How do you go about determining if Mewbourne will drill the Upper Wolfcamp or not?
If it was me, and I was feeling crazy and I had a DrillingInfo subscription:
Look at offset well production for wells like the ones that might get drilled here. Let’s say that perhaps these wells are all nearby Upper Wolfcamp producers, and that their average historical/forecasted production looks like this:
Those are pretty decent wells. Expected total oil recovery of > 400,000 per mile long well.
Then you stick that flowstream into an economic model, say one that assume a 5000’ lateral costs about $5.5m to drill and complete. And other associated assumptions. At $40 oil, that potential well is something like a 15-20% IRR BTAX to Mewbourne. That probably will not get drilled. At $55 oil, that well is something like 40% IRR BTAX. That well almost assuredly will get drilled (in some timeframe). At least that is my guess. So, IMO, if oil price goes up, there are at least 4 more upper Wolfcamp wells to drill here. (In addition to some other possibilities). If oil stays low, then like EVERYWHERE, its probably going to be tough times for people waiting to see if wells get drilled.
Currently Mewbourne is running 3 rigs in the Delaware and they are in better places (26s29e, 25s28e) or similar places (23s34e) to this.
I think I’d keep this if some of these are true:
- You are bullish on oil prices
- People are offering you sub $100k for all of it
- It has some extreme sentimental value
- $100k here or there doesn’t matter all that much
- There is some thrill to getting checks in the mail each month and seeing what happens
Reasons I might sell:
- You figure oil is roughly equal to thermal coal and everybody is driving an electric car in 10 years
- Keeping track of small checks and details on this over 20 years sounds like a pain, not a thrill
- People are offering you over $110k for it
- You’d rather somebody else deal with the risk/reward of possible development
There aren’t a lot of wrong answers IMO once you remove getting completely hosed on pricing out of the equation.