Newfield Conf Call Summary
Posted: Tue Feb 28, 2017 9:13 am
Newfield Exploration (NFX) conference call Feb 22, 2017. Note the following
• Note the excellent discussion of the nature of the STACK Meramec shale formation on page five. The Woodford (below Meramec) is a ‘world class’ source rock. Meramec also generates hydrocarbons. Meramec homogeneous or uniform with regard to minerology and grain size which leads to consistent well results. Due to permeability and porosity the high silica content means the Meramec is brittle and ideal to frac. Very good seal for any hydrocarbons generated by the Woodford or elsewhere. Little formation water so less cost of handling and issues of induced seismicity. Meramec is the ‘full package” when describing a robust petroleum system.
• NFX has increased the use of proppant and water significantly over the last few years. Now up to 2,100 pounds proppant and 2,100 gallons of water per foot drilled. They are testing 3,000 and 4,000 pounds per foot, will announce results in the future of this experiment. Lots of potential if this works out (the reservoir engineers can figure the marginal cost of sand with the return from the additional gas/oil and timing of production to determine if worth pursuing). At the current 2,100 pound level the company is waiting to get additional data before updating their ‘type curve’.
• Company is experimenting with the optimization of drilling and spacing units. In Oklahoma this is driven by statute and regulation at the Corporation Commission.
• The company is also experimenting with the longer lateral (XLE) versus normal lateral lengths to maximize recovery and returns. Drilling keeps getting more efficient, it takes less days to drill the same length which reduces cost.
• Note at $50 a barrel the STACK and SCOOP economics and returns are very good, part of this is driven by the massive increases in efficiency in drilling and completing and lower service costs. The company will ramp up activity if oil prices increase, increasing production and shareholder returns.
• Note Newfield has a first mover advantage with average lease costs $3,000 per acre. Also note they are moving their leasing to the north in the STACK play, something that might add additional value at relatively low cost.
• Note company is drilling to hold acreage by production then will begin to drill from pads which will be much more efficient and increase shareholder IRR and production. Company expects to grow production double digits for quite some time with their inventory, higher prices will icrase capital expenditures.
• Company has repositioned to become essentially a STACK and SCOOP play, 80% of capx in this field and a majority of production gains will come in these fields. Note the STACK and Permian have the most attractive economics according to management comments, but Permian Basin players are drilling full speed ahead at $50 while NFX will accelerate exploration efforts if prices increase.
• Company sees significantly higher activity levels in 2018 and 2019, and if well productivity increases with fracing and drilling advances, with pad drilling, on held acreage the production growth might be quite impressive. Assumed well cost in 2017 if $7.7 million in the STACK.
• Note the excellent discussion of the nature of the STACK Meramec shale formation on page five. The Woodford (below Meramec) is a ‘world class’ source rock. Meramec also generates hydrocarbons. Meramec homogeneous or uniform with regard to minerology and grain size which leads to consistent well results. Due to permeability and porosity the high silica content means the Meramec is brittle and ideal to frac. Very good seal for any hydrocarbons generated by the Woodford or elsewhere. Little formation water so less cost of handling and issues of induced seismicity. Meramec is the ‘full package” when describing a robust petroleum system.
• NFX has increased the use of proppant and water significantly over the last few years. Now up to 2,100 pounds proppant and 2,100 gallons of water per foot drilled. They are testing 3,000 and 4,000 pounds per foot, will announce results in the future of this experiment. Lots of potential if this works out (the reservoir engineers can figure the marginal cost of sand with the return from the additional gas/oil and timing of production to determine if worth pursuing). At the current 2,100 pound level the company is waiting to get additional data before updating their ‘type curve’.
• Company is experimenting with the optimization of drilling and spacing units. In Oklahoma this is driven by statute and regulation at the Corporation Commission.
• The company is also experimenting with the longer lateral (XLE) versus normal lateral lengths to maximize recovery and returns. Drilling keeps getting more efficient, it takes less days to drill the same length which reduces cost.
• Note at $50 a barrel the STACK and SCOOP economics and returns are very good, part of this is driven by the massive increases in efficiency in drilling and completing and lower service costs. The company will ramp up activity if oil prices increase, increasing production and shareholder returns.
• Note Newfield has a first mover advantage with average lease costs $3,000 per acre. Also note they are moving their leasing to the north in the STACK play, something that might add additional value at relatively low cost.
• Note company is drilling to hold acreage by production then will begin to drill from pads which will be much more efficient and increase shareholder IRR and production. Company expects to grow production double digits for quite some time with their inventory, higher prices will icrase capital expenditures.
• Company has repositioned to become essentially a STACK and SCOOP play, 80% of capx in this field and a majority of production gains will come in these fields. Note the STACK and Permian have the most attractive economics according to management comments, but Permian Basin players are drilling full speed ahead at $50 while NFX will accelerate exploration efforts if prices increase.
• Company sees significantly higher activity levels in 2018 and 2019, and if well productivity increases with fracing and drilling advances, with pad drilling, on held acreage the production growth might be quite impressive. Assumed well cost in 2017 if $7.7 million in the STACK.