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SMD - this was the primary objective and came in at the same thickness as in Pipeline State and at the depth anticipated. This means that the prize of some 300+ million barrels is very much in play and you would not give that up lightly. So the question may then become whether you try leave time to drill the lateral by compressing the tests on the lower zones or just accept that we got a lot of information out of the well and the subsequent lateral test on Alkaid will help answer the reservoir continuity question. If you really like the SMD then you protect your options for that horizon.
Value of a short test in vertical hole? High.
Value of longer test in lateral hole? Very high ($billion potential)
Any one of these zones is worth a $billion + post well test and possibly, with further appraisal, a couple of $billion + so we know that they will have to go back and drill appraisal wells in any case. It always makes sense to invest $50 million to drill two wells when you have an evens chance of a 20:1 return!
Unless a crazy offer comes knocking on the door, management has another season of work at least and, ironically, the best chance of precipitating that crazy offer is to NOT go looking for it but continuing to push the appraisal and development forward. As soon as you say you are looking to sell, you remove the potential “high underbidder” from the auction (i.e. continuing to hold and develop the asset).
Upper BFF - from the sounds of things, this was an unexpected bonus to find a good package of well developed sands. By the time they are testing this zone, the preliminary core evaluation could have added confidence to the interpretation and, if that is still good, then it is worth getting a good test on this zone. If it flows really well, a longer test to explore the maximum connected volume is probably worth while. There is currently no plan for a lateral but if it flowed really well, the same logic as applied to the SMD could apply here.
Value of spending time on a test? Very high.
Value of time spent on a “meh” test? Still high.
Value of a lateral following a good test? Very high ($billion potential).
Value compared to missing testing SMD in vertical well? Medium to low as there will be other appraisal wells.
Value of drilling and testing BFF lateral compared to missing SMD lateral? 50/50 if Upper BFF flows as well as SMD expected to do and you can do an SMD test at Alkaid in the summer.
This is a classic “decision making under conditions of uncertainty” problem... At best, there can only be one lateral in this well and you don’t know what is in the other box when you have to decide whether to open this one or not.
A lateral and one week flow would tell us a lot about macro level reservoir characteristics and potentially allow reserves to be established rather than just contingent resources. If the BFF is mapped as larger than the SMD then it might lead to higher volumes being recognized sooner. However the timing of this decision would likely be around 15th - 20th March and could mean risking the certainty that you still have time for SMD tests if there were to be any further operational snafus or the weather forecast was not as kind as it currently seems. Should you give up on the ambition of testing the SMD? - probably not. However, once you have perforated the SMD, you almost certainly lose the ability to come back down to drill a lateral in the Upper BFF (for reasons of well integrity , time, etc.)
I hope tele doesnt mind my copying this but please see his comments SunZoo:
In response to some of the general sentiments expressed earlier today, I thought it might be useful to look forward rather than back.
Some have used the operational problems to hark back to Texas and justify their criticism of management. While I agree with Spangle that the borehole stability problems were predictable and avoidable, that does not make the decisions the company took wrong at the time they took them. If there had been no other operational delays, they might well have saved a lot of money and time by going the route they chose. It is much easier to be a Monday quarterback than to play in Sunday night’s game. Well design decisions are always a risk vs reward balance within constraints and I still have confidence in management’s ability to deliver good test results, regardless of anything I said previously about different choices, because there are multiple ways of getting to a destination.
If we assume that management has learned from this experience then we can focus on looking forward rather than re-trading history. So, with an eye on a future after completing testing of the Kuparuk (which management clearly expects to be successful given the effort being put into doing so).... some on here have speculated about how to allocate the remaining “time budget” in light of likely operational trade offs having to be made further up the hole. In trying to develop a framework for thinking this through, it is worth considering the value of information from each operational phase:
Lower BFF - we have been conditioned not to expect big flows from this zone by the TD press release. What can we hope to gain from testing it, therefore? Any oil flow will tell us about the oil quality - a critical part of any volumetric reserve estimate is the oil expansion factor so this is very valuable info - and if it flows it massively de-risks the likelihood of a giant accumulation in the direction of the original shoreline (towards Theta West). Definitely worth spending time to test but probably not worth a long test or, in the absence of flow, some kind of intervention like a frac.
Value of spending time on a good test? Very high.
Value of spending a long time trying to remediate or stimulate a “meh” test? Low
the company must view the Kuparuk test is worth spending the time on for a reason. could it be that a decision has to be made on whether to test the Basin Floor zones or move straight on to the SMD? i assume that is feasible if not ideal
Pantheon (PANR, Spec Buy, TP: 89p, MC: c.£220m)
Talitha testing delay. Extreme cold, leading to some equipment failures, combined with difficult open hole conditions in the Kuparuk formation, have resulted in a c.2 week delay to the overall testing programme. The weather window is likely to be extended as it has been extremely cold, this would allow full planned testing of the vertical well provided operations go smoothly:
Original plan: Open hole test the Kuparuk formation, then test three shallower cased zones in the vertical well.
In addition, the combination of the rapid drilling progress and the extra cold weather raised the possibility of drilling a horizontal section through one reservoir and to test that.
Current plan: Drill short sidetrack into the Kuparuk (650 feet, 2 to 3 days) only about 25-50 feet from the current wellbore. Case the Kuparuk formation and carry out a cased hole test. Normally cased hole tests deliver more representative flow rate results compared to an open hole, so apart from the delays there are advantages to this procedure.
Forward plan post Kuparuk test: Likely to evolve bearing in mind weather conditions. Pantheon believes the unusually cold winter in Alaska may mean that the weather window could extend to ***mid April***. Even with that potentially extended operational window, we think that carrying out all four planned vertical well tests and drilling/testing of a horizontal section would be unlikely.
On that basis we anticipate a decision about the number of vertical tests (we expect all four could be completed) and/or the horizontal drilling option (including that may mean fewer vertical well tests) will have to be taken during the next week or so.