valuation, page-51

macky,

they had problems with the fracc on Kowalik and there were problems with Turnbull 2 (from memory), the drilling of Easley ran into trouble and Gilley's fracc was a failure.

What they have said is that the decline profiles of the wells are an improvement on the NSAI curves. But then they say that they had not even installed production tubing and the first batch of new wells in 2010 were allowed to flow at a high rate initially, which can lead to damage. Hilcorp did not have any previous experience of this type of drilling and completion - not according to the TRRC permit record that I could see, anyway.

We do not know the chokes used or the well pressures resulting. Perhaps there is variance in formation pressure but, unless there is some form of geological discontinuity, it should not vary much between wells in reasonably close proximity. Difference in well pressures for similar lateral lengths and similar choke settings would suggest differences in success with the fraccs. GeoResources provided some data on their Flatonia twin wells in Fayette, and the arithmetic made sense. The choke sizes must be translated into throat areas, of course.

So what we are probably seeing is a divergence in success in completion not a divergence in potential. Clearly, the well characteristics will vary with the average weight of HCs: the gassier wells, like Weston, will perform quite well but the oilier wells will need good completions to produce good and sustained flows. If MRO can optimise the completions, we may see material improvement in the performance of those wells in the condensate rich and oilier trends.

There seem to be two possible approaches to the results: either view the bald statistics and work on averages; or take account of the different successes in completions to date and note the potential of wells falling within bands defined by reference to condensate ratio. The latter will require faith in MRO's ability to improve upon completion techniques and upon its ability to be consistent in it success.

We have no experience of MRO's completion abilities to speak of. The results released for the handful of wells that they have probably completed seem good, one is quite stunning, but, if they choke the wells right down, flows will reduce - that is inevitable. So, flow rates alone do not really tell the full story.