EnerCom’s The Oil & Services Conference™ 13 on February 18 -19, 2015, provided hundreds of investment professionals the opportunity to listen to the world’s key oil and gas E&P/OilService management teams present their 2015 growth plans, and address important energy topics affecting the global oil and gas industry.. EnerCom’s management took notes during the companies’ presentations, highlighting individual points of interest. Each of the companies’ presentations can be found by clicking on the company’s name.
Integrated Environmental Technologies
- A growth story that is positioned to save its customers money
- Been in business as a public company for a decade
- Reaching a growth point inflection point; technologies are commercial and customers
- Specialty scavenger to reduce and eliminate H2S and dealing with water-borne bacteria when using water from streams for fracing
- Can be customized for any well
- $2B market for handling H2S in the reservoir; $4B when including use with fracing activities
- Focused in the U.S. western oil basins
- Approximately $20 million spent on company and technology development resulting in proprietary process and EPA approval
- Have now worked in 100 wells in the Permian, Uinta and Bakken regions
- Approximately 50% of the 11,000 producing wells in the Uinta Basin has H2S.
- Virtually 100% elimination of hydrogen sulfide within hours
- Deliveries made by tanker truck; approximately 25 minutes to service each well
- Help clients meet pipeline specifications to realize potential uplift in realized price for sweet production
- Excelyte is made with proprietary machines and process
- One machine will make more than 30,000 gallons per month of product
- A machine costs approximately $16,000 to fabricate in-house
- Heated flex space built for $150,000, with payback in approximately three months
- Debt represents less than one year of cash flow
- E&P activities not driven by lease expiries; strong HBP positions with well-defined geologic and engineering field-wide models on core operating basins
- Hoxbar in western Oklahoma; first drilled three years ago discovered by Unit offers tremendous upside
- Wilcox core structure on Gilly Field looks to be in excess of 12,000 acres with 430 Bcfe gross resource potential; total Wilcox resource potential for Unit is 870 Bcfe
- Hoxbar (called SOHOT by Unit) – Unit and EOG are both in the area win western Oklahoma; use two rigs for 2015; up to five productive zones, tested two. Tested Medrano and Marchand
- The industry has never reacted as fast as it has in this cycle to prices and costs. Since the high point of rig count on November 17, 2014, the industry has laid down seven rigs per day since.
- The rig count has not bottomed yet, but it’s getting closer
- Unit uses its own rigs and processing facilities for its Granite Wash operations. Started with three rigs at 1/1/2015 will be at zero rigs by end of Q1’15. Waiting for improving liquids in Texas Panhandle
- Huge potential for UNT in Mississippian play in south central Kansas. Shooting 3-d across the block. Mostly oil targets for Unit.
- Running 50 rigs, down from 83 at beginning of December 2014. Eight BOSS rigs contracted at present. Plans to build four more on hold. Operators are not willing to sign multi-year contracts for new rig builds at the moment.
- Midstream group has realized 26% CAGR in segment operating margin; grew fee-based revenue 1700 bps; 72% of margin contribution comes from third-party gas.
- Co-founders have worked in the DJ Basin since 1981
- Multi-benches; strong drilling results
- Take-away capacity is robust for SYRG; DCP is working to build out more assets in basin
- Liquids-rich reservoir. Crude oil is trucked to Suncor refinery plant in Commerce City, Colorado
- Disciplined to build companies with low finding costs, low operating costs, low coat of capital and high rates of returns; generates high recycle ratios
- No long term drilling contracts, with optionality to keep three rigs working through the cycle
- Raised $300MM net to build a $1B company
- Stacked pay in core Wattenberg area is well defined – Niobrara A, B and C benches
- Each rig can drill 30 wells per annum
- Two year or less payback period per well is the “sweet spot” for the company
- Have seen CWC costs drop 10% to 20% to $3.1MM to $3.8MM for 2015; looking to push cost per well below $3MM
- ~$10/barrel differential for DJ crude oil to WTI
- One rig drilling 11 wells on the Cannon pad
- 29 wells in inventory ready to be frac’ed. Starting on the Kiehn/Weis pad
- Potential for 40 gross wells to come on production by Aug 31, 2015 – 36 standard length and four extended reach; 30 sliding sleeve and 10 plug and perf completions
- Greenhorn formation is exploration oriented; 90 feet in thickness; shallower than the Niobrara. 38,422 net acreage position as part of the company’s NE DJ extension position; 65% WI
- TTM margin: 77%.
