With the Jewell well about to commence production it seems the main feature that people are focussing on the the IP24 rate ( initial 24 hour flow rate) where the theme is the higher the number, the better the well.
While it seems intuitively correct, it does not necessarily apply....bare with me on this point.
If the base case IP24 rate for Jewell is 1300 BOEPD, does that mean a 1500 BOEPD IP24 rate is much better than a 1000 BOEPD IP24 rate in terms of well economics, if commodity prices are the same for both?
We are familiar with the Jewell type curve below
The graph is in a log scale, and is the Black Mesa prediction of the production of oil and gas over the period 2020 to 2040. The X-scale is the daily production rate and the y-scale is time ( years) The total production is basically the area under the green curve for oil, and the red curve for gas. The curve plots the change in production at any given time over the period ( the decline curve). The estimated IP24 for oil is 800 BOPD ( green ) and, the IP24 for gas (red) is 3mmcfgpd which combined equates to the 1300 BOEPD IP24 predicted base case.
But this is only the prediction made by the reservoir engineer and the well can perform at , above or below expectations in terms of the initial production rate , and the decline curve.
Below is a graph of the first half of the above, where I have modified ( very roughly) the oil flow only .
The yellow line represents the oil flow starting at 1000 BOPD, but has a steeper decline which quickly falls and stays BELOW the green 800 BOPD. The black line represents an oil flow starting at 600 BOPD but then declines slower than the green and stays above it. The area under the curve and therefore volume produced by the yellow line is less than the green, which means even though the 1000 BOPD IP24 well , may have started producing at a higher rate, it will produce less oil and be a worse producer the the base model well. Conversely the black line, where the well Ip24 rate is 600 BOP is the opposite. The area under the black curve and therefore the volume is greater than under the green and becomes a better producer than the original modelled well.
The point I am trying to make that while the IP24 rate is an important setup point for the well and its initial performance, it is how the well performs over the longer term which is more critical . BRK will get a good idea at the IP30 ( 1st month) and IP90 ( 1st 3 months) rates how the Jewell well may perform over the longer term because it will be able to reconcile the actual curve against the predicted curve.
Most are now probably aware that the decline curve modelled above by Black Mesa was done in 2018, before the offset Flash and Courbett wells were drilled and placed on production. These wells have given significant data points and is why BRK are so confident that the modelling for the SWISH AOI is conservative.
We have all seen the Flash (actual) vs Jewell( predicted) cumulative production/ time plot
This basically shows that the Flash Sycamore well is producing oil at a rate twice of the modelled Jewell base rate, having an IP24 of 1708 BOPD oil, and more importantly has maintained that performance.
If were were to plot the FLASH well against the base Jewell oil curve, it would look something like the below.
And this is what ideally we want to see the Jewell actual vs predicted curve to look like after the well has been placed on production and produced.
The point of this post is for holders to be aware that the IP24 rate is note necessarily the make or break of the Jewell SWISH AOI and to understand that it will be a number of months of production before we will get a good picture how the well performs. Yes ideally, a higher IP24 number would be best, as that makes the start point higher, and a higher start point along with a lower decline curve will precipitate a material increase in flush production and an cashflow boost. But a low number doesn't necessarily mean the well is a disappointment as it may be followed with a lower decline curve where the lower initial cashflow is made up for down the track with a slower decline in production. Obviously, a low IP24 along with a higher than modelled decline would not be a good result for the well.
How the well performs in the longer term is critical for the EUR ( Estimated Ultimate Recovery) which is basically the total oil and gas reserve that is expected to be produced by the well. This is where BRK can achieve a material increase in the resource / reserve base because if the wells BRK drills have IP rates that ideally start above the base rate, and stay above the modelled IP 24 , 30 ,90 ,180, 360, the company can confidently book much more than the 11.6 MMBOE reserve for it's equity holding in the 3 DSU's...... and the data from the Flash and Corbett seem to indicate this may actually be the case.
It will be fascinating to see what happens at the Jewell well in August 2021, but more importantly, 1,3 6 and 12 months later.... as as previously posted, I am banking on the 11.6 MMBOE approaching the 20-22 MMBOE mark.
Cheers
Dan
BRK Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
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