Notes From EOG's 2Q15 Conference Call -- August 7, 2015

In a long note like this, there will be factual and typographical errors. If this information is important to you, go to the source. This is not an investment site. Do not make any investment or financial decisions based on what you read here or what  you think you may have read here. 

Highlights from EOG's 2Q15 earnings / conference call transcript with regard to the Bakken operations only.

Net resource potential in the Bakken/Three Forks:

• 1 billion boe ("just over")
• represents 2.5x EOG's original estimate of 420 million boe
• remaining drilling activity increased from 580 to over 1500 net drilling locations
• 760 million boe remaining; decades of drilling
• premier asset
• [760 million / 1500 = EURs of 500,000 boe]

EOG has split the Bakken into two categories: Core and Non-Core 

• main focus will be on the Core Bakken in the near term

Core Bakken

• returns competitive with Eagle Ford and the Delaware Basin
• includes acreage in EOG's Bakken core and Antelope extension
• 120,000 net acres
• 590 net drilling locations
• 360 million boe: remaining net resource potential (360/120 = 3,000 boe/acre)
• 10 years of drilling

Non-Core Bakken

• Bakken Lite, State Line, Elm Coulee (Montana)
• non-core acreage "will be very economic even with low oil prices"
• 110,000 net acres
• 400 million boe (400 million / 110,000 = 3,600 boe/acre)
• 950 net drilling locations
• decades of drilling 

Riverview 102-32H, first Bakken well in the Antelope extension using high density completion

• maximum rate: 3,395 bopd
• 6 million cfpd
• with an average rate of 2,760 bopd for July, 2015, this short 4,300' lateral will be the highest rate ever recorded for the Bakken or Three Forks
• "EOG excited to continue applying high density completions throughout the entire play"

Completion costs in the Bakken

• $7.1 million for a 8,400' treated lateral
• represents a 20% decrease in well costs from 2014
• most savings due to efficiency gains, not vendor cost reductions
• sustainable over time
• drilling times: averaging 8.2 days spud-to-TD for a 8,400' lateral
• record drilling time for EOG: 5.6 days

Completion efficiencies

• 10 completion stages per day (up from 4.5 stages per day in 2014)
• plug drill out times have been cut in half since 2014

Cost savings not limited to CAPEX cuts

• added infrastructure this year in Bakken core: results in dramatic LOE reductions
• 2Q15 LOE is down more than 25% from 1Q15

Miscellaneous

"The first one is, we continue to drill our laterals in better rock. We're drilling -- we are taking a lot of time and effort, picking out the best quality rock in each one of these plays and keeping the lateral in that longer. And then and to execute that well is very important. And when we do that, we now are doing a much better job with these high density fracs and better distributing the frac along the lateral, connecting up more of that good rock. And it certainly lowering our decline rates over time and that makes it easier to grow production."

"Really, even if oil stays where it is right now, we are going to go ahead and move forward in a pretty aggressive fashion on that DUC inventory in the first part of the year. That would be the highest return decision that we could make with our capital. And so we will be starting completion fairly aggressive on these DUCs early next year."

"We are set up so well with the DUC inventory that even with the low prices we would have enough cash flow to keep production flat."

"I think next year, Pearce, what we are saying is that even with the minimum, even with the low-price cash flow scenario the highest return investment we could make in the company would be to begin completing those DUCs and complete those DUCs earlier in the year versus spending that money on other things. So the quality of these DUCs is very high quality. So we have infrastructure in place. So that would be the highest return place to put the money."

In the Eagle Ford: "We have about 3.2 billion barrels of recoverable oil out of 7200 locations. That's an average of about 40 acre spacing."

[Wow, wow, wow -- I said this a long, long time ago in the blog.] "So we used to think, it has really been a shift in thinking, we used to think that these big fracs just connected up a lot of rock both laterally and vertically, but as we go forward and we change the design and we get more data we become more convinced that the frac is just, especially these high density fracs is really most effective very, very close to the wellbore. So that is really helping to boost our confidence and that we're going to add additional reserve potential going forward."

With regard to "radial separation," see these two posts:

• September 22, 2014
• October 17, 2012

Fractures Extend All Of 300' From The Well-Bore; ObamaCare: Government / AP Figures Very Similar To MDW Numbers; Global Warming Peer-Reviewed Studies Starting To Come In -- September 22, 2014

This is really, really cool. Regular readers know I posted from the very beginning that I thought fracking was only effective about 500' out from the well bore. I got a lot of pushback on that from "the other Bakken discussion board." I saw that with the Olson wells which were drilled so long ago it seems like ancient history.

So, it was gratifying to see this "single bullet" in the 114-slide CLR corporate presentation; from slide 29:

• Significant un-propped area exists between wellbores (1,320’ spacing / 330’ stage)

• Models suggest sand-propped fractures extend 280’-340’ in each direction from the wellbores based on integrating the microseismic data with stimulation modeling

On August 3, 2013, I posted this:

Fracking is only effective out to about 500 feet.

This was posted October 17, 2012:

NEXT Frac outperforms traditional hydraulic fracturing techniques as it can easily reach wellbore radial fracture propagation of 180m - 365m, as compared to typical hydraulic fracture propagation of 30m.  [30 meters is about 100 feet.]

Back on that same date, that same link, I wrote:

I have mentioned several times on the blog that is appears to me that the radial effectiveness of conventional fracturing is about 500 feet.

That was back in 2012.

