Since my original post on PBT I have gotten a large number of private messages asking for more information about the Blackbeard drilling activity. Here's a a quick update with the requested data.
The world will (mostly) wean itself off of oil. Sometime in the next 500 years, give or take. BTW, Broncho, you will hear from me again. We have quite a bit in common.
Just glanced at the Aug. report. Any ideas on why oil production at Waddell showed a slight decrease? They reported first sales from a number of new wells and recomps... I was expecting to see at least 190,000 this month.
I was expecting around 207k for this month. All test data suggests it should of been much more than the 183k but I also had 1 horizontal and 2 verticals more in my calculations based on completion permit data. One possibility was the installation of the tank batteries later in the month of May and mid June that were not online to contribute to a full months output of sales to market. These installs were noticed in the large LOE increase of $4.2M where this month is back to normal for the operations at $3.6M.
Based on the geology of similar plays and the geological report from June of last year I don't see large declines on these wells after initial production except for the horizontals. However the horizontals should add a ton of new barrels up front and we have yet to see that in the numbers. Key thing to watch is the gas production since that's directly correlated to new well production to the plant immediately. Thanks to LNG sales winter price point average should be $12-14 on Gas for the Waddell ranch as Freeport opens back up to exports. That will help with the volatility of oil prices short term.
3.6 for LOE is still up from the 2.6 reported in May, which I was using for baseline. Looks like gas production at Waddell decreased slightly as well, according to the Aug report.
$3.6M is inline for the upgrades they have going on for facilities and tanks for the past few months. I expect this number to come down dramatically as these projects are finishing up.
I will attempt to get my hands on a drone over the next few days and survey the completions to see if they are currently pumping and verify the status of the upgrades that contribute to the LOE.
are you not at all worried about demand destruction from a severe recession? once market realizes Fed isn't pivoting anytime soon, I am worried oil prices will tank to the $60-70 range as markets price in the coming recession. have a hard time seeing $50 PBT in that scenario as I think it will overshoot to the downside along with WTI prices. Thoughts?
With oil near or above $100 this long it's hard to imagine US Shale hasn't ramped but I drive through Midland/Odessa daily in the Permian and track RRC permits. The data and anecdotal evidence to me says that there will not be new supply from the largest swing producer in the world at a time when SPR stops and hurricanes begin. Flat production because no one makes money sub $65 long term and investment cycles require a ton of capex. Tier 1 wells are fewer and far between and high decline well curves can't be brought online to pump numbers, which seems to be most of the DUC remaining inventory. I would typically agree on recession fears if the world wasn't so short investment capital in 2020-2021 due to the pandemic.
Ok I see your point. Follow up question then, what do you think is the bear case for PBT? Or what would need to happen for you to feel your thesis has been invalidated?
Couple things could happen outside of oil prices sub $85 to create a bear case.
1. Casing, sand, rentals, and other capex heavy items can continue to be scarce and a need for increase in budget this year.
2. Worldwide demand not meeting the 101-103MBPD range by 2023. Bringing oil prices to the $70-85 range long term.
3. US export ban. This would be more short term(6 month) bear case but could cause an unexpected upside opportunity since the world is short sweet crude.
4. On the operators side they could potentially push for another bump in capex in 2023 but Blackbeard needs to find a quality ROI sweetspot for production. Based on my expections this is 300k BPM for Waddell ranch. Anything under 220k BPM would be a bear case if not met by November reporting off current expected completions.
SBR(Sabine Royalty Trust) is a good one for float size, volume, and production to compare.
Sabine is opposite with investment in new production so had a slight decline and is heavily correlated to the price of oil with less forward looking opportunity. However the trading price($60-90) of the equity vs cash distribution($0.45-0.75) per month is a good comparison of the potential of PBT.
Thank you for sharing your data. I am fascinated by the potential of the Waddell Ranch asset. I am however concerned that the decline rates of the new horizontal wells will be significantly higher in their early years than the 15% decline seen in the mature vertical wells drilled decades ago. It is my understanding that first year declines in tight horizontal fracked wells is 65-75% in the first year and would think the same holds for Waddell, are you seeing any large declines in the new Blackbeard wells?
Horizontal do have a much higher decline curve after initial production. Blackbeard is only targeting a small portion of drills that are horizontal seen here: https://imgur.com/a/8XMidy4 as opposed to the vertical well sites here: https://imgur.com/a/scuOPqL for the same area. Different stages are being targeted on the verticals as shown here: https://imgur.com/a/TeNrVyV . This particular well is targeting the Sandhills Wolfcamp with an expected 35BBL/day oil and 76mcf/day gas and another example here: https://imgur.com/a/cbL8TJN that targets the Sandhills Clearfork at an expected 247BBL/day oil and 809mcf/day gas. Fairly large spread in barrels per month on those 2 wells of 1050-7410BPM which is why I shared the fields and targets for the raw data.
Currently declines don't seem to be very high on the verticals and we don't have enough current data for the new targeted horizontals but that should change soon. Well 103-36515 that is a horizontal was drilled in 2015 by Conoco. Target field was Sand Hills McKnight at 3344 depth and 5192 lateral. You can see how heavy the decline can be on this type of well but initial production is very good. These are survey tests over time: https://imgur.com/a/mztFN9P . Last test was July 2021 with a monthly expected rate of 2,280BPM with no recompletions permitted since.
This is an excellent and comprehensive analysis, thank you.
The world will (mostly) wean itself off of oil. Sometime in the next 500 years, give or take. BTW, Broncho, you will hear from me again. We have quite a bit in common.
Just glanced at the Aug. report. Any ideas on why oil production at Waddell showed a slight decrease? They reported first sales from a number of new wells and recomps... I was expecting to see at least 190,000 this month.
