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Bloomberg News Article

Posted by bernell on September 8, 2014

Some of you may recall a reporter from Bloomberg News spending a little time in the TMS and visiting with us a little.  Her article is now available online and is linked below.

I would like to say I'm a bit disappointed in the article for two reasons.

First, it implies the oil companies are lying to the public about the play's potential. 

Second, (and there are others who believe this stuff, so the author isn't alone), the article implies the TMS is a play that is unlikely to be commercial.

The article discusses "proved reserves" compared to "resource potential."  Now the fact is that the SEC basically requires an independent reservoir analyst to study wells that are producing and to make an estimate of the amount of oil that can be extracted from these drilled wells, but has not been brought to the surface, yet.  This is known as "proved reserves."

"Resource potential" is the potential production from lease holdings.  I have not actually seen Halcon's separate calculation of proven potential for the TMS, but here is one way to do the math:

250,000 leased acres in the area of the TMS on the east side of the Mississippi River that has been demonstrated to have oil in place, set into 2,000 acre size units with as many as 10 wells per unit at 605,000 barrels calculates out to "resource potential for the TMS holdings at 750 million (I incorrectly put a 'b' instead of a 'm' mistake) barrels.

I suspect Halcon has a smaller number than this as their potential for the TMS, but this 750 million barrels is certainly within the reasonable realm of the term "potential."

Most folks, I hope, understand that the word "potential" is not the same as "proved," but the article implies these two words are synonymous.

Proved = drilled wells
Potential = drilled + undrilled wells (but in a rock with absolutely no question as to the oil in place)

Presumably reasonable investors know the difference and, therefore, Halcon and these other operating companies are not misleading the public when presenting this information.

Second, the author visited a well (Fassman 9H-1), which, indeed had some drilling issues. And, there is no question drilling TMS wells has been a challenge.  But the fact is major gains are being made with each well drilled and fewer and fewer problems are being found.

From my perspective it has been fun to watch these companies continue to get better at drilling these wells.  Fewer and fewer problems.  Better and better results.

The author asked me while here if I thought the TMS would be a success.  I said I did.  Why?  The oil is there and I believe they are going to figure out how to get it profitably....commercially.

There is no doubt a lot of money will have to be invested and/or borrowed to produce this oil, but it is there and I have no doubt it can't be gotten out quite profitably...unless oil falls to $80 per barrel or less.

All that said, here is the article.

What do you think about it?