Cimarex Production? - S:11, T:25S, R: 28E

[HGW]

I’ve noticed that our check this month(representing May’s production value) has really PLUMMETED compared to what it was 2 months ago. I understand it’s to be expected, but I’m wondering if anybody on this forum (@NMoilboy ?) knows if they’ll be ramping oil production again in this area? (or if they already have ramped it up) Anybody know the outlook?

Is it uncouth to email Cimarex and ask them this directly? (They’ve always been very helpful in responding to my other questions) If I outright ask them: “Is the oil production in May for these wells what it will be in June, or do you expect an increase?” - Is that the type of question they would answer?

Since there are also 5 new wells on this property that nobody has been getting paid for but that supposedly checks will start for in September, I’m also wondering about their production.

So just wondering if… a) anybody has any insider knowledge of this area and current/future production ramping up (or down)? b) it’s kosher to email Cimarex and ask them this directly?

As a reference, the land we have interest in is: Quarter: NE, S:11, T:25S, R: 28E SENE (H) Quarter: NW, S:12, T:25S, R: 28E SWNW (Carlsbad 88220) (E) Quarter: SW, S:12, T:25S, R: 28E NWSW (Carlsbad 88220) (L)

And the wells in question are:

[TODD_M_Baker]

Production on the horizontal wells always plummets. 80% of the wells production will happen in the first 12-18 months. Do yourself a great favor & never count on oil & gas revenue in your financial future unless you have 100’s of acres in lots of places. Be thankful for what you get and save or spend it wisely because it may be gone before you know it.

[NMoilboy]

Let’s just consider things on your Cimarex acreage in Sec 12. You should be getting paid on the Riverbend 29H and 30H. And the Illlustrated Man Fee 1H.

You have two things working against you right now. The two Riverbend wells are newer and thus are declining pretty quickly. Then you have oil price being terrible.

Lets talk about pricing first. Your January production was getting paid around $57/bo. March production was likely getting paid around $29/bo. Your May production was maybe getting paid $15-16/bo. At least that is what kind of pricing I have been seeing on some small interests that I have in Eddy County. WTI oil price is back around $40/bo but I would guess you will be getting paid about 75% of that in June and July. That’s better than $15/bo, but it’s not great.

Ok, then lets look at volumes. Oh my. Your 29H and 30H wells barely were online at all in May 2020 according to NMOCD. The 29H produced just 4 days and the 30H produced just 2 days. Combined they made about 10% of the oil in May that they made in April. So yeah your May check probably really sucked. That is likely not going to be the case going forward. I would guess the wells were either down because the facility is full from the new wells or because Cimarex was shutting in production due to low prices. So you would expect the wells to get back on their historical production profile in the future. So, yeah I’d expect June to be more like March than like May.

I’d always encourage folks to look at the volume of oil on their checks, not just the net amount you get paid. See how much oil the wells are making. New Mexico is nice in that everyone who wants to dig enough can see exactly how much oil and gas their wells have made over time.

https://wwwapps.emnrd.state.nm.us/ocd/ocdpermitting/Data/WellDetails.aspx?api=30-015-45022

Scroll down to Production/Injection and export data to excel. You can see that the 30H was way down in Jan and February (barely online) and then made a whole bunch of oil in March 2020, likely pressured up from the other Wolfcamp fracs, made decent oil in April, and then barely produced in May as mentioned above.

The new wells coming online will have a major affect on your cash flow. When you start getting paid for the 5 new wells I would expect your checks to be about 3-4 times higher than your early 2020 checks. Hooray! Then the volumes from those wells will drop off rapidly.

I have no insider information. There are more wells that Cimarex could drill here. They have mostly drilled up the upper Wolfcamp (30H, 31H, 32H…35H). They could also drill more in the Deep Wolfcamp (like 29H) and then they could drill in the 3rd BoneSpring and the Avalon formations. I kind of doubt any of that will happen soon as they have dropped most of their rigs with oil price crash, but when they do in 5-10-15 years it will help.

I used to have a job working for a large oil and gas company as an engineer. The land department would get phone calls all the time from royalty owners, they would forward them to us, we’d answer them. Wasn’t a big deal. Feel free to ask Cimarex what they have going on.

I’d ask them if the 31H, 32H, 33H, 34H, and 35H are online. And I would ask them why the old wells (29H and 30H) barely produced in May. If the new wells are online ask them how if they are good producers and if they say yes then ask them if they are going to drill more wells.

