Understanding the Technical Challenges behind Horizontal Resource Plays

Here’s Why You Should Pay Attention to Oakspring Energy

EnerCom held its 21st annual The Oil & Gas Conference in Denver in August bringing together more than 100 presenters and 2,100 institutional investors and other energy and finance professionals.

Oakspring Energy was one of the presenting companies at EnerCom’s The Oil & Gas Conference® 21 in Denver in mid-August. Oakspring’s Chief Operating Officer Brad Gale discussed his company’s methods for analyzing a basin and unlocking resource potential. One major key: establishing what factors will influence the performance of a well.

“We try to solve the technical challenges behind these horizontal resource plays,” Gale told the conference attendees.

“One of the things that we find is very important is understanding reservoir quality. Through Jeff’s experience and my experience [Note: Brad Gale was previously COO at C12 Energy, Reservoir Manager – Engineering Technology at Chesapeake Energy, Vice President Reservoir Engineering at Encore Acquisitions, Reservoir Engineering Manager at ConocoPhillips], we have a fairly unique skill set. In terms of what rock data is good and bad, not all commercial lab data is created equal, some is really bad and some of its good. Understanding what you have so you can set some expectations on performance and make good investment decisions is pretty critical.”

Oakspring is creating its success by weeding through reservoir data, lab results, well performance data and other technical analyses in order to identify which information should be relied on when evaluating projects.

How Oakspring Approaches Opportunities using Earth Science and Engineering Lenses

Oakspring Investment Focus: driven by understanding the technical challenges behind horizontal resource plays

“We tend to use a technical evaluation process that looks through these plays with a lot of different lenses, both on the earth sciences side and the engineering side,” Gale said. “We are going to take it from the earth sciences standpoint up to the well performance analysis, and then what we end up getting are production forecasts and economic analyses that we feel we can trust much more, or at least we understand and know what we don’t know about the play,” . Our view is that this gets us to a much better decision, a much better capital allocation on these various projects that we look at.”

Here’s Why You Should Pay Attention to Oakspring Energy

Oakspring Energy President Jeff Miller

Gale’s boss is Jeff Miller, Oakspring’s founder and president. Miller has compiled a lifetime of knowledge from his personal experience understanding the science, technology, behavior and economics associated with unconventional reservoirs—shale plays in particular.

In fact, Jeff Miller started his career at ground zero of the shale revolution—Mitchell Energy and the Barnett shale in the Fort Worth basin.

As senior staff geologist/geophysicist at Mitchell Energy for two decades, Miller was on Mitchell Energy’s Barnett shale team—the people who figured out how to economically produce hydrocarbons from shale—the team that launched the U.S. shale phenomenon.

Miller came on as a geological advisor on the Barnett and other unconventional plays at Devon Energy (ticker: DVN), which had acquired Mitchell Energy in 2001. In 2005 Miller joined Chesapeake Energy (ticker: CHK) where he became VP geoscience technology, director of unconventional resource exploration and director of the Chesapeake/Statoil international joint venture.

As head of Chesapeake’s unconventional exploration team he gained personal knowledge of the geology, petrophysics and well economics of more than a dozen leading shale plays in key producing basins between Appalachia’s Utica and Argentina’s Vaca Muerta.

Here’s Why You Should Pay Attention to Oakspring Energy

Source: EIA

It was Miller’s 35 years’ worth of unconventional reservoir knowledge—starting at the very beginning of the shale boom—combined with decades of guiding interdisciplinary oil and gas teams for highly successful independent shale play focused E&Ps that led to the formation of Oakspring Energy in Oklahoma City and Dallas in 2014.


Interview with Jeff Miller, President, Oakspring Energy

Oil & Gas 360® had a chance to learn more about the nuts and bolts of Oakspring Energy in this exclusive interview with Jeff Miller.

OAG360: Jeff, if I asked you to describe what Oakspring Energy does in one sentence, what would you say?

JEFF MILLER, PRESIDENT, OAKSPRING ENERGY:  (1) Oakspring is a source of capital for operators. (2) We have deep technical abilities and experience utilizing time tested integrated workflows to better define the economics and allocate capital in a tough economic environment.