I was expecting around 207k for this month. All test data suggests it should of been much more than the 183k but I also had 1 horizontal and 2 verticals more in my calculations based on completion permit data. One possibility was the installation of the tank batteries later in the month of May and mid June that were not online to contribute to a full months output of sales to market. These installs were noticed in the large LOE increase of $4.2M where this month is back to normal for the operations at $3.6M.
Based on the geology of similar plays and the geological report from June of last year I don't see large declines on these wells after initial production except for the horizontals. However the horizontals should add a ton of new barrels up front and we have yet to see that in the numbers. Key thing to watch is the gas production since that's directly correlated to new well production to the plant immediately. Thanks to LNG sales winter price point average should be $12-14 on Gas for the Waddell ranch as Freeport opens back up to exports. That will help with the volatility of oil prices short term.
3.6 for LOE is still up from the 2.6 reported in May, which I was using for baseline. Looks like gas production at Waddell decreased slightly as well, according to the Aug report.
$3.6M is inline for the upgrades they have going on for facilities and tanks for the past few months. I expect this number to come down dramatically as these projects are finishing up.
I will attempt to get my hands on a drone over the next few days and survey the completions to see if they are currently pumping and verify the status of the upgrades that contribute to the LOE.
are you not at all worried about demand destruction from a severe recession? once market realizes Fed isn't pivoting anytime soon, I am worried oil prices will tank to the $60-70 range as markets price in the coming recession. have a hard time seeing $50 PBT in that scenario as I think it will overshoot to the downside along with WTI prices. Thoughts?
Historically, even in a severe recession, demand destruction isn't a major issue as seen here: https://imgur.com/a/oYUYkav
The EIA is predicting that US Shale can bring on 1MBPD by Oct when SPR tapers their release but if we look at the DUC decline:
https://imgur.com/a/ayl0XBw
And the current rate of barrels in the largest areas of US Shale in the Permian Basin declining:
https://imgur.com/a/ssHJ6Tb
With oil near or above $100 this long it's hard to imagine US Shale hasn't ramped but I drive through Midland/Odessa daily in the Permian and track RRC permits. The data and anecdotal evidence to me says that there will not be new supply from the largest swing producer in the world at a time when SPR stops and hurricanes begin. Flat production because no one makes money sub $65 long term and investment cycles require a ton of capex. Tier 1 wells are fewer and far between and high decline well curves can't be brought online to pump numbers, which seems to be most of the DUC remaining inventory. I would typically agree on recession fears if the world wasn't so short investment capital in 2020-2021 due to the pandemic.
Ok I see your point. Follow up question then, what do you think is the bear case for PBT? Or what would need to happen for you to feel your thesis has been invalidated?
Couple things could happen outside of oil prices sub $85 to create a bear case.
1. Casing, sand, rentals, and other capex heavy items can continue to be scarce and a need for increase in budget this year.
2. Worldwide demand not meeting the 101-103MBPD range by 2023. Bringing oil prices to the $70-85 range long term.
3. US export ban. This would be more short term(6 month) bear case but could cause an unexpected upside opportunity since the world is short sweet crude.
4. On the operators side they could potentially push for another bump in capex in 2023 but Blackbeard needs to find a quality ROI sweetspot for production. Based on my expections this is 300k BPM for Waddell ranch. Anything under 220k BPM would be a bear case if not met by November reporting off current expected completions.
Thanks. Always good to hear the opposite view.
Thanks for sharing. I’m trying to find another royalty trust for some comparative analysis. Any suggestions?
SBR(Sabine Royalty Trust) is a good one for float size, volume, and production to compare.
Sabine is opposite with investment in new production so had a slight decline and is heavily correlated to the price of oil with less forward looking opportunity. However the trading price($60-90) of the equity vs cash distribution($0.45-0.75) per month is a good comparison of the potential of PBT.
That’s the one I was thinking as well. Thanks for the reply. Looking forward to your next update.
Thank you for sharing your data. I am fascinated by the potential of the Waddell Ranch asset. I am however concerned that the decline rates of the new horizontal wells will be significantly higher in their early years than the 15% decline seen in the mature vertical wells drilled decades ago. It is my understanding that first year declines in tight horizontal fracked wells is 65-75% in the first year and would think the same holds for Waddell, are you seeing any large declines in the new Blackbeard wells?
Horizontal do have a much higher decline curve after initial production. Blackbeard is only targeting a small portion of drills that are horizontal seen here: https://imgur.com/a/8XMidy4 as opposed to the vertical well sites here: https://imgur.com/a/scuOPqL for the same area. Different stages are being targeted on the verticals as shown here: https://imgur.com/a/TeNrVyV . This particular well is targeting the Sandhills Wolfcamp with an expected 35BBL/day oil and 76mcf/day gas and another example here: https://imgur.com/a/cbL8TJN that targets the Sandhills Clearfork at an expected 247BBL/day oil and 809mcf/day gas. Fairly large spread in barrels per month on those 2 wells of 1050-7410BPM which is why I shared the fields and targets for the raw data.
Currently declines don't seem to be very high on the verticals and we don't have enough current data for the new targeted horizontals but that should change soon. Well 103-36515 that is a horizontal was drilled in 2015 by Conoco. Target field was Sand Hills McKnight at 3344 depth and 5192 lateral. You can see how heavy the decline can be on this type of well but initial production is very good. These are survey tests over time: https://imgur.com/a/mztFN9P . Last test was July 2021 with a monthly expected rate of 2,280BPM with no recompletions permitted since.
Thank you, the 103-56515 data that shows the decline rate stabilizing quickly after the initial drop is reassuring for the long term.