Wednesday, June 6, 2012

The Chesapeake Hogshooter Well ($CHK)

A correspondent writes in with thoughts about the CHK "Hogshooter" well results:

"If that 'hogshooter well' averages 3,500 bbl per day of oil this year (@$75 per bbl), it will have cashflow of $96 million dollars. Even assuming 5% severance tax and 20% royalty, the IRR on this well looks to be around 1,000% assuming $10 million well cost (assuming the well has an NPV of 1.4 times net first year cashflow).

Even if they only have 65 more wells like that (and they are only half as good), the NPV is $40 million per well, or $2.6 billion. This calculation doesn’t mean much with so little info . . . but I think it does show that this little area could be worth $1 billion rather than $100 million"

1 comment:

PD said...

i think there are a lot of assumptions on information that is asymetrical.

The new frac stimulated wells have to have frac fluids and residuals stripped from their flow numbers. most companies in canada won't report pre 30 day numbers, yet in the US this is routinely done. It allows the operators to over simplify drilling results. bad practice in general. So for chesapeake, they would need to clarify what numbers they are reporting. In addition the decline rates are high with ultra frac'd wells, you get the resource quicker, not necessarily more. so from an NPV basis good, but they bleed the resource. This last statement has little basis, other than the there is no track record for super stimulated wells (5 years is the max available data and most reservoirs have 0). In otherwords i don't belive the results are homogeneous across north america for wells drilled.