GeoSouthern (private) is one of the companies that pioneered the development of the Eagle Ford Shale. Its primary acreage is in De Witt County's Black Hawk field (see map below) which is an Eagle Ford sweet spot. To date, the company has drilled and completed (D&C) more than 100 wells in the formation which have produced more than 15 million barrels of oil (MMBO) and 98 billion cubic feet of natural gas (Bcf). That's $1.7 billion worth of hydrocarbons at $90 oil and $4 natural gas.
Note: Petrohawk's type curve for the Blawk Hawk field has the following hydrocarbon breakdown: 51% oil, 28% natural gas and 21% natural gas liquids (NGLs). The economic analysis in this piece was conducted using data provided by the Texas Railroad Commission which does not break-out NGLs and shows approximately 50% of the production from GeoSouthern's wells is oil. To be on the conservative side, I didn't account for NGLs but know they represent upside to the natural gas price.
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GeoSouthern's De Witt County Wells
While GeoSouthern has produced a lot of hydrocarbons from De Witt County, the formation is deep with depths ranging from 12k' to 14k' and total depths from 16k' to 20k' feet meaning some wells are nearly four miles long. Needless to say, they aren't cheap to drill and the early wells drilled in this field probably cost in the neighborhood of $10 million.
A well that wouldn't fall into the $10 million category is Geo's first well drilled in the Eagle Ford, Migura 1. This well was completed on April 22, 2009 with a 2,780' lateral and frac'd with 626 thousand pounds of proppant, a very small frac compared to the standards the company would employ shortly thereafter. The well has produced roughly 19k BO and 126 MMcf to date, making it far and away the smallest well the company has completed to date.
Geo D&C 64 wells in De Witt County prior to 2012. These wells were (on average) completed with 4,840' laterals and 4.5 million pounds of proppant, meaning the company didn't waste much time ramping up its frac cocktails.
These wells have produced an average of 182k barrels of oil (BO) and 1.1 billion cubic feet of natural gas (Bcf). If we assume a price deck of $90 oil and $4 natural gas, they've grossed an estimated $20.8 million a piece to date.
Post 2012, Geo has D&C 39 wells which haven't performed as well as the earlier wells. Peak month oil production is down 38% and these wells produced at a rate of 218 BOPD during their first year, 34% less than the 332 BOPD rate the pre-2012 wells produced at.
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While It's possible the company drilled its best areas first, it's worth noting the post 2012 wells used an average of 3.8 million pounds of proppant, 14% less than the 4.5 million pounds the earlier wells used. Laterals also decreased 8% to an average of 4,433' per well from 4,840' per well. While this undoubtedly decreased well costs, the graph below shows proppant use has a significant impact on production.
Oil Production and Proppant Used per Well
The scatterplot above contains completion data from 82 wells D&C by GeoSouthern in De Witt County. The data shows pounds of proppant used in a well can explain approximately 36% of the variation in its production during the first year. Knowing this, it's reasonable to assume at least some of the company's decrease in production can be attributed to a change in completion designs.
Admittedly, bigger isn't always better. Companies should aim to produce the most economic wells and if that can be accomplished by using lower amounts of proppant, then it's a good move by the company. I would warn that production from the later wells fell off 34% during year-one, implying costs would have to fall by a similar proportion for the move to make sense. I highly doubt Geo's well costs have fallen by $3.4 million during that time frame as companies are reporting costs North of $8.0 million in that area. There might be a better reason as to why the company decreased proppant use (better proppants), but I don’t see it.
By. Braden Holt