re: Tuscaloosa Marine Shale

very interesting link.

any word on what a typical lease is bringing in for a landowner with mineral rights?

HEY

I am a real estate guy, dont show me links that have a bunch of data that I will never understand

So what, is that approximately $200-300 a month for the right to access an acre of property and drill for minerals? Seems, well, a little light eh?

Even if they aren't, as long as the pressures stay stable you will see and increase in drilling. Those are damn good numbers for land wells.

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1800 BOPD
2100 BOPD

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Are these 2 wells meeting their BOPD expectations?

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These are new wells, with only Initial Production or only 1 well tests recorded - so I guess there really aren't any expectations - it is what it is. The 1800BOPD well started out at 753BOPD and increased on the first reported well test to the Dept of Conservation. The 2100 well was just completed and that was Initial Production (IP) they reported. I understand that there may be some fairly large fluctuations in the first month or two. As you might expect, production normally heads south after they pop the cork...

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These are new wells, with only Initial Production or only 1 well tests recorded - so I guess there really aren't any expectations - it is what it is. The 1800BOPD well started out at 753BOPD and increased on the first reported well test to the Dept of Conservation. The 2100 well was just completed and that was Initial Production (IP) they reported. I understand that there may be some fairly large fluctuations in the first month or two. As you might expect, production normally heads south after they pop the cork...

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The Austin Chalk is a tough formation for a variety of reasons, but chiefly because operators are draining fractures and not pore space. They are attempting to intersect as many natural fractures as possible using horizontal wells and keep the formation from taking too much damage to produce. If these wells will not payout in less than twelve months then interest will likely fade again, much like the 1990's. Bringing the chalk across from Texas into Louisiana only resulted in a couple of areas where it really was economic (Masters Creek, Burr Ferry). With the high decline rates and challenging nature of the formation to drill and complete oil prices need to stay high and a company is going to have to be able to improve efficiency enough to continue a program. I doubt we see lease prices increase much higher due to the somewhat limited nature of the Chalk formation. It's only going to be economic in areas where it is sufficiently naturally fractured. Move too far down dip or up dip of the shelf edge that is being targeted currently and you lose the fracturing that allows the formation to be an economically viable target.

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For the last two days, I've been reading an equity research report on the Niobrara (its 111 pages), and that sounds similar to the characteristics that they were describing with that formation (at least the DJ basin). I am still pretty green on this stuff though, so if you want to compare/contrast those two, please drop some knowledge.

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I only have limited knowledge of the Niobrara, but understand it is also a chalk formation with several different productive horizons stacked on each other. These seem to be called "benches" in the Niobrara. Vertical wells have been producing in certain areas like Wattenberg field since at least the 1950's-1960's. The formation is geologically complicated and is going to vary significantly over distances. It is starting to look like the best wells are going to be in highly fractured areas sometimes even inside the old producing vertical fields akin to where Noble is active. EOG has made some nice wells, but has stopped short of calling the play a true gigantic resource play. Some operators have announced extremely disappointing results including Rex Energy. I have heard the rumors from some inside people there that CHK is very unhappy with what they have, and the announcement a couple of weeks ago that they are selling about 250,000 acres in the northern portion of the basin only reinforces that. All in all it seems like the play is going to be a shell of what the Eagle Ford and Bakken are.

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More or less what the report said, although they were a little more optimistic. Granted, its sell-side research, so their end-game is a little different.

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From what I have seen EOG notes the play is a contributor to their overall portfolio, but doesn't look to be a materially significant contributor to future growth as compared to the Eagleford. I doubt it is worth a whole lot on a per share basis to any of these large companies. Even as large as some of these companies are (as big as the Marathon, Anadarko, BP, etc) the Eagleford and Bakken are still worth a decent amount on a per share basis to large cap names. I don't think the Niobrara is proving to be the same type of play.

Yeah that makes sense. The gist of this report seems to be that you can't simply own names that have acreage in the play (for the geologic reasons you just stated), but that you need to own names that are highly levered to it to see potential benefits. Because of the aforementioned geologic complexity/inconsistency, the EUR probabilities can vary extremely widely relative to other plays (at least Bakken and EF, as those are the ones they contrasted it against).

It seems like you basically need to hit natural fracs for big paydays because of the relatively low overall estimated boed/well. If you don't hit the natural fracs and you have to do some of your own, they are suggesting that it can easily become uneconomical. Not necessarily unprofitable, but just not worth the resources. So even though the cost/well is substantially lower than a Bakken or EF well, so is the potential payout. So it seems as though, as you said, the larger companies will probably just move along as the risk/reward is really not worth their time or effort when there's money to be made elsewhere and where they can benefit from their scale, and it appears that some of them are already doing that. That being said, if a smaller E&P really develops a niche understanding of the area, it seems like you could see some real upside. CRZO looks like it might be one to watch in that regard.

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CRZO looks like it might be one to watch in that regard.

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From what I have heard they are in one of the best areas of the Niobrara and have the right size to play ratio as you suggested where it could be materially significant to them. They did well in the Barnett and are in the Eagleford also I think.