Earthstone Energy (ESTE) Q&A - July 3
Posted: Mon Jul 03, 2023 9:19 am
Several MBA students attended our luncheon on June 14 that was hosted by Earthstone. After the luncheon they submitted several questions to me that I forwarded to Robert Anderson, Earthstone's CEO. Below are his answers.
Today we have three outstanding MBA that graduated from SMU (Nataly, Cas and Steven) that help me update our company profiles. They are super smart and they "get it".
MBA students are allowed to attend our luncheons for free. One of my personal goals is to get more young people to pursue careers in the oil & gas industry.
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1. What is the average total cost of drilling and completing a shale well in the Permian basin today?
Well costs range depending on depth, geologic formation/target and regionally within the Permian. In some cases the number of different casing strings required by regulators or by drilling design changes the cost as well. Other factors also include the lateral length, size of the production facility, number of wells on a pad, fracture stimulation design and other technical parameters.
The Midland Basin is generally cheaper to drill than the New Mexico portion of the Delaware Basin, which is deeper and higher pressure in most areas. For a normalized 10,000’ lateral, we are spending between $900-$1000 per foot in the Midland Basin and would spend between 15 and 20% more in the Delaware Basin (NM).
2. What is the average length of the horizontal wells being drilled in the Permian ?
Generally speaking, operators are targeting 10,000’ laterals. The range is 5,000’ – 15,000’. We have drilled everything in between this range. There are some operators, including Exxon, who have drilled and are doing 20,000’ laterals. Some of this is for land reasons and perhaps capital efficiency.
3. What is the most common shales being targeted for development?
In the Midland Basin we target the Lower Spraberry and Wolfcamp sections. There are multiple target zones within each formation but for instance the Wolfcamp has 5 productive targets which we have drilled. There are secondary targets being developed such as the Middle Spraberry, Jo Mill, Dean and now deeper targets in the Barnett.
In the Delaware Basin of New Mexico we are developing the Bone Spring intervals (which is equivalent to the Spraberry) and the Wolfcamp. The Bone Spring intervals that we have developed are first, second and third Bone Spring sands as well as the Harkey sand which is a distinct member within the third Bone Spring. The Wolfcamp has several intervals being developed which include the X/Y interval between the third Bone Spring and the Wolfcamp A. Also development is in the Wolfcamp A and B. Secondary targets include the Avalon, just above the first Bone Spring as well as the Brushy Canyon which sits atop of the Avalaon.
See our corporate presentation on our website for more details.
4. what is the most popular and effective proppant? Northern white, Texas brown or ceramic?? Are there trends to use smaller sized proppants or larger size grains?? Are there trends to use more proppant materials or less in the fracing process??
Most operators have gone to in-basin sand being Texas-based sand. Some operators are using the sand as mined and not drying it out, called wet sand. Apparently this saves a few hundred thousand dollars per well. We have not done this yet. Sizes being used, from smallest to largest, 100 mesh, 40-70, 30-50. Generally pumped in this order so that the largest sand is nearest the wellbore to create the best path for fluid flow. Proppant intensity ranges from 1800-3000 #/lateral foot. Zone and operator development plans determine the volumes. We pump between 2000-2500 #/ft.
5. Is water sourcing to mix the drilling mud or water disposal an issue?
Water is an industry issue. Regardless of source water for frac, drilling (but less of a problem just because of volume required) or disposal. The industry is using more produced / recycled water in frac operations. This helps reduce the amount of disposal capacity and the required amount of fresh/brackish water to source. Each area is unique in its constraints. Midland Basin has good source water and disposal systems. New Mexico has more difficult infrastructure and requires more planning and future investment.
6. Are the oil brine lithium recovery companies out here?
I do not know. (As far as I know, none of the lithium companies that I follow are looking at the Permian Basin. - Dan Steffens)
7. In a world of zero emissions is there a career path in the industry??
Absolutely. This industry continues to grow as the ability to deliver secure, low-cost energy is required. Although the growth in renewables continue, the fossil fuel industry in the United States is the lowest emissions producing region in the world. We are delivering the cleanest barrel in the world.
8. Has the industry solved the gas flaring issue?
We have reduced flaring tremendously over the past 5-10 years and continue to improve. New low-cost technologies that allow for continuous monitoring of emissions will help us locate and correct issues much quicker. We are also spending capital to upgrade and improve production facilities to reduce emissions. Equipment such as vapor recovery units and air versus hydrocarbon gas for pneumatic controllers will reduce the amount of emissions.
