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SIPES-HOUSTON CHAPTER NEWSLETTER
FEBRUARY 2017
LNG Redefined by North America Dee Patterson
Big Money In The Permian Conventional O&G Exploration Truth The Prize, Part Three
SIPES-Houston Newsletter | February 2017
Sipes Houston Chapter 5535 Memorial Drive
Suite F 654 Houston, Texas 77007
Tel: 713-651-1639 Fax: 713-951-9659
www.sipeshouston.org email: [email protected]
Chapter Officers 2017
Chapter Chair Russell Hamman (713) 526-7417 [email protected] Chair Elect Bill Bippus (281) 364-1881 [email protected]
Past Chair James Mertz [email protected]
Secretary Coerte Voorhies (713) 397-5059 [email protected]
Treasurer Bruce Blake (713) 459-7508 [email protected]
Website Chair Danny Matranga (512) 484-6385 [email protected] Technical Program Chair Linda Sternbach (832) 567-7337 [email protected]
Continuing Education Chair Barry Rava (281) 235-7507 [email protected] Hospitality Chair Walter Light (713) 823-8288 [email protected]
Public Relations Chair Jeff Lund (713) 275-1664 [email protected]
Membership Chair Chip Betz (713) 658-8096 x 17 [email protected] Newsletter Chair Jeff Allen (713) 302-5131 [email protected]
Deal Buyers List Chair Bill Smith (713) 650-3060 [email protected]
Political Affairs Chair Ross Davis (713) 658-3131 [email protected]
Sponsor Coordinator Heidi Epstein (281) 415-1154 [email protected] National Directors Barry Rava (713) 621-7282 [email protected] Mike Jones (713) 654-0080 [email protected]
Office Manager B. K. Buongiorno (713) 651-1639 [email protected]
In This Issue Letter From The Editor 1 Jeff Allen
February Luncheon 2
Independent of the Year 3
Season Pass 4
Event Calendar 5
Geology Industry Day 6
The Prize, Part Three 7
December Luncheon Review 9 Coerte Voorhies
Board Meeting Review 10
Pop Quiz 10
Independents & Permian Money 11
Conventional Truth 12
Conventional Truth 13
Luncheon Menu 14
SIPES Houston Book Recommendation 14
On the cover:
Email your cover photos to: [email protected]
1 SIPES-Houston Newsletter | February 2017
The February luncheon is a joint meeting with SPEE. The speaker, Dee
Patterson, is a SPEE member. SIPES realizes the luncheon is also the
first day of NAPE but encourages you to rest your feet and have lunch
at the Petroleum Club. Feel free to bring someone from out of town. A
cheap $4-6 Uber ride gets you from the GRB Convention center to the
Petroleum Club.
The oil price dove then picked itself back up in early February. The EIA
reported a 13.8 million-barrel rise in U.S. crude inventory. That sent
crude prices down, but then rose and balanced based on the report
that gasoline inventories are low. To us, this means a positive outlook
on a more steady crude price allowing long-term investors to be bullish
on crude.
The Permian Basin is the popular place to be, drawing in most of the
investing capital for exploration. This creates opportunities in the con-
ventional market outside the Permian. The difficult part in our inde-
pendent market today is finding the correct funding for projects and
ready-to-drill prospects. The amount of low-risk low-cost projects in
the market is astounding. I encourage you to continue to work hard
and meet new people. You never know what a simple hello may bring
you in the future.
See you at the luncheon on February 16th,
Jeff Allen
LE T T ER F R O M T H E ED I T O R
Abstract
LNG is the fastest growing seg-ment in the global energy busi-ness. Significant new capacity re-cently been added in Austral-ia. However, the US unconvention-al resource plays are allowing North America to get into the LNG export business. US LNG exports will be a disruptive force in the Global LNG industry. Who will it be good for? Who will it threat-en? What impact will it have on North American gas price?
Biography
Dee Patterson has over 30 years of experience in the oil and gas indus-try in reservoir engineering, opera-tions, construction, commercial, and finance, and has been involved in over 400 projects in over 20 countries. He has been directly in-volved with the evaluation of over $30 billion of exploration, develop-ment, and producing opportunities worldwide. Dee is an expert on global LNG activity and stranded gas. He has been involved in the preparation of Fair Market Valua-tion Reports, Competent Person’s Reports, and has acted as an Expert Witness in litigation and/or arbitra-tion hearings. He is currently the President of the Society of Petrole-um Evaluation Engineers (SPEE).
