Per DVN’s Q3 operations report:
Pilots testing higher-density spacing not optimized — Showboat upside test underperforms vs. plan (12 wells/unit) — Horsefly delivered improved results (10 wells/unit) — Bernhardt rates limited by flowback strategy (8 wells/unit) — Lighter-spaced Coyote project delivers best results
Learnings from high-density infill tests — Initial results indicate spacing was too tight — Flowback approach key for oil recoveries — Upper Meramec delivered best well results — Vertical communication observed — Substantial D&C savings achieved (pg. 15) Reverting to “base case” spacing to optimize returns — Upcoming activity targeting 4-8 wells per unit — Well placement focused in Upper Meramec — Flowback adjusted to improve performance Project IRRs to benefit from less capital intensity — Utilizing tailored, more capital efficient completions — Projects to benefit from less infrastructure capital on centralized facilities
Similarly NFX was under pressure due to under performance in the STACK. This is not uncommon through out shale plays, but the midcon’s expectations were pushed pretty high, and still are pretty high. Companies simply can deliver their type curves across a tightly spaced multiple well unit consistently.
This will eventually impact mineral values in multiple ways. Not only will production projections be reduced, and hence projected cash flows go down, but the overall allocation of capital and velocity of development will start to pull back as companies look to allocate capital to higher value plays. Add in the dramatic retreat in oil prices from the mid $70’s to the low $60’s and there are many mineral buyers licking their wounds and crying tears of the winner’s curse for their overly optimistic estimates, and many mineral buyers that might have missed peak pricing as the buyer pool shrinks. Of course the pendulum can swing the other way on pricing again, and it will, but always remember there is only so much oil and gas in a formation, and as important, only so much formation energy available to produce those hydrocarbons.
DVN 2018 11 NOV Q3-2018-DVN-Operations-Report-FINAL.pdf (1.5 MB)
wonder what the value of minerals with 4 wells versus 8 or 10 will be…hmm