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Laredo Petroleum Investor Update September 2013

http://www.laredopetro.com/media/28666/investor_update_meeting.pdf

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Replies to This Discussion

AJ

Thanks for opening this new thread and re-posting the Laredo presentation.  It is clear to me that the complexities of the Cline Shale make it unique and really not comparable to other unconventional formations. In fact, each unconventional formation is its own unique animal and has its own associated best practices that will make it "work" (if it is to "work").

This is even the case in the Midand Basin were there are multiple unconventional plays (e.g. Wolfcamp, Cline, Sparberry, etc.) overlapping each other in some areas but with each level having its own different exploitation parameters.

The Cline is no different than any other such play in that there is extensive hetergeneity and variability across the subsurface extent of its presences. Thermal history, geochemical background, organic presence, porosity, permeability, brittlness vs ductility, net vs gross of target section and structural complexities are only some of the factors that impact well results.

Then add in well costs and commodity prices and one can understand just how complex this play can be for operators who are spending millions of $$$$$ in an effort to "crack te code".

Laredo and others are doing well in an apparent limited area in Glasscock and Howard Counties. Other operators are struggling in other parts of the trend.

Time will tell what the true economic extent of the Cline Shale play will be - and I am almost certain that some of the areas that have been originally cited as being in this play area and a part of the "billions of recoverable oil" will not work and be economic under today's approaches.

The next 12-24 months of activity will be interesting and eye opening.

San Angelo oilman on Permian Basin, Cline Shale, etc.

http://www.youtube.com/watch?v=f51JSKdETlw

Re: San Angelo Oilman Video

Just sat through listening to this entire video. What is interesting to note here in this video (which appears to have been put out in June 2013) is that the speaker says early on that the "boom" is NOT the Cline Shale but instead is the Wolfcamp and Wolfbone plays in their respective basins.

And when he does talk about the Cline Shale, it is in many ways in a neutral to negative term with respect to results to date and related issues. His specific comment was that the Cline is a "land play" that is unproven.

For the source of this video posting (Christian Reporter) to tout "Cline Shale Boom" in the title is just plain wrong, incorrect and misleading based on the content of the video.

Pretty poor journalism in my opinion.

Przzz, How could a potential or actual investor be assured by Glasscock county Cline shale results with so little information beyond 24hr-30day IP releases? Slide 39 of the linked Laredo presentation indicates up to 290 MMBOE per section. That's 290,000,000 bbl oil/section. At $100/bbl, that's $29 billion per section. Or $45,312,500/acre. This sounds almost too fantastic to repeat and makes me think "TULIPS" and "snake oil" without a recovery factor. But where is mention of the recovery factor in the presentation. Wouldn't that be a very material matter to include. Assuming there is that much oil equivalent in place per section, and going back to my PE friend's admonition, how much of this is actually recoverable and at what cost?

The Christian Reporter does not appear to be a produced by a professionally trained journalist. I have stumbled across one other video by CR while researching water issues. I agree the title is misleading. I was expecting Koolaid, but was pleasantly surprised by Mr. Wardlaw's depth and clarity. If I CR were listening, I'd suggest the addition of a "?": Christian Reporter News presents - Cline Shale Boom ?



Przzz said:

Re: San Angelo Oilman Video

Just sat through listening to this entire video. What is interesting to note here in this video (which appears to have been put out in June 2013) is that the speaker says early on that the "boom" is NOT the Cline Shale but instead is the Wolfcamp and Wolfbone plays in their respective basins.

And when he does talk about the Cline Shale, it is in many ways in a neutral to negative term with respect to results to date and related issues. His specific comment was that the Cline is a "land play" that is unproven.

For the source of this video posting (Christian Reporter) to tout "Cline Shale Boom" in the title is just plain wrong, incorrect and misleading based on the content of the video.

Pretty poor journalism in my opinion.


Przzz said:

AJ

Thanks for opening this new thread and re-posting the Laredo presentation.  It is clear to me that the complexities of the Cline Shale make it unique and really not comparable to other unconventional formations. In fact, each unconventional formation is its own unique animal and has its own associated best practices that will make it "work" (if it is to "work").

This is even the case in the Midand Basin were there are multiple unconventional plays (e.g. Wolfcamp, Cline, Sparberry, etc.) overlapping each other in some areas but with each level having its own different exploitation parameters.

The Cline is no different than any other such play in that there is extensive hetergeneity and variability across the subsurface extent of its presences. Thermal history, geochemical background, organic presence, porosity, permeability, brittlness vs ductility, net vs gross of target section and structural complexities are only some of the factors that impact well results.

Then add in well costs and commodity prices and one can understand just how complex this play can be for operators who are spending millions of $$$$$ in an effort to "crack te code".

Laredo and others are doing well in an apparent limited area in Glasscock and Howard Counties. Other operators are struggling in other parts of the trend.

Time will tell what the true economic extent of the Cline Shale play will be - and I am almost certain that some of the areas that have been originally cited as being in this play area and a part of the "billions of recoverable oil" will not work and be economic under today's approaches.

The next 12-24 months of activity will be interesting and eye opening.

AJ,

I am not an oilman so take this with a grain of salt.

For an informed audience, OOIP (all the oil underground) numbers maybe be better than estimated recovery because the first number is fixed, while the second number ultimately varies based on technological advancement.

