company 1 Company 2

Company 3 Company 4

43

SEPD (Best Fit)

30-39k BO

44

Next Best- ARPS

98K-111K

45

3rd Choice- DUONG

80K-104K

46

THANK YOU

Society of Petroleum Resources Economists

Networking and Brief

Wednesday December 7, 6 – 9 pm

Once Upon a Time in Mexico:

A Look at 2016 and Bid Round Results

Pablo Medina, Latin America Upstream, Wood Mackenzie

spre, allen gilmer on how to find value in the oilfield 2016 11 10 edited

Economy & Finance