Thursday, October 26, 2017

WTI At $52.68; Statoil Looks At $27 Breakeven In The Eagle Ford -- October 26, 2017

Note: the Freedom Energy well targeting the Lodgepole southwest of Dickinson, #33997, has been updated at this post

Breakeven Costs (Again)

Tea leaves: it's really, really "fun" to watch for "red flags" (good and bad) buried in long, long reports. I did not catch this the first I went through the earnings report, but look at the breakeven target that Statoil wants in the Eagle Ford in their "next generation" wells in the Eagle Ford: $27 oil. Is that far-fetched? Is anyone else talking about $30 oil? If one is paying attention, we talked about it  -- was it yesterday -- let's look: yes, here it is, yesterday: "Big Oil target: make money at $30-oil." -- Bloomberg

This has so many incredible implications -- making money at $30 oil. But time to move on.

Statoil earnings cal, 3Q17: link here. From Q&A:
Q: ... some of your competitors called things like train wreck wells with that tighter down spacing in Eagle Ford and whether there's some extra CapEx that will drop out and not be spent going forward?
A: ... on the well spacing and the change of CapEx, it's too early to conclude, we have changed the well spacing to a wider space of 500 feet
Q: ...related to the Eagle Ford downgrade, I think there's some concern in the market over your relatively low reserve life. I'm guessing that's going to fall further on the back of the Eagle Ford downgrade to reserves. So just how you're kind of thinking about that reserve life within that context as well?
A: (does not answer the question; too early to tell) ... In terms of reserve life, on a portfolio level, we like to talk about the next generation portfolio with an excellent breakeven, it's $27 on average, short payback time 2023, IRR 20%, you heard me say this before. So we're not worried about that. On Eagle Ford, this is part of what we are assessing based on the change and the improvement work we're doing.
Q: ... impairments
A: ...The largest impairment of $0.85 billion is specifically on Eagle Ford. This was triggered by lower than expected production volumes, but the impairment in itself is calculated based on our market valuation.
Q: ... impairments
A: ... So the history we're coming from is that both in this quarter and in previous quarters, we've had impairments and reversals. And the largest one in this quarter is Eagle Ford. So, this is due to the trigger of reduced production rates. As part of the industry, we started a year ago to do tighter well spacing 200 feet to 250 feet. We had great faith in this measure of course, so we actually reversed based on the plans and the indicative results, that didn't turn out to be as favorable as we hoped for. So we have, of course, stopped that practice and are changing it.
This is an Eagle Ford issue as it has been for the industry with tighter well spacing. So based on that, we did a valuation, third-party market assessment and we have started working out an improvement plan. So, we have moved from 200 feet to 250 feet well spacing to 500 feet. Very early days, too early to conclude, but the indicative result so far is in the positive direction. So, this is something we will come back to. So, as I said, there is uncertainty in valuation and reserves. So that's why we have these changes
From the blog, July 26, 2017 (link here):
I've also read that some operators in the Bakken can meet their 2017 contractual agreements in the first six months of the year. Anyone following "wells of interest" can understand why I say that "new" bbls in the Bakken are being lifted for a lot less than $28/bbl, using OXY's accounting methods.

Back To The Bakken

Active rigs:

Active Rigs533668194182

Eight (8) new permits:
  • Operators: Hess (6); BR; Ballard Petroleum
  • Fields: Blue Buttes (McKenzie); Camel Butte (McKenzie); Wildcat (Bottineau)
  • Comments: Hess has permits for a 6-well BB-Chapin pad in section 5-151-95
CLR renewed four permits:
  • CLR: two Charlotte permits; one Chicago permit; and, one Akron permit, all in McKenzie County
Five permits canceled:
  • EOG (3): two Mandaree permits and one West Clark permit, all in McKenzie County
  • HRC: one Fort Berthold permit, in McKenzie County
  • Oasis: one Crane Federal permit in Williams County
One DUC reported as completed:
  • 33499, 593, Oasis, Osprey5401 44-23H, Todd, t10/17; cum --

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