I work in software, and when I think about what would happen if oilfield recovery technology saw the same kind of technological advance that my own field has experienced, I feel very positive about the future.  I am sure that the majors are investing a great deal of money in research and development on better drilling technology.

Ken

But yeah, when reading the slides you have to understand that most of the oil in place isn't recoverable.  You can't just do the math and arrive at 45 million/acre, and no one in the oil industry does.

In the youtube video, Wardlaw opines that the companies drilling horizontal Cline wells "aren't getting rich on this. They are making money because they are not drilling dry holes, but the costs are astronomical..." "Interestingly enough what we've found out is on these wells the decline curve is real steep and so the first three or four months you may think you're as rich as a sheik in Saudi Arabia but the production falls off real fast and falls off after five or six months and then it'll fall off again continuously and after a year you won't even recognize the well for its productivity. And of course they are thinking these wells will produce for twenty or thirty years but after the flush production they'll produce at a relatively low rate."

This is why I asked why the recovery factor is  not included in the presentation! Most potential investors are not in the oil industry, which is why I have the many concerns I have expressed in this forum.

Ken McKInney said:

But yeah, when reading the slides you have to understand that most of the oil in place isn't recoverable.  You can't just do the math and arrive at 45 million/acre, and no one in the oil industry does.

AJ,

A few comments as to the Laredo presentation and specifically page 39 numbers.

It is a shame that Laredo has chosen to not add a recovery factor range to this summary slide - many other operators (Pioneer is the one that comes to mind right now) normally add Rf ranges to show how little of hydrocarbons in place can be recovered using today's technology.

And expected Rf's for these formations is in the single digit range based on everything that I have seen to date

I am betting that they (Laredo) verbally mentioned RF range when this presentation was first made.

Also remember that the "oil in place" numbers are actually in BOE or Barrels of oil equivalent numbers. These tend to use a 6:1 ratio to convert gas (MCP) to oil (1 BO). Considering today's pricing, this is way out of line. And then add in that gas may be up to 50% of the BOE total.

Plus I am pretty sure that NGL is treated as equivalent to oil in the BOE conversion. If this is the case, 1 bbl of NGL (running at $20-30 per bbl and getting cheaper) is equated to 1 bbl of oil.

So one cannot take a BOE and give it an oil price. Need to have sliding scale of valuations based on percentage of each product (which of course is not presented). 

Last but not least is the fact that Laredo is laying out the potential of the ENTIRE stratigraphic section in doing this range of OOIP calculations (I am surprised that they did not add the San Andres to this slide). This is covering thousands of feet of section and does not take into account reservoir variability and related HC presence variability.

And the fact that it would take several wellbores to drain any series of common stacked reservoir intervals.

As Ken has noted, operators are only looking at theoretical recoverable reserves for specific formations and target intervals (whether they be vertical multi stage completions or horizontal single zone completions).

Laredo has a good position in the Garden CIty area. Just a shame that they failed to add the important Rf factor range to this slide / presentation. Very misleading.

Similar to The Christian Reporter video that definitely should have had a large question mark in the title like you suggested.

All that is absolutely true , for most horizontal wells.  They get half of their lifetime production in the first two years, and probably a 3rd in the first year.  But when you invest 8 million dollars drilling a well and it produces 150,000 barrels of oil in the first year, you've more than recouped your money and you you still have two thirds of the well's production to look forward to.   That's not a failed well.

An 8 million dollar  well that produces 50,000 barrels of oil in the first year, now that's a different matter.  My guess is that such a well will only break even.  But the oil companies know that they will drill a lot of wells like this while perfecting the right techniques for extracting oil in the individual areas they have leased.

The one mistake I made going into this was assuming that the characteristics of the cline were more or less uniform.   It's become apparent over time to me that it has to be taken county by county.

Ken

Cline or any other reservoir variability should probably be looked at in a smaller than county wide scale - I have seen some significant variation in reservoir quality in similar formations over  few miles - and the Cline should be no different.

And don't forget the "operator" factor. This means that the operator of any well has to do everything right to optimize production, EUR and ROI. Lots of pieces of the drilling and completion puzzle to do correctly - and one factor done incorrectly (e.g. horizontal landing point and interval, frac efficiency on ALL the stages, poor cement job on casing, etc). can be very negative as to the bottom line.

Agree with your comments on early production and economics / ROI. Just remember to factor in all the issues that net down the cash flow stream to the operator for any well. LOE, taxes, royalty payments, trasportation, processing, etc knock 40-50% off the price of any produced commodity. And with oil only being a part of the full HC stream, be careful not to confuse BOE with BO production and value them both with the same $$ per unit factor. 

Beware and be wary. Don't sing song Poly(wolly)anna all day. Has the aerodynamic drag and rolling resistance of passenger automobiles kept pace with silicon chips? Where is the cure for cancer? Hypersonic airplanes?  Gold from sea water? 50 lb tomatoes?  I prefer to temper my enthusiasms with logic and reason. Mining has been going on for thousands of years. The software curve has been on the ascent for a couple of decades but is already leveling.

Ken McKInney said:

AJ,

I am not an oilman so take this with a grain of salt.

For an informed audience, OOIP (all the oil underground) numbers maybe be better than estimated recovery because the first number is fixed, while the second number ultimately varies based on technological advancement.

I work in software, and when I think about what would happen if oilfield recovery technology saw the same kind of technological advance that my own field has experienced, I feel very positive about the future.  I am sure that the majors are investing a great deal of money in research and development on better drilling technology.

Ken

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