It doesn't take a rocket scientist to suggest what that might mean.

By the way, the BEXP Brad Olson wells were spud in late 2010 -- that's how long ago I thought about the effective radial distance of fracking. Whoohoo!

• 19085, Brad Olson 9-16 3H, 2,172; Painted Woods; t4/11; cum 93K 4/12; 
• 19086, Brad Olson 9-16 2H, 2,472, Painted Woods; spudded 7/10; cum 111K 4/12;

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Those ObamaCare Numbers: Fact Or Fiction

Regular readers know that I opined from the beginning that the number of folks who signed up for ObamaCare was in the four (4) million range, and that probably half the number of enrollees (whatever the number turned out to be) would actually pay a full year's worth of premiums and re-enroll.

It looks like I'm not too far off.

The AP is reporting:

Scrambled statistics are part of the growing pains for President Barack Obama's health care law.

The administration has had to revise and refine some initial enrollment numbers after they turned out to be too optimistic. At other times, less-favorable metrics leaked out after officials claimed not to have such data.

Call it health-law numerology [or just plain lying]. It's a new pursuit for administration officials from the president on down, lawmakers of both parties, and a gaggle of outside analysts [including the MDW, home of I-98].

The latest data tweak — an administration announcement that 7.3 million paying customers signed up for subsidized private insurance as of mid-August — set off more speculation. Some said it may prove overly rosy.

"They have been playing fast and loose with these numbers," said insurance industry consultant Robert Laszewski, a critic of Obama's law who has also skewered proposals from the president's Republican foes.

"Until we get an outside audit we are not going to know what the heck is going on."

Purists will say that "my" four (4) million figure is significantly different than the "7 million figure." 

Is it?

US population: 320 million.

US illegal population: 20 million (allowed to sign up).

4 / 340 =  1.1%

7 / 340 = 2.0%

From the article: "... some say 7.3 million may prove overly rosy." The definition of "overly" in this case is 3.35 million (citation needed). Thus we have: 3.95 million actually signed up based on AP numbers.

And thus my original figure of 4.0 million was likely more than the actual number that signed up.

I can't make this stuff up. Except the part about the definition of "overly" -- but for that I'm still looking for the citation. LOL.

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Global Warming: Fact Or Fiction

Now that the scientists have passed the baton to the celebrities (The Great Gatsby and the Titanic star takes the lead, and we know how those movies ended for the star), we'll start seeing more peer-reviewed studies on global warming, like this one. The AP is reporting:

A new study released Monday found that warming temperatures in Pacific Ocean waters off the coast of North America over the past century closely followed natural changes in the wind, not increases in greenhouse gases related to global warming.

The study compared ocean surface temperatures from 1900 to 2012 to surface air pressure, a stand-in for wind measurements, and found a close match. 

"What we found was the somewhat surprising degree to which the winds can explain all the wiggles in the temperature curve," said lead author Jim Johnstone, who did the work while a climatologist at the Joint Institute for the Study of the Atmosphere and Ocean at the University of Washington. 

"So clearly, there are other factors stronger than the greenhouse forcing that is affecting those temperatures," he added.

By the way, this is an old, old theory -- wind -- that has explained the decline (and in some cases, the return) of glaciers worldwide.  

UC Irvine? Really, Irvine?

XOM To Buy Celtic Exploration, Canadian Exploration Company

Updates

Later, 1:04 pm: a reader alerts me to another new fracking technology: NEXT Frac. 

NEXT Frac outperforms traditional hydraulic fracturing techniques as it can easily reach wellbore radial fracture propagation of 180m - 365m, as compared to typical hydraulic fracture propagation of 30m.

I may do a stand-alone post on this later. I have mentioned several times on the blog that is appears to me that the radial effectiveness of conventional fracturing is about 500 feet. I may have been way too generous. CLR suggests as much with its study on the Three Forks, and then this link to NEXT Frac in which they suggest that the "typical hydraulic fracture propagation of less than 100 feet."

Later, 9:53 am: Celtic is up over $8, almost 50% higher in opening. I think XOM bought the company for the fracking technology; great news for the Bakken.

Original Post

For around $3 billion.

Market cap yesterday for Celtic, about $2 billion.

Bought for Celtic's technology/experience in nitrogen fracking?

September 10, 2012, operations update:

At Jayar, Alberta, in the northern portion of Celtic's Resthaven land block, the Company has completed a horizontal well located at 4-22-61-3W6 (100% WI). The well was drilled with a horizontal lateral of 1,545 meters in the Montney formation and was completed with a 900 tonne, 18-stage nitrogen foam fracture. The well was flowed on clean-up for 194 hours and during the last 24 hours of the test the well was flowing at 11.7 MMCF per day of raw gas and 362 barrels per day of condensate with a flowing tubing pressure of 8,748 kPa (1,268 psi).

2012 guidance:

Celtic re-confirms its exit 2012 production guidance of 29,900 boe per day. In addition, the Company's 2012 net capital expenditure program remains at $322.0 million. Celtic expects production in 2012 to average between 22,000 and 23,000 boe per day. 

Average production in 2012 is expected to be weighted 24% oil and 76% gas; however, operating income in 2012 is expected to be weighted 78% oil and 22% gas. At the low end of the range of 2012's average production forecast, this represents a 36% increase from average production of 16,212 boe per day in 2011. On a production per common share basis, the increase would be 26%.

XOM  with $18 billion in cash.