Regarding The "Halo" Effect -- May 9, 2019

A reader sent this note earlier today. It's a great note, better articulated than anything I've written.

It's a great jumping off point for future thoughts about the "halo" effect. See this post for the Whiting slides. Also this post for a couple more slides on Gen 5 fracking. And finally, this narrative on the "parent-well-uplift" phenomenon from the CEO.

From the reader:

I heard some other glimmer recently that was pro halo effect. Not sure if it was DrillingInfo, Rystad, CLR, Shaleprofile, or what source.

Essentially the insight was that child wells are not just typically lower production themselves but also impact the parent negatively (after all their is well to well competition). This is basically the case in other basins. But the one exception was the Bakken. That in the B, the child wells were not only better than parent but also some uplift of the parent. This is because old completions were so poor. E.g. might not be seen if you did a child of a current completion.

I wouldn't take any of this as total validation. Just some inklings starting to back you up.

I still prefer to see some statistical study (DrillingInfo is great about these kinds of analyses) that filters pairs of wells and looks at the impact. Nor just random data points that may not represent average effect (issue with your aenecotes and WLL chart...need to show whole dataset not a few points that happen to show an impact...maybe others don't).

Other issues with the WLL chart: need to see a control versus just resting the well (there is a down time while you frack the child). And using producing days versus calendar days...obscures the financial impact of the down time and also that resting is going on.

Another issue is that the post-child frack time is very short. They say they have 2500 producing days, but you have way less than that post frack (50?) Need to see long term behavior. I think megafracks started in late 2017 or at latest early 2018, so there should be more wells where we can see over a year of decline.

My comments:

Disclaimer: I am inappropriately exuberant about the Bakken. I often see the Bakken from the point of view of a small (mom-and-pop) mineral owner. That definitely "influences" my thoughts about the Bakken.

Disclaimer: in a long note like this there will be typographical and factual errors. I have no training in the oil sector. I often see things that don't exist but I don't intentionally mislead readers. I have never been a good writer, and I do not articulate things as well as I wish I could. But if one reads enough of my stuff, one should get a feeling for what I'm trying to say; that's one of the reasons, I suppose, that I blog so much.

Anyway, my comments:

1. I'm not convinced the "halo" effect will be enough to "move the needle" with regard to earnings for operators in the Bakken. It is exciting to see the "halo" effect when it occurs because I imagine it excites the mineral owner to see a jump in royalties, especially when led to believe that once a well starts to decline in production, it will continue to decline. In a more general sense, I get the feeling that no one expected this to happen -- to see a significant jump in production in old wells even when nothing specific is going on at the well.

2. I found it interesting that operators had not discussed this phenomenon in their earnings call. That suggested to me it was not enough to "move the needle."

3. On the other hand, I was just as surprised to see Whiting (or any operator) address the phenomenon. And surprisingly, there were three slides as well as a fairly lengthy Q&A (one question) on the subject. That seems like a long time to spend on one subject that so many discount.

4. The reader above would like to see a statistical study; I agree. My hunch is that Whiting (and others are doing that). I don't have the skills or the time (or perhaps even enough data) to do a statistical study, so we will have to wait. Now that Whiting has broached the subject, we might see more discussion on the subject going forward.

5. Even more interesting than a statistical study would be more research on the phenomenon.

6.  Anecdotally, this is what I've seen:

• some fields/areas in the Bakken seem to be exhibit the phenomenon more than other fields/areas
• some operators seem to experience the phenomenon more often, and some may actually be trying to maximize "parent-well-uplift" results. MRO comes to mind. Perhaps (probably) CLR
• the phenomenon is short-lived -- but not necessarily all that much shorter duration than seen after the original frack some years earlier
• the more daughter wells (horizontals) fracked around one parent well, the better the results, all else being equal (which seems obvious but may not be)
• new production in some '"parent-well-uplift" events are incredible; others much more subtle
• the results of a successful "parent-well-uplift" have two results:
• immediate jump in production;
• affects the overall decline rate -- resulting in an increased EUR

7. The reader noted that he/she seems to remember reading something about the "halo" effect not being seen in other shale basins (Eagle Ford, Permian) suggesting that these sources think this may be "unique" to the Bakken

8. At first glance, it would not make sense that one basin would be unique with regard to "parent-well-uplift" but if the "halo" effect is a function of the natural micro-fractures in a basin, there could be a difference between basins.

Anyway, time to move on for now.

But I wanted to make sure that others read that note from the reader regarding the "halo" effect.

I was surprised that Whiting would bring it up; at the same time I was surprised that the phenomenon wasn't brought up earlier. But now that I've read earnings reports/transcripts for the past decade I understand why it has not been brought up previously. I can't imagine we will see much in earnings reports unless there is solid evidence that the phenomenon moves the needle (with regard to production) and operators actively try to maximize the phenomenon.

Again, so much could be written. We've barely scratched the surface. More to follow.

You know, one way to measure this, I suppose, is if down the road, let's say ten years from now, the discussions among operators is whether the "halo" effect is a better phenomenon to study rather than EOR such as CO2 injection.

The "halo" effect may turn out to be anecdotally interesting and exciting for individual small mineral owners, but nothing else. On the other hand ....

On The Other Hand, Randy Travis