Newsletter No. 18
Good evening!
Hope everyone had a great week last week.
Today’s Headlines
-
Where are Oil Prices Going in the Second Half of 2023?
-
Eagle Ford Basin Refracs in Full Swing
-
Leaders…You Need a Good Coach
-
Deal of the Week: Ovintiv Does a $4.2B Deal
-
Well of the Week: The Sour Lake Well
Where are Oil Prices Going in the Second Half of 2023?
We’ll get to my view in a minute. First…Goldman Sachs. Goldman is still forecasting higher prices, but earlier this week, they reduced their December forecast down from $89 to $81 for WTI. This despite the OPEC cut earlier in the month.
They cited weaker demand in China and supply recovery from sanctioned countries most notably those of Russia, Venezuela, and Iran.
Look, I have no supernatural power to determine what prices will look like. Clearly Goldman analysts don’t either. I’ve lost track of how many times they get it wrong (along with just about everyone else). But I do like to ponder where things could go, and more importantly (I think anyway) what are the trends.
Why? It’s an interesting exercise that helps create some economic perspective on the fundamentals of Supply and Demand within context of how that impacts things at King. It’s less about the actual price and more about understanding the relative demand for what we produce at King.
That matters with respect to possible profitability for partners and the possible timing of a divestiture window for a proven asset with big upside.
As for prices, through the end of this year? We really need to see global demand rally consistently for a quarter to see prices in December rise where Goldman has set the forecast. I hope the trend is in that direction. Q3 will tell us a lot more…obviously.
Eagle Ford Basin Refracs in Full Swing
In other interesting news from the field, some operators in the Eagle Ford basin have initiated refracs that are increasing production by as much as 15%. The land is already paid for, facilities are already set up, an the wells have already been drilled.
One large company has identified 220 targets that were drilled before 2015. Prior to 2015, less than 1,200 pounds of sand was used per foot to frac the formation. Fracs today use more than 3,000 pounds of sand to tap into more potential rock reservoirs. In simple terms, more pressure usually create more productive formations.
This is particularly interesting to King as a refrac is on the table for one well in the current program. A one-mile horizontal well in the Anadarko Basin was an all-star well with it’s IP (initial production). However, an H2S (poisonous) gas pop in the well bore triggered an automated, temporary shut-in. H2S is a deadly gas that is somewhat common in and around Oil and Gas reservoirs.
Sometimes, shutting in a well, even temporarily, can cause fractures in the formation to prematurely retract/shrink choking off some access to hydrocarbon flow into the well bore. While this well was fracked in 2022 (not pre-2015 like the Eagle Ford wells), the end problem and economies of scale in the solution are the same: more production, low risk, low cost.
After some engineering research, assumptions, and financial analysis that’s the theory conclusion here. And a refrac is the ticket that could get that well back in line with the original production forecast. We shall see!
Leaders…You Need a Good Coach
King Operating had its semi-annual executive retreat last week. It was great getting together with the rest of the leadership team to evaluate results from the first half, and consider the strategy for the remainder of the year.
Our facilitator, David Boyett has been my business coach off and on for years. The last 18 months, we agreed to take that to another level and he now facilitates our quarterly leadership meetings, our weekly leadership team meetings, and provides scheduled 1:1 coaching for me and my right hand man, Peter.
So how is this relevant for you all? If you can invest in a coach, do it. It will without a doubt make you better. For King partners, it’s good that we have David because he helps the leadership team be more accountable, aligned, and disciplined (3 of 7 King core values). And consistently.
David can see things we can’t. And his lack of deep knowledge about our business actually serves as an advantage because he’s not distracted by thinking about the details IN the business. He helps us work ON the business…which in turn, helps us to higher level of execution IN the business. He listens, asks good questions, and gets us to test priorities. Prioritization is difficult for all leaders when the hum of day-to-day business and distractions are in play.
We are better, thanks in large part to David.
Deal of the Week: Ovintiv Does a $4.2B Deal
This is a bolt-on acreage play. Ovintiv is active in the Permian and this acquisition provides expansion runway for future development. As reported by Hart Energy, the deal centers on 65,000 mostly undeveloped acres. The opportunity was further described by approximately 1,050 drilling locations for 10,000′ horizontal wells. The deal puts Ovintiv on pace to hit production of 200,000 bbl/d and a market cap landing them inside the S&P 400.
This is the kind of thing that is of interest here at King because a strong multiple ROI through asset divestiture is the big goal of the program.
Well of the Week: The Sour Lake Well*
In the interest of fascinating new things, we picked something old to talk about… the Sour Lake well. For those of us who maybe haven’t studied up on the history of oil production in this country, the Sour Lake well was a monster offshoot well near Spindletop (the area credited as the origin of modern-day oil production in the US).
Sour Lake is a small resort community 20 miles northwest of Beaumont, Texas. On March 7th, 1902, the Atlantic and Pacific Company struck oil at 682 feet. As the Galveston News described the well as, “the largest gusher of lubricating and illuminating oil in the United States – if not the world.”
Initial Production was estimated at 30,000 barrels per day! For you math-magicians out there, in today’s prices, that’s $2.1M of revenue per day! While production would deplete (and certainly did so, prematurely, because dozens of prospectors set up rigs all over the filed), with a reasonable decline rate, that single well would likely deliver more than a quarter billion in revenue in the first year. Wow.
*Credit to Mike Cox for the information used in this week’s Well of the Week. Cox authored the caption copy in the book “HIstoric Photos of Texas Oil”. You can pick it up from Amazon at the link. We don’t know Mike or have a dog in the hunt of book selling. But we think some of you might find it a fascinating “read”.
Recommended Reads
Oil Moves Lower After EIA Confirms Large Crude Build
5 Weird Energy Innovations That May Become Reality
E&Ps Push AI, But Will AI Push Back?
There are some outstanding results developing in the current program… KOPX Program 4. If you are not in it, and you are accredited, it’s a good time to have a conversation! You can schedule a Zoom here.
All the best,
Jay
