For a long time in the domestic patch, independents and small operators had plenty they could rely on to get the most out of oil reservoirs.
Between their insight, hard work and, most importantly, open acreage, these companies could take leases and start turning to the right.
However, the hyper-competitive leasing programs needed to support unconventional drilling have created large swaths of acreage that have been and will continue to be Held by Production (HBP) for a number of years. This, of course, assumes most unconventional wells are productive/economic.
But, the oft quoted promise in Ruth 16:1, “for whither thou goest, I will go” is an unworkable game plan for those who don’t have serious institutional backing or other access to leasing capital.
The Lay of the Land
To make the point, let’s look at some maps.
Large parts of the Permian Basin, Eagle Ford and Haynesville are under leases that have at least another year of primary term.
The same story plays out in Louisiana where large swatches of ground have been swallowed up for Haynesville exploitation.
And check out how Kansas looks from a leasing perspective.
Clearly, none of this is good unless you’ve got deep pockets. Very deep pockets.
Into the Great Unknown Oil Reservoirs
So what does this mean for the smaller independents?
In a word or two, get OUT of your comfort zone!
Most prospect generators have built their careers in particular basins – Permian, Piceance, Williston, Black Warrior, Gulf Coast, etc. You know who you are. You know the stratigraphy, structural styles, catalog of economic viable oil reservoirs and formation tops.
You know the high risk vs. low risk trends in a basin. You no doubt have specialized information on shows, Drill Stem Tests (DSTs) and mudlogs for your areas of concentration. You probably have the only existing copy of a key open hole log that no one else has.
But it doesn’t do you a damn bit of good if MegaOil has leased 200,000 acres in your traditional stomping grounds.
So how do you compete?
One way is the traditional farm-in route. This can be a compelling way to go, especially if you can develop a drillable prospect at shallower depths. Companies that choose this strategy can hold acreage for much larger companies that are trying to execute on “drill to hold” unconventional drilling programs.
Of course, your farm-in will probably require you to give up royalty or working interest. This might mean you end up forfeiting a potential monetary value that dwarfs what you would have paid in original lease bonus.
Buying minerals or existing production is another way to get out from under the “leasing shadow” of major unconventional plays. But, money making fields that sit over high total organic carbon (TOC) and fracable unconventional play trends are usually fairly pricey.
The third and, to me, most compelling option is to find opportunities in oil reservoirs that are not compromised by unconventional leasing.
For example, this map from DI Desktop shows all wells (allocated) that were drilled to a total depth (TD) of 5000 feet or less and made 100,000 barrels of oil or more.
Districts 7B and 9 have a good concentration of wells. And, excluding some second phase leasing for the oil-rich Barnett in Dist 9 and easternmost Dist 7B, it looks like there is still ground to capture in this area.
In a different region way east of the Texas panhandle, an operator drilled and produced this great well. It has made nearly 2,000,000 barrels of oil from a depth less than 5000 feet.
These are exactly the kinds of strikes smart independents can make when they look beyond the hot new oil reservoirs making all the headlines.
But, let me be clear. The point in discussing these areas and this well is not to send you all rushing into District 7B or east of the Texas panhandle. The point here is that if you are an independent who has been priced out of an area that you have always worked (as many of us have), the answer isn’t to adapt a “woe is me” attitude and hope for a huge strike in the sliver of acreage you can still afford.
No, the answer is to boldly shift your economic model and, again, get OUT of your comfort zone! Expand your horizons and pursue a broader vision of where your best opportunities could lie. Tweet This!
Diamond in the Rough
So, how do you shift your economic model, and what’s the key to finding hidden gems like this?
It’s the ability to rapidly work through large amounts of data. Data such as logs, shows, tops, production, log derived attributes, etc. Nimble operators that can efficiently sift large amounts of data can distill out a number of promising leads, and then check to see if they are leased up.
Imagine having the ability to search for all Woodbine wells with a net isochore thickness of 30 feet or more, porosity of 15% or better and Sw values less than 40% that have produced over 100,000 barrels of oil that is 35 degree API or better. And what if you could map top and thickness to spot unexploited areas within a trend, and then after lunch swap basins to cross plot Rose Run production against calculated TOC values?
You get the picture.
The great news is the ability to do all of this will be available in the not too distant future to all Drillinginfo customers who elect to upgrade to the appropriate subscription level. Our Transform acquisition will finally make this dream a reality.
In the meantime, happy hunting in basins you’ve never worked before!
I’m curious to hear your thoughts on this one. What are some of the best practices you have found to be most effective? How can independents of all sizes successfully compete in the current high dollar unconventional leasing environment? Please leave a comment below.
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