THE LNG INDUSTRY: REDEFINED BY NORTH AMERICA FEBRU ARY S IPES & SPEE LU NCH EO N
Luncheon registration deadline
is Noon, Tuesday Feb. 14th
Sign up online at www.sipeshouston.org.
Date: Thursday
Feb. 16th
Place: Petroleum Club
1201 Louisiana St.
Time: Social 11:15
2 SIPES-Houston Newsletter | February 2017
DEE PATTERSON
SIPES HOUSTON 2016 INDEPENDENT OF THE YEAR AWARD
3 SIPES-Houston Newsletter | February 2017
Each year SIPES Houston gives an award to the person that embodies a true Independent in both spirit and success. Mark Gregg is a regular supporter of SIPES through sponsorship of lunch-eons and events, giving insightful lectures at events, and being a strong example of what being an independent means. Please join us at the De-cember Luncheon to honor Mr. Gregg as he accepts his award. Most recently, Mr. Gregg spoke at the SIPES Houston CES detailing his history as an independent and his current status during this downturn. Mark Gregg is President and CEO of KiwiEnergy, Ltd., an independent E&P company based in Houston. Prior to founding KiwiEnergy in 2000, Mark began his career in 1981 with The Superior Oil Company, followed by Mobil Oil and Edge Petroleum, primarily in exploration roles, including several years in both Indonesia and Nigeria. Mr. Gregg has over 28 years of successful oil and gas exploration experience and is responsible for nu-merous significant discoveries along the Gulf Coast and in Nigeria. Mr. Gregg received his B.Sc., Geophysical Engineering (1980) from the Colo-rado School of Mines and MBA (1988) from the Bauer College of Busi-
ness, University of Houston. Mr. Gregg is Chairman of the Board of Directors of YES Prep Public Schools, a former Director of the Society of Exploration Geophysicists Foundation, the past Chairman of the Houston Chapter of the Society of Independent Professional Earth Scientists and a member of SEG, AAPG and IPAA. Mark and his wife Debra are active supporters of YES Prep Public Schools, DePelchin Children’s Center, Geoscientists Without Borders, a global humanitarian organization, and UH Bauer College of Busi-ness.
2017 SEASON PASS
4 SIPES-Houston Newsletter | February 2017
CLICK ON THE IMAGE TO PURCHASE
Would you like to purchase a 2017 Season Pass to all SIPES Hou-ston luncheons for a discount? Any current member can purchase a 2017 Season Pass, entitling you to 11 luncheons for the price of 9.
Please note: Season Pass holders must RSVP online so that BK, our event coordinator, can get an accurate number for The Petroleum Club of Houston.
5 SIPES-Houston Newsletter | February 2017
EVENTS
February 2017 Sun Mon Tue Wed Thu Fri Sat
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16
SIPES
LUNCHEON
17 18
19 20 21 22 23 24 25
26 27 28
All of us at the Bureau of Economic Geology invite you to a day of activities showcasing the breadth of our energy, environmental, and energy economics research, and our preeminent archive of core and rock material, at our Houston Research Center, 11611 West Little York Road. The format this year is a bit different. We will do deeper dives into fewer subjects. You can pick the session(s) you wish to attend. The best part is that its free, and we’ll also be treating you to a barbecue lunch. Topics will include: • The Future of U.S. Shale
• Advances in Seismic Imaging
• Water and Shale
• Advances in Soft Rock Research
• Earthquakes in Texas
The Texas Railroad Commission will also make a brief presentation. So circle Wednesday, March 22, on your calendar, tell your friends and colleagues about our event, and we’ll be sending you information on how to register soon. See you there! Warm regards, Scott Scott W. Tinker, Ph.D.
Director, Bureau of Economic Geology & State Geologist of Texas Professor, Allday Endowed Chair of Subsurface Geology
John A. and Katherine G. Jackson School of Geosciences
The University of Texas at Austin
512-471-0209 <http://www.beg.utexas.edu/>
6 SIPES-Houston Newsletter | February 2017
Save the Date! Bureau of Economic Geology Industry Day 2017
Part three of an eight part series based on the Pulitzer Prize winning Book, The Prize, by Daniel Yergin. If you have not read the book, this documentary does a fair job of bringing the life and history off the pages and onto the screen. This series takes you from the beginning of the oil market all the way through the building of the mid-dle east oil wealth to the gulf war. This is essential 20th century history every oil man should be familiar with En-joy part one by clicking on the image below for the full hour episode. Check back next month for Part Four.
