Update On Pure Permian Play -- Energen -- Mike Filloon -- June 18, 2018

From SeekingAlpha:

Energen has been in the news lately with Icahn and Corvex mulling a bid to buy the company. The question seems to be why EGN? There are a number of reasons why the company is attractive. The shares seem undervalued at current valuations.

This seems linked to EGN's recent production improvements per location. EGN is a Permian pure play, and has continued to improve production results. The Permian has the most valued acreage, but widening differentials are providing value in some names. EGN's well design changes have amped up production per foot.

Its Gen 3 Delaware frac' design uses 1,800 to 2,400 lbs./ft. of proppant. It has also decreased frac' cluster spacing. These changes have provided a significant improvement, and could continue to do so. Delaware well results continue to improve, and we think it should still be the focus going forward. EGN production improvements have been significant, and we believe this will continue in 2018. We pulled production results from 2016 and 2017. Improvements as a whole have been much better than the average Permian operator. It's Delaware acreage is improving faster than Midland. Locations already produce approximately 40% more oil per foot. EGN also has 85% of its production on pipe. It has hedged for differential protection. Approximately 72% of production is hedged this year.

Compare Energen's frack design in the Permian with that of the Bakken: 1,800 to 2,400 lbs/foot of proppant:

• 9,000-foot laterals
• 10 million lbs
• 50 stages
• 10 million lbs / 9,000 feet = 1,100 lbs/foot (as much as less than half what they're using in the Permian)
• 10 million lbs / 50 stages = 200,000 lbs of sand / stage in the Bakken

Also, look at this (previously posted), link here; EIA's monthly drilling productivity report --

So, the Permian producers are using much more proppant / foot to get much less crude oil / well.

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Just How Effective Is Fracking (Radially)?

Early on, I suggested the "effectiveness" of fracking extends out no more than 500 feet radially. See this note posted back on October 11, 2011:

Somehow the conversation got around to "how many wells in a section?"

Of course that depends on how many formations one is talking about and how "good" the location is.

There is also the question of how effective fracturing is the farther one gets away from the borehole. I suggested that the general consensus is that fracturing is effective out to 500 feet laterally (500 foot radius, or 1,000 feet diametrically) suggesting 4 to 5 wells average across a 5,280-foot section line. Note: "general consensus" in previous sentence.

I suggested that it is very likely that fracturing is not necessarily effective that far out. I am way beyond my depth here, so it was just idle chatter. And then this: Coincidentally I see that "luckyone" elsewhere has opined the very same thing -- back on September 22, 2011. I don't recall reading that entry before (although I probably have) but the point is that there are at least a couple of us armchair observers suggesting that it may be as little as 300 feet laterally or radially. That is a game changer. I also think (and have previously posted) that the farther away from the well, the less effective the fracturing. And, of course, that is borne out by the number of reports in which not all stages were successfully fracked, and usually it is farther out than closer in.

Fast forward to May, 2013, and Oasis corporate presentation, slide #10. Oasis plans to:

• vary spacing distances to as low as 400 feet in certain areas (equates to 6 wells per formation in single spacing unit). [The link will take you to the current corporate presentation which will change over time; this refers to the May, 2013, Oasis presentation only.]

If that pans out, and there are four payzones in the "better" Bakken (middle Bakken, TF1, TF2, TF3), that could be as many as 24 wells in one spacing unit. [By the way, CLR has a graphic that suggests one could see as many as 40 wells in one spacing unit.]

24 x 300,000 = 7.2 million bbls/spacing unit @$50/bbl = $360 million/spacing unit.

By the way, contrary to some folks' early concern, there are now indications that fracking a "new" well actually improves the production of an older, neighboring well. Of course, the jury is still out on that, but it certainly makes common sense.

Operator Effectiveness in the Bakken -- North Dakota, USA

I'm sure this metric has been discussed by someone elsewhere before but until today I had not seen it discussed, except for my stand-alone post on the subject on June 21, 2011.

