Substantially Undervalued, O&G Situation in play, page-113

Time to go back over the West Double A Wells field & VOBM#1.

I've spent some time looking at the 10th, 9th & 8th highest producers from the Double A Wells field so as to understand the type of decline curve that we should expect from the West Double A Wells field.

Having assembled all the production data etc, the 10th & 9th highest producers have erratic decline curves for some unknown reason's, so I've discarded them, other than there very early data.

For the model, I decided against simply trying to use an IP number as the starting point, mainly because I didn't have them and you're never sure if the test conditions were the same for each well (ie choke size, length of test etc). Instead I took the best month's actual production data and divided it by the number of days in the month, so as to arrive at an average number for that month. That is my starting point IP.

Then I added up the production for the whole year and divided it to get a daily average flow rate for each individual year. I then compared each of these numbers to get the annual decline rate. I modeled oil & natural gas data separately.

The first interesting thing to note is that peak production didn't occur in any of these 3 wells until either month 3 or 4 of production, in other words they continued to clean-up for a while once they were actually put online.

Also of note is the fact that during the first 2 year's of production, oil production declined far more rapidly than natural gas. In year 3 the percentage declines were similar and thereafter natural gas production declined fast in percentage terms.

Over 69% of total oil production from the well occurs within the first 3 years, as does 55% of total natural gas production (that averages out at over 62.5% of total production) . At the end of year 6, over 80% of all production will have occurred (83% oil, 77% natural gas). It takes 20 year's for the well to be completely depleted in that formation.

Bearing all of the above in mind, my working model will be flawed until VOBM#1 has actually been online for several months. Then I'll be able to get that peak monthly data to work from.

In the meantime I've used its flow-test numbers just to see where they lead me.

The projection for VOBM#1 is for an EUR of @ 1.43 MMboe made up of @ 363,000 BO & 6.4 BCFG (these figures are not adjusted for the higher BTU content of the natural gas (1100 BTU against the 1054 standard) nor for NGL, so the overall EUR end figure will end up being above the 1.43MMboe projection).

The overall pre-drill expectation were for a prospect with @ 58 MMboe of all in recoverable resources and needing 37 wells to drain it, in a success case scenario (that works out at an average EUR of 1.56 MMboe per well [after allowing for the BTU adjustment and NGL's in this case] ).Yet the brokers seemed to be looking for EUR's of just 1.25 to 1.4 MMboe when doing there calculations ! (extra safety net I suppose).

Last week, the latest news following a broker visit to the USA was for the West Double A Wells field to possible exceed total production from that of the Double A Wells field. Meaning a field size of 80 MMboe or more, which works out at an average EUR of 2.15 MMboe per well, (I'm assuming this is after allowing for the BTU adjustment and NGL's etc).

Right now we only have one data point to go on VOBM#1, we have no idea yet whether this is going to turn out in time to be the best producing well in the field, or one of the top 10 best performers, maybe it will just be an average well in this field, on the other hand it could turn out to be a below average performer, or even one of the worst wells in the whole field !

So in summary VOBM#1 will not likely reach its true IP potential until it has been online for 3 or 4 month's. At which point it will be much easier to work out its likely true EUR. A figure likely to be considerably in excess of the 1.43 MMboe I've just calculated (given that the average uplift in production over those initial 3 or 4 month's as the well's have cleaned up has been in excess of 15%).

I'd say at this stage a final EUR for VOBM#1 of 1.7 MMboe is pretty realistic to say the least.

LOTM

Valuation of VOBM#1 etc to follow later