OAG360:  Could you walk us through what those integrated workflows are and why that is important?

Here’s Why You Should Pay Attention to Oakspring Energy

The key is that all disciplines are very well integrated. Optimal integration is hard to achieve … small producers are often lacking some skillsets, and at the larger companies integration becomes increasingly difficult.

After almost two years meeting with small and medium-sized producers, we have not run across producers with a workflow or capabilities similar to Oakspring’s.

OAG360:  Your company’s founding is different than most capital providers we come across. You are trying to bring advanced technology experience along with capital to a potential partnership. What is the strength of your strategy?

JM: To develop the ability to predict results and economics before committing significant capital.

OAG360:  As part of predicting results and economics, do you factor in things like evolving completion technologies?

JM:  Completion technology is something the industry understands well….no big secrets. We look at the hydrocarbon saturated intervals and will weigh in on landing zones, frac size, lateral length. It is critical that we partner with producers who know how to cost effectively complete wells. We will focus on understanding the reservoir and the producibility first, and completions second.

OAG360:  Could you describe how an Oakspring Energy joint venture would work? If you could describe a preferred deal structure, what would that look like?

JM:  We want to work with quality operators where Oakspring comes in as a working interest partner through creating an AMI with a Prospect Participation Agreement and a JOA governing our participation.

OAG360:  Is Oakspring more of a hands-off investor in other companies or more of an operator?

JM:  We would like to be hands-on for technical and economic analysis. We are non-op value add partners.

OAG360:  Could you walk through the process of how and when a partner comes to you and how the partnership or relationship unfolds?  Are opportunities sent to you by Yorktown, or do you talk to operators and analyze the opportunities that you find?

JM:   We talk to our Yorktown partners on a regular basis and discuss both current portfolio companies and other relationships we mutually have in the industry that should be contacted. We also have an intense effort to identify producers in areas that we think have potential, and we approach them to discuss their strategies. We are always interested in talking with other industry colleagues with whom we might partner.

OAG360:  How does Oakspring generate cash flow and returns?

JM:  We invest alongside the operators and help create the plans to invest in science, land and drilling efforts. The cash flow comes from successful drilling which can lead to continued development and/or monetization of the AMI.

OAG360:  Why is your company’s approach important?

critical elements oakspring process

JM:  It is important because we have all seen terrible destruction and misallocation of capital.  Our team at Oakspring has skills and experience which are commonly missing at small to medium-sized companies in areas like core analysis, petrophysics, reservoir engineering (numerical simulation, PVT and rate transient analysis).

OAG360:  Describe what a typical company looks like that you work with.

JM:  A good example of a small company would be a recently funded private equity-backed company or a small public producer with an office staff of 15 or less. Producers larger than this I would classify as medium-sized partners.

OAG360:  Until recently, companies first went in and bought as much land as they could. Then they tried to figure out what kind of asset they had within the leasehold period. Will this strategy succeed in the current commodity climate?

JM:  I would define this as trial and error, and this a very risky strategy. We are the exact opposite, we utilize all available technology, experience and skills to define a project’s potential before committing capital.

OAG 360:  You reference “calibrated expectations” in some of your materials. How does Oakspring create calibrated expectations—what does it mean and how do you do it?

JM:  We use a time tested integrated process which utilizes the right types of data to forecast economics.  Creating calibrated expectations is nothing more complex than understanding all the variables that go into making a reservoir perform – rock properties, reservoir fluids, the drilling and completions – to understand how wells should perform before you ever turn a bit. Our internal work flows are tuned to allow us to understand all we can before we deploy capital and to understand the risk and range of outcomes in the variables that are least understood.

night rig sHere’s Why You Should Pay Attention to Oakspring Energyhot Oil & Gas 360

Photo: Oil & Gas 360

OAG360:  Could you give an example of the successful use of your process for an operator?

JM:  Because of confidential relationships with current clients, the examples I could give would come from Chesapeake Energy. At Chesapeake I managed exploration and the geoscience technology teams, and Brad Gale managed reservoir engineering on the engineering technology team for Chesapeake. [EDITOR’S NOTE: Brad Gale joined Oakspring as chief operating officer in 2016.]

