Guide To Measuring Oil And Gas Companies - Statistics

An oil and gas company operating in the Bakken cannot be compared to a producer in the Marcellus. Not only will the production results differ, but so will costs and the type of resource. These variables can be significant, and in many ways more important than financial ratios. Initial production improvements lead to higher estimated ultimate recoveries, which will push a stock higher. We are in the beginning of horizontal production within the United States. Given the large improvements over the past decade, we could see the value of these companies continue to climb higher. There are a large number of statistics used in valuing production in oil and gas in the U.S. Here are most of those statistics:

SEE: Oil And Gas Industry Primer

Well Costs
Can include everything from drilling to completing. The largest expense is water, which includes fresh water needed to complete to the well and flow back that needs to be hauled off and disposed of. This number varies significantly from one site to the next. Kodiak (NYSE:KOG) currently estimates its well costs to have a midpoint of $10.5 million for a long lateral. Whiting (NYSE:WLL) estimates this number to be between $6 million and $7 million.

West Texas Intermediate Pricing
The price of oil drives the companies, and WTI is the standard for oil pricing in the U.S. Regional types of oil can differ in pricing and have a differential or price adjustment depending on a deliverable price to location. Bakken Light crude currently sells at a discount to WTI, while Light Louisiana Sweet crude sells at a premium.

NPV
The net present value compares the value of a dollar now versus its value in the future with inflation and returns. This can be used to show the value of a well.

SEE: Understanding Net Present Value Video

IRR
The internal rate of return gives the present value of future cash flow from an investment equal to that investment.

Payout
This represents the amount of time it will take to recoup an initial cost of an oil well. This is generally expressed in months.

Lateral Length
The total length of the lateral leg of a well. As a general rule, a short lateral can run from 4,000 to 5,000 feet. A long lateral is 9,000 to 10,000 feet. Wells can have multilaterals as it decreases costs and saves time in drilling and completing.

Stages
The lateral leg of a horizontal well will undergo hydraulic "fracking" after drilling is finished and completion services have begun. When a well is, pressure pumping equipment is used to pump water, fractured fluids and into the well for the purpose of fracturing the shale, which allows the resource to be released. This is done in stages to better isolate the shale over a shorter distance and get better fracturing to retrieve more resources. In general, the larger the number of stages used the better the initial production numbers will be.

Initial Production Rate
This is the average amount of oil and/or gas produced over a specific time frame from a well. The IP rate generally refers to the first 24 hours of the well, while the 90-day IP rate relates to the first 90 days.

Estimated Ultimate Recovery
Generally referred to as the EUR, it shows the approximate total recovery of the well. IP rates can be used to make an educated guess at the total resource garnered over the life of a well. IP rates can be for oil only, natural gas only or a combination of both.

Choke Size
Chokes are generally used in high flow rate wells. The reduced diameters when compared to the tubing which creates a pressure drop. Flow rates decrease when a pressure drop is introduced to a well. Choke size is shown as a fraction with the denominator based on 64, and in inches. Therefore the larger the numerator is the larger the choke in inches.

Wellhead Pressure (PSI)
In unconventional resource, this pressure can give an idea of how well the well will produce before being placed on a pump. This pressure has been found to be higher in wells with a higher gas to oil ratio. As liquids move to the wellhead, the gas helps to push these liquids out. This number can change depending on the choke used, and can significantly affect IP rates and.

SEE: Investing In Oil And Gas UITs

Water Volumes
The volume of water used to frac a well can significantly affect the amount of resource garnered from a well. The more water used and increased pressures can better frac shale. This tends to open larger and deeper fractures.

Proppant Volumes
Proppant can vary significantly from one producer to the next, when gauging amounts and type. Sand, ceramic sand and ceramic proppant are all used during completions. It is thought ceramic proppant or beads "prop" fractures open the best, but in some cases can be cost prohibitive.

It is important to understand the basics in horizontal drilling applications. Initial drilling is vertical like conventional methods. This vertical leg is angled using directional drilling techniques until it runs horizontally. The horizontal leg is referred to as a lateral. A short lateral is approximately one mile or 5000 feet long. A long lateral is twice that length. The lateral is then perforated and the shale fracked. Frac fluids are pumped into the well, which cause breaks or fracturing of the shale.

A combination of sand and proppant are pushed into those fracs, effectively propping it open. The better these fractures are propped open the more oil will flow from the shale. Due to the length of the lateral, these fracs are done in stages. The lateral length can be divided by the number of stages, and the more stages used, the shorter each will be. The shorter the stage is the better the stimulation.


Guide To Measuring Oil And Gas Companies - Location