Wednesday, January 24th, 2018

Waterflood Oil Recovery Proving Successful In Kansas

Kansas Waterflood Oil Production ProjectCoachman Energy Operating Company (CEOC) announces initial six-months results of secondary oil recovery project in Barton County, Kansas.

Huslig field waterflood expected to yield one hundred thousand barrels of new reserves, says CEOC Chief Operating Officer Randall Kenworthy.

Coachman Energy Operating Company LLC (CEOC) is pleased to report the initial results of a waterflood project that began in mid-September 2017 after the successful conversion of the Huslig #1 into an enhanced recovery water injection well. At the six-month mark (mid-January 2018), the Huslig field, which is a small, three-well pool in Barton County, Kansas, is producing over 25 barrels of oil per day and rising, up from 8 barrels a day prior to the start of the project. The Huslig waterflood, which should reach peak daily production in twelve to eighteen months, is expected to recover at least one additional barrel of oil for every two barrels of primary recovered oil, adding over one hundred thousand barrels of new reserves. Primarily producing from the Lansing-Kansas City carbonate formation, the Huslig field has yielded approximately 180 thousand barrels to date under primary recovery. It has approximately 40+ kbbls of remaining primary reserves.

Randall Kenworthy“Since moving into the Mid-Continent region in early 2015, Coachman Energy Operating Company has spent significant resources identifying secondary recovery opportunities throughout our acreage. Now, our efforts are starting to pay off,” said Randall “Randy” Kenworthy, CEOC’s Chief Operating Officer. “All in, the Huslig waterflood represents a capital investment of under a third of the cost needed to drill and complete a single well in the area, not to mention bypassing the risk of drilling a dry hole. Now, with prices climbing over the $60 per barrel mark, each additional ultra-low cost barrel produced through this waterflood represents the opportunity for significantly enhanced project returns.”

Waterflooding for Increased Ultimate Oil Recovery
According to PetroWiki, The principal reason for waterflooding an oil reservoir is to increase the oil-production rate and, ultimately, the oil recovery. This is accomplished by “voidage replacement”—injection of water to increase the reservoir pressure to its initial level and maintain it near that pressure. The water displaces oil from the pore spaces, but the efficiency of such displacement depends on many factors (e.g., oil viscosity and rock characteristics).” To date, CEOC has identified five solid waterflood candidates on its Mid-Continent acreage, including the Huslig field.

Waterflooding - Water Injection and Production Wells

Discovered in 2009 in Barton County, Kansas, the Huslig field is a small, three-well pool primarily in the Lansing-Kansas City carbonate formation, having produced ~180 thousand barrels to date under primary recovery. It has ~40+ kbbls of remaining primary reserves.

In addition, the Huslig is a low salinity waterflood, which is expected to recover even more oil than a traditional waterflood. The University of Wyoming conducted the pioneering research on low salinity waterflooding, with additional research and recent implementation in the Middle East and other oil regions. Most waterfloods, in Kansas and otherwise, use high salinity saltwater to waterflood with. Huslig is using “almost” freshwater with the current salinity of combined injection waters under 10,000 ppm. Per data compiled by its engineering team, Coachman Energy Operating Company believes it is one of the first companies to proactively use low salinity waterflooding in Kansas.

Five Main Routes to Securing New Barrels of Oil
Waterflooding is just one of five main routes to developing additional production currently being pursued across Coachman Energy Operating Company’s Mid-Continent holdings in Kansas in Nebraska. The other four activities include:

  • Increased Oil Recovery Methods of Coachman Energy Operating CompanyExploratory drilling where we drill previously undrilled acreage located either near or not so near existing producing wells. Exploratory drilling is the Initial phase of drilling for the purpose of determining the physical properties and boundaries of a reservoir (new field discovery). Drilling in conventional fields is guided by seismic surveys, which use reflected sound waves to help locate commercially economic subsurface deposits of oil and natural gas.
  • Development wells where we drill wells that offset successful discoveries and/or wells that were producing at the time of initial acquisition without the requirement of purchasing new leases or conducting new seismic surveys.
  • Recompletions where we reinvigorate a producing wellbore by exploiting previously known production potential from zones that had not been added to the production mix from that well. This is also known as behind-pipe potential. Again, from PetroWiki, “Behind-pipe reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future re-completion prior to the start of production (SPE).”
  • Well workovers where we concentrate efforts on improving the mechanical functionality of a well to increase production potential. According to Schlumberger’s online Oilfield Glossary, a workover is “the process of performing major maintenance or remedial treatments on an oil or gas well. In many cases, workover implies the removal and replacement of the production tubing string after the well has been taken out of production and a workover rig has been placed on location. Through-tubing workover operations, using coiled tubingsnubbing or slickline equipment, are routinely conducted to complete treatments or well service activities that avoid a full workover where the tubing is removed. This operation saves considerable time and expense.” CEOC pursues both types of workover opportunities as appropriate.

Kansas Mid-Con OilDrilling in the Mid-Con
With their high production potential and even bigger drilling and completion price tags, it’s no surprise that unconventional shale oil plays dominate the headlines. That’s because according to oilprice.com, “nearly 95% of new oil production in the US between 2011 and 2013 was from seven key regions where horizontal drilling and fracking rule the day, led by North Dakota’s Bakken, South Texas’ Eagle Ford, and the Permian Basin in West Texas and New Mexico.”