We worked together at Chesapeake on numerous projects in roles very similar to our business model at Oakspring. The workflow that the technology groups at CHK used is very similar to Oakspring’s.

The Utica Shale discovery in Ohio is one example.  The initial wells drilled in the liquids window did not produce as well as predicted. Additional wettability testing was undertaken on core we had in house and it was determined the Utica was oil to mixed oil/water wet, not water wet, which is more common.

When fracing with water, the wells were water blocked…. the water was trapped near the wellbore and hindered the hydrocarbon flow. The solution was to not try and flow the fracs back immediately, but let the wells sit for 30 days to give the water a chance to imbibe away from the frac faces. This solution required all disciplines working together in an integrated manner from core analysis, petrophysics, geoscience, reservoir engineering and operations.

This is the integration of disciplines that the Oakspring team brings to an operator who we would see as a potential partner.

OAG360:  When companies come to you and say “production isn’t meeting our expectations,” do you offer expertise on how they can “fix it”?

JM:  We use our workflow and experience to zero in on the drivers for success or failure on a project- specific basis. Some can be fixed, but some the best answer is to walk away.  The reasons can vary widely depending on the unique situations within a play. Anything from misunderstood reservoir rock properties, formation damage, mismatches between the completion design and the reservoir, lack of understanding on how the reservoir fluid system will behave throughout the well’s life, and simply having had bad initial expectations can be the cause. We do offer expertise into the causes of underperformance and how to remedy.

OAG360:  Where are the opportunities for Oakspring onshore U.S.?

JM:  Emerging plays, existing play expansion, distressed assets, existing asset delineation.

OAG360:  Chesapeake was always bullish on natural gas. Are you bullish with natural gas at $3.06 for the next 12 months?

JM:  We are generally bullish on natural gas. We think there are many plays that can work at today’s prices, utilizing the Oakspring approach. Better prices will only enhance our JV returns.

OAG360:  Will continued low commodity prices prevent you from executing your strategy?

JM:  No, but it certainly requires us to hone in on only the projects that can work in today’s pricing environment.

OAG360:  Does this put your partners primarily in the Permian basin at today’s oil prices?

JM:  We are looking at the Permian, but we are also looking at hidden gems elsewhere.

OAG360:  Does Oakspring invest only in upstream opportunities or do you get involved in midstream deals as well?

JW:  We haven’t found a way to invest directly and probably won’t as most midstream efforts are more basin-driven and/or anchored by a particular producer.  Our partner, Yorktown, is active in the midstream space.

OAG360:  What would you do if an early stage geoscience-based drilling or completions technology provider came to you with a solid business plan, an execution strategy and their product/service had been proven to be effective in more than one basin. Would you invest in a venture like that?

JW:  That’s not our model so we probably would not invest, but certainly we are always interested in new developments.  We know our approach works with what we have done in the past, and certainly improvements will be made that we will continue to monitor.

After Oakspring’s presentation at EnerCom, the company entered a breakout session room for Q&A. During Oakspring’s breakout session, management was asked the following questions:

  • Where are you active?
  • How does more sand impact the EUR’s of the wells?
  • Is what you are doing tailored to this point in time [the pricing cycle] or will you change strategy in a rising oil price environment? Will you chase valuations up?
  • Could you work with two management teams which are very different? Entrenched operators vs. new entrepreneurial companies?
  • How are you structured?
  • Are you taking outside money? Setting up LP funds?
  • How much average working interest do you need in order to participate? Is 20% WI enough to justify your involvement? Does the operator push back on the interest that you want?
  • Do you approach the operators to partner with?
  • Do you have an exit strategy from the investments?
  • Have you considered going international?
  • Do you look at non-geologic issues such as infrastructure or regulatory?
  • Waterflood? Do you use secondary/ tertiary recovery methods on conventional wells?
  • What size transaction range are you interested in?
  • Would you ever roll a midstream investment into the upstream business?
  • What is the biggest downside of the non-operated model?
  • What do you do if the companies you invest in don’t take your recommendations?
  • In the discussions have you had partners limited by funding or drilling schedules?

You can listen to Oakspring’s presentation by clicking here.


Legal Notice