7 SIPES-Houston Newsletter | February 2017
EDUCATION
SIPESHOUSTON.ORG If you are not yet registered as a member on the site
please do so ASAP. You can now pay your national and local dues online. If
you have not paid them please do so ASAP. For events and announcements please visit the website.
Attendance confirmation and payment for luncheons can be done through the website.
Many growing pains with the website have now been
resolved and will continue to be fixed. Any questions or issues with the website can be directed
8 SIPES-Houston Newsletter | February 2017
Visit SIPESHOUSTON.ORG to join the next Luncheon at the Petroleum Club of Houston.
9 SIPES-Houston Newsletter | February 2017
JANUARY 2017 LUNCHEON REVIEW BY COERTE VOORHIES
The January luncheon lecture was presented by Jon R. Rotzien, PhD., President of Basin Dynamics, LLC. His presenta-
tion was: “Application of Global Outcrop Belts to Exploration & Field Extension in the Deepwater Gulf of Mexico.” The focus of
Dr. Rotzien’s talk was the detailed field work of deep-water deposition outcrops of France and Ireland and its application
to the deep-water sediment reservoirs of the Gulf of Mexico. Dr. Rotzien provided an evaluation of depositional environments and reservoir quality in the deep-water Paleogene Wil-cox Group, Gulf of Mexico and the progression in understanding deep-water depositional systems over the past 20 years. He asked and answered questions regarding whether deep-water coarse-grained sandstone margins can be recognized from core and whether in-channel and out-of-channel bedding in fine-grained turbidite systems are distinguished using a high-resolution sedimentology. Dr. Rotzien’s conclusions were that geoscientists must compare and scale reservoir data to outcrop. They must interpret flow test or production data and compare stratigraphic data from different intervals or sections of a field to build predic-tive models. He stressed the importance of characterizing clastic reservoirs to recognize stratigraphic margins in building a depositional environment map. Additionally, the geoscientist must identify all the depositional environments to predict reservoir quality for the system. Dr. Rotzien proposed that interpreting the range of uncertainty in utilizing a quantita-tive stratigraphic data approach to reservoir sand models can provide valuable input directly into the reservoir model. Sandstone reservoir qualities can be modeled to predict the different depositional systems in the Gulf of Mexico utilizing the comparable field examples of France and Ireland.
Dr. Jon Rotzien speaking at the Jan. ‘17 luncheon at the Petroleum Club of Houston.
BO A R D MEE T I N G , B A R R Y R A V A POP QUIZ !
10 SIPES-Houston Newsletter | February 2017
The monthly board meeting proceeded in a businesslike manner. A new candidate for Membership in December was approved by the board: Gene Kubelka. There are several applications outstanding, awaiting sponsors.
Board member duties are changing in January 2017 and incoming board members will be Linda Sternbach, Bruce Blake (approved) and Coerte Voorhies who was pressed into service, er, we mean volunteered during the lunch-eon and will be introduced for board approval in the Jan-uary meeting.
Bill Smith, Bob Moses, Andy Hampf and Mike Wisda com-pleted the Herculean task of updating the Deal Buyers list. Hats off to them for a job well done! The Board dis-cussed ways in which this list might be made available to members only through the existing website.
On an unfortunate note, as reflective of industry times the Treasury ended with about $29,000 less in funds available than at the beginning of the year. Most of this is attributable to limited budgets of many usual under-writers of luncheon Hospitality and Continuing Education sponsorships – two categories in which funds were lim-ited all year.
Lets hope 2017 brings good health and much success to each of us, our companies and SIPES!
Please email your answer to the editor, [email protected]
Quiz
What is the name of the field worker to the right?
The WINNER of the January, 2017 Pop Quiz is Jim Tucker. The image below is a blowout preventer stack.
Steve Hill of Decker Operating with Jeff Allen of Allen Energy
11 SIPES-Houston Newsletter | February 2017
INDEPENDENTS MAKE BIG DEALS IN PERMIAN, DAVID BLACKMON The new year has seen a flurry of transactions in these play areas, the most recent being Monday's announcement by Noble Energy (NYSE:NBL) that it is acquiring a venerable fixture in the Permian Basin, Clayton Williams Energy (NYSE:CWEI) for $2.7 billion. In announcing his company's purchase, Noble CEO David Stover said, "This transaction brings all the key elements we value: excellent rock quality, a large contiguous acreage position adjacent to our own, and robust midstream opportunities, reinforcing the Delaware Basin as a long-term value and growth driver for Noble Energy. This combination creates the industry’s second largest Southern Delaware Basin acreage position and provides more than 4,200 drilling loca-tions on approximately 120,000 net acres, with over 2 billion barrels of oil equivalent in net unrisked resource."
