Further reflections on Q2/2024Further reflections.
Obsidian is using Precision Drilling rigs to drill their wells.
Precision Drilling shows online, the location of its rigs, and what that rig is doing – ie drilling, moving or down.
This allows us to see how Obsidian is using these Rigs – ie are they drilling multiple wells from a given pad, or are they drilling one per pad and moving around?
It looks like OBE has recently been drilling one well, then moving. For example, they recently drilled a Well on Walrus Pad 3. Then rather than follow up with more drilling, they moved the rig to Walrus Pad 4, where it is currently drilling.
They did the same with an in-fill well they just finished drilling at the north end of their Harmon Valley South oil field. They drilled one well at that location, then moved the rig to a new pad about a mile north of the Harmon Valley South field, where it started drilling on July 31.
All four of these locations have multiple licensed well locations, all ready to drill.
Drilling once and moving can be interpreted two ways. One would be to assume they drilled a dud, and moved elsewhere. The other is to assume they are collecting information to determine the best pads to drill their follow up-wells (and building their reserves in the process)
Which one is most likely?
When an oil company first starts exploring a new patch of ground, they only have a few drilling locations. Their only option is to drill all those locations and see what happens.
If a location turns out to be good, that will typically result in multiple additional adjacent drilling options. Before long, they have choices – ie more drilling targets than budgeted wells to drill. Moving from the former to the latter is a key moment in time. If it happens, it means the new oil field is a good one!
This appears to be where Obsidian is now in their Peace River development.
When they first started their three year plan to increase Peace River production, they had some historical oil fields and a handful of drilling targets.
A year later, they have a new Clearwater oil field at Dawson, and multiple successful new well pads.
They now have more available drill ready sites, than budgeted wells to drill.
This allows them to high-grade. What I mean by that, is it allows them to pick their best drilling sites, and drill those. It seems to me, we are witnessing this happen for the first time, right now!
Instead of drilling a bunch of wells on Walrus Pad 1, then moving to Walrus Pad 2 and drilling 6 more (what they did last year), they are presently drilling one and moving.
They have 18 Bluesky formation Oil wells budgeted for the second half of this year. It now appears they are checking out multiple well pads, before deciding which pads to return to, for follow up wells. Ie, they are high grading.
It’s an important moment – one that I view as a material change. That time when you go from drilling every drill location you have, to drilling the best drilling locations, and putting the others aside for later. Its something you can only do, when the ground you are working, is turning out well!
This type of high grading is a virtual circle. It means you end up adding better new wells. That means your cost of finding each new flowing barrel declines. It means you get an increasing number of new barrels from the Capital expenditure you make.
It is a tipping point. When exploring for oil on new ground, you either hit that tipping point or you don’t.
My follow up reflection is I think Obsidian Energy has recently hit that tipping point.