Reserves Concubine

Basically, I am a reserves whore.  I like deals that have the opportunity to get Big Reserves.  I don't like deals where the biggest amount you get is a well-worth of hydrocarbons.  Even when they are low risk.  

Why?  Because "low risk" deals still have a ton of risk.  If you are going to take the risk, then shoot at something other than ants.  Ant taxidermy is really unsatisfying.

You know who taught me this lesson?  The legendary Dallas wildcatter Duke Rudman.  You know what else?  He didn't die broke.  Once he made his taw, he kept it and grew it drilling for big stuff.  No one-well deals for him, either.

Everything I have learned the hard way tells me that resource plays are the place to be, and that we are damned fortunate to live in a time when we are just now recognizing what they are.  Why?  The very hardest part of the old oil and gas patch was finding the friggin' hydrocarbon.  The big stuff was long gone.  The New Oil and Gas Patch, the one that recognizes Resource Plays, has NO hydrocarbon risk.  It is just engineering risk.  How do we get it out.  20 years ago, we didn't even know how to get this stuff to flow at all.  A decade ago, we didn't know how to flow this stuff at more than minimal rates.  Today, we are arguably at least breaking even at a cost/price balance that may be achievable in many plays.

The prize?  Not some dollar swap like a one well old-style deal, but the ability to own reserves that could be 10, 100, even 1000 million barrels of oil equivalent.  Product in place that can exceed 3 or 4 million barrels  of oil equivalent per section.  C'mon.  What's NOT to like?  Unlike some, I trust human ingenuity to come up with ways to produce this stuff economically.  This is an entirely different level of risk than NOT HAVING HYDROCARBONS PRESENT at all!

So, while everyone gets hysterical, and some folks, like Arthur Berman, create a name for themselves telling people things they want to hear, because it fits into their larger points of view on government mandates and controls, I am going to bet that we can produce the significant hydrocarbons that we have already PROVEN exist and that we have already PROVEN we can produce.  All we are dealing with now is bringing down costs, and whoever figures that out the best has literally trillions of dollars of resource that can be turned into reserves.  

So I ask again, what's not to like?  Why are we so scared that these plays are crappy?  If you feel that way, then don't buy acreage, don't drill wells, and don't buy stock in companies that think differently.  Pretty simple and best of all, purely voluntary!

That's a hell of a lot more than I can say about those that want to exploit the "non-economics" of these plays today to help usher in a new era of prohibition over exploiting American oil and gas...

Comments

[Crash N. Burn]

Choke, you know the finding and producing costs are only half of the equation. Commodity price, today and during the life of the project, dictates the economics of a play. So if you have a bunch of Haynesville acreage, and you drill a bunch of Haynesville wells, and you have a bunch of Haynesville production, and there is limited pipeline capacity and and low gas prices...oh, you do the math.

The good thing about botox is that it paralizes the muscles of your face; the bad thing about botox is that IT PARALYZES THE MUSCLES OF YOUR FACE. Same with shale plays, the good news is there is lots of gas there, the bad news is there is lots of gas there! You can find all the gas you want, and yes the cost to extract continues to drop, but how long can you wait for the gas overhang to end? How long will you wait for a new pipeline to be built? How long can you budget wells to prove up reserves and hold acreage with little or no cash flow?

I'm a fan of The Duke, too, but he never drilled a well that was a "planned" breakeven proposition, and he probably didn't use botox either, because both are "no win" scenarios.

[Crash N. Burn]

Don't get me wrong, I love those dirty, slutty reserves, but I'll marry cash flow.

[Open Choke]

Crash,

Keep in mind that the Louisiana Haynesville allows you to hold 1920 acres with each well! Those crazy coonasses allow you to hold acreage like it was the 1930's! Essentially, you HBP 47 locations with one well. That is a long term pretty good bet, though not one I would put ALL my eggs in. Otherwise, I agree with you wholeheartedly if I could only hold 40 acres or 80 acres per well.

[Scott]

Choke…don’t get me wrong…I LOVES those shale plays…The problem is those pesky investors. They keep asking little picky questions like…”If we find what we are looking for, will we make money”? I am working the Eagleford, and in my opinion this play only needs one minor thing to be a great play, and that is $8.00 gas. The play, as it exists today, will not cut it on the present and future (NYMX) gas prices. That is clear. The same can be said for many other shale plays. This is a fact. The players are putting out overly optimistic IP’s and reserves, in my opinion. To make the problem worse, the shale wells being drilled today will sell the flush production at low prices, and an unexpected price spike down the road wont bail them out.

[Crash N. Burn]

The investment community, Wall Street, they all want the same thing...to get their money back plus some! What is wrong with those guys? They should invest in equities then just sit back and let the press releases from the shale playa's push their stock prices up on the news of their latest IP. Is Chesapeake too big to fail yet?

[Scott]

The reason Berman in important is that he is the only well known technical guy that is stating publicly that many of the spokespersons for companies engaged in drilling shale gas reservoirs are not telling the truth about the economic viability of the existing wells. Just Google “shale gas economics” and you will see dozens of stock analysts saying the same thing Berman is saying. Where did you get off on “new era of prohibition over exploiting american oil and gas” for those that put Petrohawk’s and Chesapeake’s numbers under the microscope? No agenda here except to stack that cash without misrepresenting the truth. Choke, it was through your posting that I learned Barnett operators were getting NYMX less 40%. That’s a deal killer on its face, and very important info. I don’t play the Barnett, but I do read about and I never heard that information jewel anywhere but here.

I love the shale plays, but we have a reality of depressed prices to deal with. I don’t think inflating the productivity is a cool way to deal with the low prices. Here is an example from oil and gas investor magazine:

“With seven wells completed in the emerging Eagle Ford shale play in South Texas, Petrohawk executive vice president and chief operating officer Richard Stoneburner is confident in declaring “it’s going to be very, very commercial.” Oh yeah? I have looked pretty hard at those wells and I see a different picture. Northeast Thompsonville it is not. Berman’s numbers fit the data, in my opinion. There needs to be a counter balance to Petrohawk / Chesapeake hype. Choke, you are a champion of investors doing their work before investing. Without guys like Berman, investors only get the oil company propaganda. Berman has a purpose and a place in this game.