For Noble, the acquisition includes 71,000 acres in the Delaware Basin that the company classifies as being "highly contigu-ous" to its pre-existing 47,200 acres in that area. In addition, it takes ownership of another ~100,000 net acres in other parts of the Permian Basin. At a base assumed price of $50/bbl. for 2017, with modest price acceleration through 2020, Noble anticipates a pre-tax rate of return on capital of 60% for its Delaware Basin properties.
The Noble/Clayton Williams transaction comes on the heels of last week's announcement by Parsley Energy (NYSE:PE) that it had added another 23,000 net acres and net production of roughly 2,300 boe per day to its already significant hold-ings in the Permian/Delaware region by completing multiple unrelated transactions in recent days. The total price Parsley paid for those acquisitions came to $607 million.
"We are excited to announce a set of acquisitions that add to our premier asset bases in both the Midland and Southern Delaware Basins," stated Bryan Sheffield, Chairman and CEO of Parsley Energy. "We continue to focus on digestible bolt-on acreage that can be rapidly assimilated into our development program."
Meanwhile, Anadarko Petroleum (NYSE:APC) announced late last week that it had reached a $2.3 billion deal to sell its leasehold and producing properties in the Eagle Ford Shale to Sanchez Energy Cor-poration (NYSE:SN) and Blackstone Group LP (NYSE:BX). Anadarko will re-tain its midstream assets in the region, which are operated by its sponsored MLP, Western Gas Partners, LP (NYSE:WES).
Taken together, these three major transac-tions emphasize the overarching trends of the last several years of independent pro-ducers seeking to a) acquire or enhance po-sitions in higher rate-of-return basins, like the Permian/Delaware region, b) high-grade their asset portfolios into larger posi-tions in fewer basins, and c) lower costs through enhanced efficiency and economies of scale by acquiring high-quality leasehold acreage that is contiguous to pre-existing acreage positions.
12 SIPES-Houston Newsletter | February 2017
CONVENTIONAL O&G EXPLORATION TRUTH, MARK NIBBELINK The story of the US domestic oil patch over the past 14 years has been squarely focused on unconventionals—Barnett Shale, Fayetteville, Woodford, Haynesville, Bakken, Eagle Ford, Mississippian Lime, Niobrara. As we all know, drilling results from these plays have catapulted the US into the position of being the largest gas producer in the world and the largest oil producer in the world (if we included NGLs).
It has been a breathtaking pivot away from finding risk, i.e. "will I make a well?" to engineering risk, i.e. "how do I efficiently drill and frac while managing high cost operations?" The results speak for themselves, but have, in great part, ironically depressed the revenue model on which these unconventional plays were built.
This sea change in risk definition has, unsurprisingly, come at the cost of conventional exploration. The graph below (source: Texas RRC) shows how the number of new field discoveries (NFD) has nosedived in tandem with the increased flow of capital into uncon-ventional operations.
They’re less costly -- in obvious, and not so obvious ways; A 10,000’ vertical well to test a conventional trap will cost a whole lot less than an unconventional 16,000’ MD well with 10-40 frac stages. Acreage costs are low-er—fewer acres are needed to lock down a conventional prospect. Risk capital in conventional exploration is ex-posed with brutal clarity. Drill high and dry on a con-ventional trap, you’ve condemned it and you walk away with no additional speculative economic exposure. If you make a discovery, log signatures defining oil column and contacts, pressure tests and supporting 3D provide good visibility in how many wells you need to drill and where to drill next.
Take 50,000 acres in an unconventional play and each well you drill in early development is an experiment that slowly, over time increases your knowledge store, but delays your visi-bility into how good - or mediocre - your operations are.
Initial test wells provide open hole logging data that help define the porosity and permeability of the reser-voir. Seismic data and subsurface well mapping do a good job of defining the extent and thickness of the reservoir, and therefore the volume of oil in place. Con-firmation wells will either moderately increase or mod-erately decrease prospect EURs, but EUR values con-verge to a realistic estimate reasonably quickly. This means operators can book their prospect NAV more quickly, have quicker clarity with regard to potential cash flow, and therefore better strategic planning inputs. Good conventional fields have longer producing lives which help offset depletion timing risk - depleting your reserve base during times of low prices.
