The State of the TMS - January 2015
For those unaware, the price of oil is now under $50.
I have been very positive about the future of the Tuscaloosa Marine Shale play and remain so.
That said, I don't know of any shale play that can be profitable at $50 oil. In fact, entire countries will be facing hardships at this price.
Things have gone eerily quiet or late here in the TMS and, in my mind, this quiet is directly related to this unbelievably low price for oil.
Will Sanchez drill the Macedonia wells planned at one time? I doubt it while the price of oil is at $50...or even $60.
Goodrich Petroleum has moved the Nabors 624 to the Painter 5H-1, but the rig isn't set up, yet. It's a good time for maintenance, I'm sure. But, if Goodrich's contract with the rig company allows for some down time, perhaps a little delay in setting up an drilling may be what we are seeing. Who could blame Goodrich?
Fracking of wells has been delayed. There are at least 9 wells with completed drills waiting to be fracked at this time.
Even when these wells are fracked, perhaps now is a good time to experiment with holding off flow back for a month or so. I don't think this has been tried in the TMS, but it has been elsewhere and the results have suggested wells do better when the flow back is delayed. Why not experiment with this when oil is at $50 rather than when it is at $110?
Goodrich currently has 3 rigs in the play. EnCana 2. Sanchez says they will be bringing in another rig. But, at $50 oil, how many rigs will we have here by the end of February?
I'm betting no more than 2.
All that said, this appears to be a temporary situation. The TMS seems to have turned the corner in every other phase of the game.
Sanchez Energy brought in the St. Davis well in 25 days and reported production of 22,000 barrels in its first 25 days...a time which would include low production days early on.
EnCana reported production for the first 90 days on the Pintard 28H-2 of over 80,000 barrels. This would compare to the Goodrich Crosby 12H-1's (our best well of 2013) for the same period of 70,000 barrels.
The last Goodrich well, Spears 31-6H-1, produced over 40,000 barrels in its first 46 days, again including early low production days.
(By the way, you can look at the numbers for these and other Mississippi wells by going to the "Useful Links" on our home page and clicking on the "MS Oil & Gas Board - TMS Page" link just beneath...there are no recent Louisiana wells with information to access at this time.)
It appears to me that pay-off on these wells at current projected drilling completion cost of development wells ($11 million) should run around 15 months or less at $90 oil, assuming 80% royalty.
Even at $13 million for a single well cost, the pay-out should be in less than 2 years.
Is it reasonable to expect $90+ price of oil? Sure...at some point. Many are suggesting it will be as long as two years from now, but some are saying less than a year. No one is suggesting the prices won't return to higher levels, absent the creation of a miraculous alternative source of energy.
So, today, what is the state of the TMS. Let's call it a hibernation state. When the winter of low oil prices passes and the seasons of highs return, prepare to bask in the glow and the flow of the TMS!
Until then, we prepare for the future, hang on and wait.