Ok, enough rambling. Good luck.

[HGW]

Thank you NMoilboy,

I actually have already looked at the production levels on the ocd page (and do so each month when they come out), which currently only show up until May 2020. - I was wondering if there was any news about production from June 2020 onward, or any future plans for production in the area. Any insights from people who are living closer to the area or who are more up to date with things, etc.

And you are right there are other wells besides Cimarex in our interests, but those checks haven’t been transferred from our father’s name into our name yet (he asked us not to inform them yet), so none of those currently pertain to me or my siblings. Right now it’s just the 2 Cimarex wells, and then the 5 new ones when they begin sending out checks in Sept. (which is what they said they would do).

Since our most current check was for the month of May, I had thought that it might have been higher than the previous check, which was for April (and what I thought was the worst month in terms of oil production and price, on a global/national level). But clearly there’s a lag time happening, and obviously each company makes their own independent decisions.

So yeah your May check probably really sucked. That is likely not going to be the case going forward. I would guess the wells were either down because the facility is full from the new wells or because Cimarex was shutting in production due to low prices. So you would expect the wells to get back on their historical production profile in the future. So, yeah I’d expect June to be more like March than like May.

Thanks for your thoughts on this. I know none of us know for sure what can happen and you can’t bet on anything, but some of us (like you) do have more experience, and therefore more insight into these things.

I used to have a job working for a large oil and gas company as an engineer. The land department would get phone calls all the time from royalty owners, they would forward them to us, we’d answer them. Wasn’t a big deal. Feel free to ask Cimarex what they have going on.

I’d ask them if the 31H, 32H, 33H, 34H, and 35H are online. And I would ask them why the old wells (29H and 30H) barely produced in May. If the new wells are online ask them how if they are good producers and if they say yes then ask them if they are going to drill more wells.

Thanks for those tips, I appreciate it! I will contact them and ask them these questions. I like to keep myself informed as much as possible.

[Roy]

Ask the operator, maybe you’ll get lucky. Cimarex confirmed in April e-mail our well was not shut in and was still producing, but declined to say much else. Staff probably trained to provide bare minimum info.

FYI, our oil (Reeves County) fetched only $15-$16 bbl in April-May, June will be better.

Apparently you’re located in Cimarex’ “Riverbend” development, one of Cimarex’ favorite 13 Delaware Basin developments that appear in quarterly presentation decks. (Source: Cimarex Earnings Presentation 1Q20 May 2020, page 12). Cimarex was aggressively drilling these 13 when the bottom dropped out, deferred planned drilling plus chose not to turn on new wells (DUCs, drilled uncompleted). Good news is these are promising sites, will certainly be drilled again with favorable prices, but Cimarex will unlikely disclose plans to royalty owners and probably don’t know themselves until prices stabilize.

Cimarex will release 2Q earnings August 6, possibly update their plans for their 13 favored developments in their quarterly PowerPoint presentation.

You probably already understand the steep depletion curve for horizontal wells. Pity if your month-2 peak occurred April or May, unfortunate timing.

[HGW]

Thanks Roy. I actually did end up emailing them, and they did end up responding! (I have to say I’ve been quite impressed with their customer service so far. Good job, Cimarex, if you’re reading this). Their landman told me that the wells were in fact down for most of May and June, but are getting back up online July forwards.

Apparently you’re located in Cimarex’ “Riverbend” development, one of Cimarex’ favorite 13 Delaware Basin developments that appear in quarterly presentation decks. (Source: Cimarex Earnings Presentation 1Q20 May 2020, page 12).

I had no idea about this. Thanks for sharing!

@Roy

You probably already understand the steep depletion curve for horizontal wells. Pity if your month-2 peak occurred April or May, unfortunate timing.

Actually no I don’t completely understand this. Are you saying that most wells peak after only 2 months, and then rapidly decline? What is a typical depletion curve for a horizontal well?

[NMoilboy]

Wells generally peak on Day 1. Then go down from there. On a monthly basis, usually the first month the well doesn’t produce the full 30-31 days (it comes online, say, in the middle) so the highest monthly volume is often produced on the 2nd month. From there its usually all downhill barring some outside event.

That’s not to say that is terrible, its usually better to get your money or oil upfront. But usually a well is making around 25-40% of the peak monthly rate after a year. The decline gets less steep over time. Hopefully by year 5-8 the well is on a flattish decline of 6-10% a year. Well life should be 40 years or so.