Some napkin numbers are illustrative. Again, looking at a major player in the Eagle Ford and totaling up the number of wells
13 SIPES-Houston Newsletter | February 2017
CONVENTIONAL O&G EXPLORATION TRUTH, CONTD, MARK NIBBELINK drilled, assumed spacing per well to estimate acreage costs, and a cost to drill and complete of $7 MM/well, I estimated that this operator had exposed nearly $12.4 B in the Eagle Ford.
Using DI Desktop median EURs, a generous $70/bbl. average price/bbl., and uniform 75% NRI, I estimate that this $12.4 B would generate nearly $18 B in revenues over project life.
Assume: 4,000 acres/prospect @$500/ac, 13,000‘ average TD @ $2.5 MM/well, 80% of prospects are dry holes or not com-mercial. Risk exposure is Acreage + Seismic + 50 test wells=100,000,000+ 10,000,000 + 125,000,000=$235,000,000
Remember, 80% are dry holes so we’re left with 10 commercially viable prospects that could have about 24 development wells per 4000 acre prospect. Assuming all those wells are drilled, the development cost (to target primary pay) is $60,000,000/prospect, or a total of $835,000,000 to drill, discover, and develop the 10 viable prospects in the inventory of 50 prospects. So what reserves might we find? Desktop EUR estimates for: Wolverine’s Covenant field in the Utah hinge line : 94,000,000Bbl Constitution/Constitution South Yegua production in Jefferson Co. TX: 26,654,000 Bbl./401 BCF.
So even if the kinds of results shown above represented 95% of the discovered reserve base, our exploration portfolio ex-penditure on conventional yielded about 1/3 of the reserve base of an unconventional portfolio, for about 1/16th the cost. And even if unconventional EUR’s are artificially depressed due to choked back production, and/or shut in status, the cost/benefit for conventional is still compelling. It’s a great thing to be able to say - with confidence - that the wells you drill will find oil and gas. It’s one of the powerful drivers in the unconventional space, and as mentioned avoids the perceived risks of traditional exploration.
As we’ve seen, however, great advances in engineering and seismic acquisition/processing capabilities have propelled the un-conventional model forward. And I would argue that these advances in seismic processing and attribute extraction greatly minimize dry hole risks going forward.
The two maps to the left show wildcat permits (left image) and wildcat permits which were completed as producers (from1/1/2010-7/17/2015) The left hand map below shows Texas wells which made (on an allocated basis) 500,000+ BOPW. Me-dian EUR of 774,000 BO implies that there is a good reserve base to explore and develop. The right hand map shows partial seismic coverage of just Texas. Given the constantly improving production and well
log database in the US there’s ample reason to believe that targeted conventional exploration can provide excellent rates of return.
An astounding amount of acreage has been put under lease to support unconventional drilling, a large number of wells have been drilled that have added to the knowledge base about uphole reservoirs, and unknown petabytes of seismic data have been acquired to support analysis of below pay objectives. Operators with large positions should serious-ly entertain the option of checker-boarding their acreage to stimulate conventional farm in activity and or actively begin to develop their conventional portfolio because it will probably deliver better margins.
14 SIPES-Houston Newsletter | February 2017
JANUARY LUNCHEON MENU SIPES HOUSTON RECOMMENDED BOOOK Drawing on newly declassified documents and interviews with some of the key figures of the time, Cooper follows the political posturing and backroom maneuvering that led the U.S. to switch to OPEC as its main supplier of oil from the Shah of Iran, a loyal ally and leading customer for American weapons. The subsequent loss of U.S. income destabilized the Iranian economy, while the U.S. embarked on a long relationship with the autocratic Saudi kingdom that continues to this day.
Food may appear different than images below.
IMPORTANT: the Petroleum Club has a new rule concern-ing food – if you don’t specify your special-needs meal before the luncheon you will be charged an extra $20. We don’t want anyone to be charged extra so please take the time to contact BK for your special meal needs well ahead of time.
SIPES Houston Chapter, 5535 Memorial Drive, Suite F654, Houston, Texas 77007 Tel: 713-651-1639 Fax: 713-951-9659 www.sipeshouston.org e-mail: [email protected]
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