will chesapeake take out ssn?, page-15

I don't know nothing. But... I posted this morning and I just think what EOG are saying is the bees knees.

1) The oil is there in very good amounts.
2) Terry's Neo-Bakken catch line will be proven to be portentous.
3) Watch EOG and NBL not CHK or BHP
4) Delay's by SSN in the Niobrara (3 or 6 months) will be good. The Niobrara is unique and needs frac techniques to develop to the play. Not the other way around. The grapevine of how this is done ie by EOG, will help SSN.
5) Infrastructure in the Niobrara needs time to catch up.
6) We are talking 15,000 acres maybe 20,000 in the Niobrara - room for plenty without hostile takeovers.
7) Good luck all tomorrow.


In the Niobrara, recent completion results has increased our comfort factor regarding the play. As you know, this play has received a ton of press lately, and EOG, although first mover in the oil play, has been reticent to contribute to the hype, because the Niobrara was more highly fractured than other shales, and we had questions about longer-term productivity.

Relative to the industry, we drilled more wells than any other operator in the oil play, and we have the most data of any operator. We have recently found a way to convert the play from one dependent on fractures to more of a matrix-dominated play. This increases our confidence that the Niobrara can be developed as a true resource play.

So far we've tested 80,000 of our 300,000 likely perspective net acreage and have drilled wells such as the Critter Creek 13-17H and Elsie 7-34H, which recently tested at 731 and 820 barrels of oil per day, respectively.

During 2011, we plan to drill 40 wells, and we'll evaluate the remainder of our 300,000 acres. It's still too early to provide a total reserve estimate, but I can say that we're more optimistic about the play side than we were six months ago.

...Our oil inventory is now so deep that we won't begin intensive development of the Wolfcamp, Leonard and Niobrara until the 2013 timeframe.

Q & A

Q. On the Niobrara comments around matrix permeability in the Hereford Ranch area, what permeability range are you seeing there? And just given the data the you've seen so far, do you expect the Niobrara to really have a core in the Niobrara Lite region?

A. What we can say about this is as Mark noted earlier that the early wells in the Niobrara are generally dominated by high permeability open fracture system. And this typically leads to very wide spacing patterns and low in place oil recoveries. So what we're doing, we're developing the completion concept, and this allows us to connect more the oil and the matrix philosophy as opposed to only the oil and the fractures. So the results are encouraging, but they're early. And if we're successful in changing this, connecting more oil in the matrix, we may be able to drill wells on certainly much tighter spacing than we thought before and certainly increase the recovery factor of the oil in play. So it's going to take some time to determine this, and the ultimate impact on the play will just reveal itself over time.


Q. Going back to the Niobrara, can you speak more specifically to what you did differently in terms of the completion that gave you more confidence in matrix flow? And how, if at all, those changes may be applicable to other emerging liquids plays in your portfolio there where you're facing similar questions over natural fractures versus matrix?

Mark Papa
Brian, again, for proprietary reasons, we really don't want to give a lot away relating to the Niobrara. There's probably 10 or 15 of our peer companies listening to this call that would like to hear what we've done in that manner, and we're not going to give it away. I would say, each of these resource play turns out to require a little different frac recipe, and the Niobrara has been maybe the most unique so far just because it's got such a high percentage of fractures. So whatever solution we come up with for the Niobrara, it's not obvious that, that's going to be immediately transferable to some of the other oil resource plays, because most of the others don't have a high degree of national fractures that we've seen in the Niobrara.

Q. Do you see any sort of issue with really downstream infrastructure in the U.S., which is really, really sticky, and the ability to kind of catch up with upstream production growth in the oil area which is more dynamic?

Mark Papa
The answer to your question, I believe, is that in multiple areas, on a macro view, we're going to see oil production, soon the existing oil transportation infrastructure. We clearly saw that in the Bakken play, and EOG put in a crude by rail to get our crude oil out of that North Dakota, which is kind of a depressed pricing area. And by the way, that project we put in is working like a charm, very profitable for us, and we've got a lot of requests to move other oil volumes on that line. The same thing is happening in the Eagle Ford in that the amount of oil that's generated is completely consuming the existing very limited compound infrastructure. And that will also happen in the Niobrara, if the Niobrara turns out to be a very, very large play. There's very little infrastructure there. So what I think is going to happen is you're going to see some significant differentials relative to some indices, whether it's LLS, whether it's Cushing, and you're going to see some companies who have proactive here, probably advantaged in their regional pricing, relative to some other companies in the play. I will say that there's a lot of talk right now on this LLS, Cushing big oil price differential, that if that differential persists, with time that we believe that our Eagle Ford oil is likely to get a price that is certainly better than Cushing, but not quite as good as LLS. Because most of our Eagle Ford oil by 2012 is going to end up in the Houston Ship Channel area. So that should be relatively advantage, certainly to Cushing. But short answer to your question is this infrastructure is a big deal.

Q. The second question has to do with the Niobrara. Do you think that there'll be -- like we're seeing in East Texas -- do you think there's going to be some really sweet spots in this play? And do you think you've pretty much identified where the sweet spots are on your acreage?

Mark Papa
Yes, all of these plays have sweet spots in them. We've learned from experiencing a vast amount of exposure that EOG has in all these resource plays. And we're still really working on that in determining that, and it's really early in the testing process of this new technique, but we're working on that. And I think there will be some sweet spots. And we'll just have to see how it plays out.