Here's the 2nd part of my spreadsheet analysis using the initial rate data that IBR supplied for the 00/8-21 & 02/8-21 Hz's on May 17th and the P50 Type Well from IBR's April 2017 Investor Presentation. I want to later post a 3rd part that takes a stab at a development scenario (averaging ~11 Hz's per year over 20 years) to give an idea on the magnitude of the "big picture". Like in the Part 1 post where I estimated max peak oil rates from the 00/8-21 & 02/8-21 Hz's I want to stress that the analysis work done here is only an attempt by me to paint a picture based on very little hard data so although I think my work to be reasonable and realistic it could also be wrong. So please take with a grain of salt.
I believe I managed to get a very good match to the IBR P50 Type curve shown in the April 2018 Investor Presentation. The initial rates (Month 1) were 561 bbls/d oil, 10.84 MMCFD of sales gas & 274 bbls/d of NGL's for a total of 2642 boed's. The Type Curve reserves were 300mbbls of oil, 5.8 bcf of sales gas and 147mbbls of NGL's for a total of 1413mboe's. Using previous Op costs ($7/boe general + $5/boe liq. transport), a 7% avg royalty rate, $60/bbl oil & $2/mcf flat gas prices and NGL pricing from previous economics (Jul-17 McDaniels) the PV10 value of my cobbled together Type Curve was almost an exact match ($6351) to IBR's posted $6380M value with the same 1.3 year payout.
So being quite satisfied with the Type Well model I wanted to use the initial rate data from the 00/8-21 & 02/8-21 well's to modify the Type Well model to give an impression on well performance incorporating real world numbers. Month 1 for the modified "80 Stage Hz" Type well used the cleanup volumes which are lower than the original Type Well because of the load water volumes affecting oil rates. Instead I used Month 2 for comparison with the "80 Stage Hz" type well using an IP30 exit oil rate normalized to 80 stages and averaged between both the 00/8-21 & 02/8-21 wells (see my previous 1st part post) as well as averaging gas rates and NGL's. This resulted in an estimated Month 2 rate of 1876 boed's for the "80 Stage Hz" compared to 2089 boed's for the original "Type Well" - or another way the "80 Stage Hz" was producing at 89.8% of the "Type Well's" boed's. I then multiplied the "Type Well's" subsequent months (Month 3 onwards) by the 89.8% factor to finish building the modified "80 Stage Hz" type well keeping oil and NGL yields constant (which from my experience actually seems to hold true for many Montney wells). A comparison of the reserves and yields between the two type wells is a follows:
| | Reserves / Yields | |
| | Type Well | 80 Stage Hz | |
| Oil | 300 | 381 | mbbls |
| Gas | 5.8 | 4.45 | bcf (sales) |
| NGL's | 147 | 125 | mbbls |
| Ngl yield | 25.3 | 28.0 | bbl/mmcf |
| Gas Shrink% | 0.0% | 0.0% | |
| Total MBOE (Calc.) | 1413.4 | 1247.8 | |
| % Oil & NGL's | 31.6% | 40.6% | |
| % Oil | 21.2% | 30.6% | |
| % C5+ | 4.2% | 4.0% | |
| %C3 | 2.6% | 2.5% | |
| %C4 | 3.6% | 3.5% | |
Notice that although the Modified "80 Stage Hz" type well shows 1.35bcf less sales gas the "Type Well" makes 81mbbls more oil and has a 2.7bbl/mmcf higher NGL yield. This is a 9% increase (40.6% vs. 31.6%) in overall liquids content of each BOE produced - which incidentally puts the production of the "80 Stage Hz" type well much more inline with surrounding competitor wells AND adds tremdously to economic value.
Both the original "Type Well" and the modified "80 Stage Hz" type well were subjected to the economic assumptions given above for Oil values at $60/bbl, $80/bbl and $90/bbl while keeping gas flat at $2/mcf and using last summer's NGL pricing for C3, C4 & C5+ which averages out to $52.56/bbl over the first 3 years. Here's a table comparing both type wells for each pricing scenario:
| | ECONOMIC COMPARISIONS & PRICE SENSITIVITIES - IBR TYPE WELL |
| | & 80 STAGE HZ (Modeled from 00/8-21 & 02/8-21 Initial Rate Data) |
| | $60 & $2 Gas (Cdn) | $80 & $2 Gas (Cdn) | $90 & $2 Gas (Cdn) |
| | Type Well | 80 Stage Hz | Type Well | 80 Stage Hz | Type Well | 80 Stage Hz |
| op cost | $9,888 | $8,735 | $9,888 | $8,735 | $9,888 | $8,735 |
| trans cost | $2,232 | $2,530 | $2,232 | $2,530 | $2,232 | $2,530 |
| op cost $/boe | $8.58 | $9.03 | $8.58 | $9.03 | $8.58 | $9.03 |
| revenue | $28,278 | $31,486 | $34,275 | $39,113 | $37,273 | $42,926 |
| rev $/boe | $20.01 | $25.23 | $24.25 | $31.34 | $26.37 | $34.40 |
| royalty | $1,979 | $2,204 | $2,399 | $2,738 | $2,609 | $3,005 |
| roy $/boe | $1.40 | $1.77 | $1.70 | $2.19 | $1.85 | $2.41 |
| boe netback | $10.03 | $14.44 | $13.98 | $20.12 | $15.95 | $22.96 |
| | | | | | | |
| PV10 $MM | $6,351 | $9,473 | $10,925 | $15,270 | $13,212 | $18,169 |
| | | | | | | |
| Payout (Mo.) | 15.3 | 10.2 | 8.1 | 5.9 | 6.5 | 4.9 |
| | Notes & Assumptions: | 1. "Type Well" refers to a well performance model created using |
| | | IBR's Apr 2018 Presentation's data & graphical information. |
| | | 2. "80 Stage Hz" refers to a well performance model created using |
| | | an average of IP 17 & IP 30 data for the 00/8-21 & 02/8-21 wells |
| | | normalized to 80 stages with Month 2 established as having |
| | | maximum oil rate after a Month 1 cleanup and the same avg |
| | | gas rate as Month 1 with oil/gas & ngl/gas ratios constant | |
| | | from Month 2 onwards. The Month 2 calculated BOED's were divided by |
| | | the "Type Well" Month 2 BOED's (=89.8%) and that factor was applied to |
| | | the subsequent "Type Well" Months to model well performance |
| | | 3. Op Costs used are: $7/boe (all) & $5/boe transport (liquids) |
| | | 4. Steady State well cost - $5100M | | |
| | | 5. NGL prices (C3, C4 & C5+) used from McDaniels Jul-17 price forecast. |
| | | The first 3 year w'td avg NGL price was ~$52.56/bbl. | |
Most importantly to note is that the modified "80 Stage Hz" type well has roughly a 50% higher PV10% value and quicker payout when compared to the original P50 "Type Well" performance. This means that the average performance of the two new producing IBR 00/8-21 & 02/8-21 Hz's when normalized to the standard 80 stage design should by my estimate comfortably exceed the P50 Type Well - because ultimately it's about value - not the number of MBOE's. Also worth noticing is that the estimated payouts for the $80 & $90 oil price "80 Stage Hz" type well are under half a year. This should make financing new drills somewhat easy with no risk of dilution.
If these numbers are anywhere near what IBR's actually seeing - given the strength in oil prices (albeit with some volitility) I can see a much bigger drilling program coming soon. Nothing adds to sp value like cashflow and IBR's 80 stage Hz design appears to have that ability in spades.