- 81% of production oil
- 2015 program 97% Wattenberg; 98% horizontal and 90% operated
- Pure play GOM operator
- GOM offers lowest breakeven costs
- Fit for purpose team with former Anadarko leadership team at GulfSlope Energy; credited with redevelopment of shelf Miocene; deep GOM experience
- Targeting horizons below thick salt sheets; seismic can be reprocessed to see and evaluate opportunities
- Has 2 billion barrels of potential of recoverable conventional resources on 21 blocks
- Are seeing reduction in service costs; adjusted operating model changed from non-op to operated. It will be a mix, so the company will remain flexible to generate as many opportunities to drill and find large discoveries with an appropriate WI ownership percentage
- Believes the company has a first mover advantage by going back into the GOM as others are leaving to drill shale plays
- Company is using regional 3D data set of 2.2 million acres (440 blocks) to identify future lease block targets
- DeGolyer and MacNaughton reviewed GulfSlope’s 17 individual prospects; Average size is 120 MMBOE; independent 3rd party evaluation of prospect sizes; in-line with previous internal company estimates; five of 17 have been selected for initial drilling campaign
- Internal numbers from GulfSlope’s full-cycle analysis suggest breakeven costs of $20-$25/BOE, providing the company to build a drilling program in a proven petroleum system that can weather a variety of commodity cycles
- Increase in processing speed and drop in cost to process seismic are the differentiators for E&P companies. Computer processing speed has moved from months to hours and days. Very powerful tool to run iterative scenarios.
- Unique mineral interest strategy
- 255,000 acres owned in perpetuity; concentration of acreage in Mid-continent
- Holds Eagle Ford working interests with privately held E&P operator with deep pockets and patient money
- Average lease cost ~$90/acre
- More than 4,200 identified drilling locations on acreage
- Majority of production and revenue comes from working interest percentage; however, the rate of return per project benefits from the 25% of production that comes from royalty interest. Royalty interest comes with no corresponding drilling or operating expense
- July 2015 to December 2015 hedged oil production of 10,000 with an $80 floor and $86.50 ceiling
- ‘SCOOP’ Woodford and Springer plays in south central Oklahoma will still see drilling as operators are indicating they will continue to drill on leases that are not held by production. All other operating areas are under pressure due to current price and cost markets; strategic go-forward drilling decisions by PHX will come from strict evaluation of each well/project and has to meet the company’s acceptable economic returns or be a strategic drill sites to hold critical leasehold positions for future drilling when commodity prices improve
Mike Smolinski, Energy Directions
- Sees a V-shaped correction.
- Forecasted $80 oil in 2014 as supply was plentiful and recommending to clients that they reduce their oil positions in August and oil stocks in September.
- Views $80 per barrel for WTI and $4.50 for Henry Hub natural gas as what these prices average during 2015.
- Thinking the bottom was seen in January 2015 at ~$50/barrel.
- Went to overweight strong buy on December 18, 2014. The first OPEC price shock changed $4.08 per barrel in 1973 to $13 in 74 and gave us the 1974 Crash. The second OPEC price shock took $14.50 in 77 to $39 in 81 and gave us the early 1980s recession.
- Crude oil supply unable to move above 75 MMB/D in 2004 gave us $140+ and Crash 2008. U.S. crude oil inventory rising sharply has been the big bearish news item each week pressuring oil prices and stock prices lower. The drop in refinery runs is one reason for the inventory increase.
- This inventory was 6.5 MMB less than the year before the Thanksgiving week to now 56.6 MMB more now. A 0.809 MMB/D production cut would have U.S. inventory the same as last year now.
- OPEC cut 2.8 MMB/D of production in the winter of 2008/2009; Saudi Arabia was 1.6 MMB/D of the cut, a disproportionate rate.
- Fuel switching – distillate for heating hit peak in December seven years ago.
- Gasoline consumption will reach new highs this summer in the U.S. and the rest of the world. 95% of crude oil usage is for transportation.
- Job creations will increase overall consumption, and will translate into more travel/driving.
- Outlook: increasing prosperity, more oil refining needs, and good entry points for natural gas investing.