Perhaps he discussed it in Parts I and/or II and I simply missed it, but here is what Michael Filloon had to say in today's Part III regarding the Bakken:

Continental (CLR) had 868,900 net acres as of March 2011. 68% of this acreage is de-risked and in development mode. Of its 365 million boe 2010 proved reserves, 42% were in the North Dakota Bakken. Continental has had very good results. The six month total production of wells drilled since 2009 by Continental is 4.145 million boe. Over this time it has drilled 69 wells. Its six month average production as of January, 2011, is 60 Mboe. This trails Whiting's (WLL) 100 Mboe and Brigham's (BEXP) 81 Mboe over the same time frame, while being equal to EOG Resources' (EOG) 60 Mboe. 

(100-60)/60 = 67%. Whiting's production is about 67 percent better than CLR and 23 percent better than its nearest "competitor." A very interesting metric. 

Of, 4 million / 365 million = about one percent. Yup, there's a lot of drilling yet to be done.

Rig Utililization in the Bakken -- North Dakota, USA,

There is an interesting graphic in Whiting's recent corporate presentation.

I noted some time ago that for all the rigs CLR has in the Williston Basin, it seems other drillers are completing wells at a similar rate despite having fewer rigs. It was just a "feeling."

Look at slide 26 of Whiting's most recent corporate presentation (June, 2011), in which Whiting lists about 35 drillers working in the Bakken, number of wells drilled, and six-month total production (MBOE 10); these are wells drilled since January, 2009 (I may be misreading the slide, but this is what is seems to say.) (The number of rigs is my estimate over time; subject to correction)(a select few):

• WLL: 15 rigs; 72 wells drilled; 7,221 mboe 10 -- 6 months total production; 100k/well
• EOG: 8 rigs (varies; bought AEZ); 119 wells drilled; 7,134 mboe 10; 60k/well
• CLR: 22 rigs; 69 wells drilled; 4,145 mboe 10; 60k/well
  
• BEXP: 6 rigs; 20 wells drilled; 1,628 mboe 10; 81k/well
• BR: x rigs; 44 wells drilled; 2,847 mboe 10; 65k/well
• Slawson: x rigs; 35 wells drilled; 2,613 mboe 10; 75k/well 
• MRO: x rigs; 60 wells drilled; 2,187 mboe 10; 36k/well
• XTO: x rigs; 49 wells drilled; 1,950 mboe 10; 40k/well
• KOG: 2 rigs; 10 wells drilled; 571 mboe 10; 57k/well
• Hess: x rigs; 43 wells drilled; 2,148 mboe 10; 50k/well

MRO and XTO stand out. 

It's possible that one rig/Eco-Pad, and the delay in completing the fourth well, is skewing CLR's results.

WLL's impressive 6-month production results are due to the impressive wells it has in the Sanish, and the way WLL is executing its Bakken strategy: at least one Sanish well for every other well it drills.

The graphic on that page lists the drillers in order of average production/well over the last six months:

• WLL: 100k/well
• Murex: 89k/well
• BEXP: 81k/well
• Hunt: 79k/well
• Slawson: 75k/well
• American: 72k/well
• Questar: 71k/well
• SHD: 68k/well
• Zavanna: 65k/well
• BR: 65k/well
• Petro-Hunt: 62k/well
• CLR: 60k/well
• EOG: 60k/well
• Fidelity (MDU): 57k/well
• KOG: 57k/well
• Anschutz (OXY): 57k/well
• SM: 54k/well
• Newfield: 53k/well
• Zenergy: 51k/well
• Hess: 50k/well
• Tracker (Hess): 49k/well
• Oasis: 46k/well
• Peak: 46k/well
• Encore (Denbury): 45k/well
• Sinclair: 44k/well
• XTO: 40k/well
• Lario: 40k/well
• MRO: 36k/well
• Baytex: 32k/well
• Cirque: 30k/well
• Samson Resources: 29k/well
• PDC: 27k/well
• Panther: 21k/well
• Sagebrush: 16k/well

Again, XTO and MRO stand out. One can argue that WLL is an outlier due to its "sweet spot" in the Sanish, but it's hard to defend XTO and MRO. Even companies like Newfield in the Bakken are somewhat disappointing when one looks at this data.

Hopefully, WLL updates this data a year from now.