9. Is getting drilling pipe or tubing an issue?
There are still some constraints for specialty pipe including drill-pipe but as activity has slowed recently and world wide industrial growth has slowed, ability for mills to generate more casing for the industry has improved. Costs should be coming down later this year.
Today we have three outstanding MBA that graduated from SMU (Nataly, Cas and Steven) that help me update our company profiles. They are super smart and they "get it".
MBA students are allowed to attend our luncheons for free. One of my personal goals is to get more young people to pursue careers in the oil & gas industry.
--------------------
1. What is the average total cost of drilling and completing a shale well in the Permian basin today?
Well costs range depending on depth, geologic formation/target and regionally within the Permian. In some cases the number of different casing strings required by regulators or by drilling design changes the cost as well. Other factors also include the lateral length, size of the production facility, number of wells on a pad, fracture stimulation design and other technical parameters.
The Midland Basin is generally cheaper to drill than the New Mexico portion of the Delaware Basin, which is deeper and higher pressure in most areas. For a normalized 10,000’ lateral, we are spending between $900-$1000 per foot in the Midland Basin and would spend between 15 and 20% more in the Delaware Basin (NM).
2. What is the average length of the horizontal wells being drilled in the Permian ?
Generally speaking, operators are targeting 10,000’ laterals. The range is 5,000’ – 15,000’. We have drilled everything in between this range. There are some operators, including Exxon, who have drilled and are doing 20,000’ laterals. Some of this is for land reasons and perhaps capital efficiency.
3. What is the most common shales being targeted for development?
In the Midland Basin we target the Lower Spraberry and Wolfcamp sections. There are multiple target zones within each formation but for instance the Wolfcamp has 5 productive targets which we have drilled. There are secondary targets being developed such as the Middle Spraberry, Jo Mill, Dean and now deeper targets in the Barnett.
In the Delaware Basin of New Mexico we are developing the Bone Spring intervals (which is equivalent to the Spraberry) and the Wolfcamp. The Bone Spring intervals that we have developed are first, second and third Bone Spring sands as well as the Harkey sand which is a distinct member within the third Bone Spring. The Wolfcamp has several intervals being developed which include the X/Y interval between the third Bone Spring and the Wolfcamp A. Also development is in the Wolfcamp A and B. Secondary targets include the Avalon, just above the first Bone Spring as well as the Brushy Canyon which sits atop of the Avalaon.
See our corporate presentation on our website for more details.
4. what is the most popular and effective proppant? Northern white, Texas brown or ceramic?? Are there trends to use smaller sized proppants or larger size grains?? Are there trends to use more proppant materials or less in the fracing process??
Most operators have gone to in-basin sand being Texas-based sand. Some operators are using the sand as mined and not drying it out, called wet sand. Apparently this saves a few hundred thousand dollars per well. We have not done this yet. Sizes being used, from smallest to largest, 100 mesh, 40-70, 30-50. Generally pumped in this order so that the largest sand is nearest the wellbore to create the best path for fluid flow. Proppant intensity ranges from 1800-3000 #/lateral foot. Zone and operator development plans determine the volumes. We pump between 2000-2500 #/ft.
5. Is water sourcing to mix the drilling mud or water disposal an issue?
Water is an industry issue. Regardless of source water for frac, drilling (but less of a problem just because of volume required) or disposal. The industry is using more produced / recycled water in frac operations. This helps reduce the amount of disposal capacity and the required amount of fresh/brackish water to source. Each area is unique in its constraints. Midland Basin has good source water and disposal systems. New Mexico has more difficult infrastructure and requires more planning and future investment.
6. Are the oil brine lithium recovery companies out here?
I do not know. (As far as I know, none of the lithium companies that I follow are looking at the Permian Basin. - Dan Steffens)
7. In a world of zero emissions is there a career path in the industry??
Absolutely. This industry continues to grow as the ability to deliver secure, low-cost energy is required. Although the growth in renewables continue, the fossil fuel industry in the United States is the lowest emissions producing region in the world. We are delivering the cleanest barrel in the world.
8. Has the industry solved the gas flaring issue?
We have reduced flaring tremendously over the past 5-10 years and continue to improve. New low-cost technologies that allow for continuous monitoring of emissions will help us locate and correct issues much quicker. We are also spending capital to upgrade and improve production facilities to reduce emissions. Equipment such as vapor recovery units and air versus hydrocarbon gas for pneumatic controllers will reduce the amount of emissions.
9. Is getting drilling pipe or tubing an issue?
There are still some constraints for specialty pipe including drill-pipe but as activity has slowed recently and world wide industrial growth has slowed, ability for mills to generate more casing for the industry has improved. Costs should be coming down later this year.