This is all a function of hydraulically fractured wells in rock with very low permeability. Your hydraulic fracture creates a large system of highly permeable cracks/paths for oil to flow into your wellbore. Those cracks extend far out from your well. Oil that is near those cracks flows into the well very easily. So at the beginning you have all that oil that can rush into your well. As time goes on, you are producing oil that has to flow a longer distance through the unfracked rock to get to the system of fractures. That gets harder and harder to do. So your rate continues to drop. But you have a whole bunch of oil that has to do that, so while your rate is much lower, you can more easily sustain that rate. Thus lower decline as time goes on. Something like that.

Here are two decline curves for the Bone Spring and the Wolfcamp in a certain area. The colored points are the actual data (average of many wells) and the black line is the best fit of the “hyperbolic” decline, so that’s my best guess of what those wells will do in the future. Note the oil rate scale is logarithmic.

[Wade_Caldwell]

There is a big drop off, but most flowback reports I have seen, it takes 2-3 weeks of flowback before a well starts seeing its peak initial production.

[HGW]

Thanks for these replies @NMoilboy & @Wade_Caldwell.

So I’m wondering - if a well gets shut in during its 2nd or 3rd month, right when they are supposedly at their peak production (as I believe these wells did due to Covid) - would that defer the peak production to the month when the well is opened back up again?

For example, if the well starts in February, but then gets shut down in March - when it comes back up again in June, would June’s production be what March’s should have been (ie - the peak production month)?

[M_Barnes]

One would hope that would be the case. However, having frac water in the system may not help. Time will tell.

[Roy]

Many feared temporary shut-ins would permanently damage horizontal wells, however, several CEOs of Permian E&P companies disputed that theory in earnings releases in May, predicting shut in wells will be restored to near-normal production when prices rise. They claimed experience in managing routine shut-ins over the years.

Depletion curve - NMoilboy is correct. FYI, Laredo Petroleum’s quarterly earnings presentations sometimes summarize depletion curves (caveat, Laredo produces 125 miles east of you near Midland/Odessa). At the risk of oversimplification, here is Laredo’s recent curve for a 10,000’ horizontal well in upper/middle Wolfcamp formation … hope the numbers don’t jumble:

Year-1, 107 MBO, 213 MBOE.
Year-2, 41 MBO, 130 MBOE.
Year-3, 26 MBO, 84 MBOE.
Year-4, 20 MBO, 64 MBOE.
Year-5, 16 MBO, 53 MBOE. 5-yr cum, 210 MBO, 544 MBOE.
Life of well, 400 MBO, 1,300 MBOE.

Evidently, the proportion of oil declines from 50% early to 30%, explaining the old adage “oil wells become gas wells over time”.

[Roy]

@HGW

Actually no I don’t completely understand this. Are you saying that most wells peak after only 2 months, and then rapidly decline? What is a typical depletion curve for a horizontal well?

You can become a depletion expert in 15 minutes, log on to the Texas RRC website, then query the production of Cimarex wells located 10-15 miles south of you in NE Culberson County, you’ll see monthly oil gas production. Perhaps New Mexico discloses public well production data, I only follow TX. Choose comparison well lateral length similar to your NM well(s).

[HGW]

Actually yes there is a website for this in NM. I’ve looked at it, but I’ll do a deeper analysis over time. Thanks.

[HGW]

I’m glad to hear that about the shut-in wells predictions!

[M_Barnes]

If you imagine a frac as a tree root with the large diameter close to the well bore and progressively smaller roots as you go out into the distance, so can see why the wells peak on the first couple of months. The frac beads hold those big perfs open, but the little ones are too small for the beads. The frac pushed water into the rock under great pressure and imbeds those tiny beads. Over the first few weeks of production the frac water (most of it) flows back to the surface with the oil or gas molecules coming back up the hole with it. (Think about a champagne bottle when you pop the lid-lots of bubbles and fluid). The volume of open pore space around the frac is large, so large volumes can escape quickly as they are close to the well bore. As time goes on, the molecules have to come from far away and still farther away from tiny fractures, so the volume goes down. At the same time, the pressure on the reservoir goes down-less bubbly- and so you get the long low tail of production.

[HGW]

I see, that makes a lot of sense. Thanks for the analogy.