But there’s a whole lot of oil still left in non-shale plays––and it can be particularly attractive to drill conventionally during a lower pricing environment. The Mid-Continent is a conventional play meaning wells are drilled on well-defined geologic anomalies or bumps located some 4,000 feet below the surface of the earth. In the Mid-Con of Nebraska and Kansas, as well as in every other conventional play area, those geologic “bumps” are not contiguous like unconventional shale plays like the Bakken or certain areas of the Permian Basin. As such, available technology including 3-D seismic surveys is used to find those bumps, which help define each and every drilling location. But the technical complexity of seismic is more than offset by a significant reduction in technical and logistic complexity required in drilling and completing deeper, horizontally-drilled unconventional shale wells––wells that can be drilled upwards of 10,000 down and 10,000 feet across for a total of 20,000 feet of wellbore, which can cost upwards of $10 million or more. Conventional plays like the Mid-Con are characterized by drilling shallow, vertical wells into porous formations that do not require multistage hydraulic “frac’ing”––or frac’ing of any kind. Instead, oil free-flows up the wellbore. As such, drilling in conventional fields is comparatively less challenging and significantly less expensive on a per-well basis.

Oil Pump Jack in a Kansas FieldThe five routes CEOC can take to secure new barrels of oil differ in terms of both volume and economics. CEOC’s historic experience over the past few years in Kansas and Nebraska suggests we can “Find and Develop” oil from our exploration efforts at a capital cost of between $15 and $17 per barrel of ultimately recoverable oil. For true development wells that offset known producers, an analysis of our capital cost shows all-in costs closer to $10 to $12 per barrel.

Exploration activity can bring with it substantial upside in terms of production capacity from the initial well and from offsetting development well locations that are created because of that find, i.e. new field discoveries. Additionally, we can recomplete wells with multiple production zones, some of which have not been added to the production mix at an approximate capital cost of $8 per barrel of ultimately recoverable oil. There are a finite number of wells with modest volumetric increase potential that fit the recompletion category. Over the past twelve months, Coachman Energy Operating Company has pursued an aggressive program to take advantage of these opportunities which we believe offer superior return potential in per-barrel value increase as well as rate of return on invested capital. Waterfloods, while far more technically complex, offer even greater economic and volumetric uplift as the per barrel Find & Develop (F&D) capital expenditures required for these redevelopments range from $1 to $3 per barrel of ultimately recoverable oil. As with well recompletions and reworks, there are a finite number of waterflood candidates. Regardless of the case, all potential recompletion and waterflood candidates are included in Coachman Energy Operating Company’s forward plans.

Coachman Energy Operating LLC Oil and Gas AcqusitionsA Closer Look at Developing Additional Production in the Mid-Con
To provide a little more color, let us take a closer look at each pathway to developing additional production in the Mid-Con. Each new successful exploration or development well drilled in the Lansing-Kansas City zones should produce about 35,000 to 40,000 barrels of oil over the life of the well. Occasionally, we complete an Arbuckle well which may produce in excess of 75,000 barrels over the life of the well.

CEOC’s success ratio associated with development wells is significantly higher than exploration wells. Being that we are drilling in conventional fields, we expect a 70% plus success rate with drilling development wells as opposed to an average 50% success rate while drilling exploration wells which have risk/reward ratios that vary over a considerable range. Drilling development wells reduces the risk of producing oil, and increases our potential economic yield or rate of return due to the higher completion percentage. However, in the sub-$50 per barrel environment we have been experiencing until just very recently, our objective has been to strive for ways to get oil out of the ground at a lower cost and at lower risk to protect the overall economic potential of the acreage.

Hence adding in a good mix of waterflooding of existing fields and recompletion of existing wells to our traditional drilling schedule.

Recompletion & Workover Success in 2017
Coachman Energy Operating CompanyIn the first half of 2017, Coachman Energy Operating Company recompleted and/or conducted workover activities on seven wells for a combined cost to all working interest partners of approximately $300,000. Wells that were producing in the 5 barrels of oil per day range moved production up quickly to the 30 barrels of oil per day range. The economic projections used to justify the recompletion and/or workover programs assumed that the working interest owners would see an increase in production of approximately 280,000 barrels of oil over the life of the wells. Capital costs were therefore slightly in excess of $1/B of incremental production. To be fair, the seven wells were some of our best recompletion candidates and time will tell how much of the projected incremental production we see over the next few years.

The cost for individual recompletions across CEOC’s Kansas and Nebraska in the Mid-Continent ranged from $25,000 to $40,000 per well (gross), helping improve daily production potential while securing additional reserves for approximately 80% less than the cost of drilling and completing a new well (at minimum).

Water floods have approximately the same economics as recompletions and workovers. The average water flood will require capital expenditures from the various working interest holders in the range of $1 to $3 per barrel of incremental oil that may ultimately be produced.

A Matter of Scale & Timing
Water Injection WellThe difference between recompletions, workovers, and secondary-recovery waterflood projects is a matter of scale (amount of potential additional oil that could be produced) and timing. Waterfloods like the Huslig offer much more in the way of volumetric upside (total new reserves added) than recompletions and workovers. Recompletions and workovers are also straightforward from a timing perspective with additional production potential online within a matter of months––sometimes in as soon as thirty days depending on availability of existing infrastructure. On the other hand, a waterflood project encompasses an entire field that may contain 3 to 12 or more existing wells. Significant planning and infrastructure build-out must also be completed prior to start. In addition, one or two of the wells must be converted from production and be repurposed to inject water back into the formation. Only then can water injection begin. In the Huslig, the target volume of injected water to secure the full benefit of the flooding is estimated to be 150,000 barrels. At the end of the first three months in operation, the volume of water injection approached just 14,500 barrels. Over an 18 to 24-month period of time, the injected water will displace hydrocarbons remaining in the formation and allow those hydrocarbons to be produced with the water. As demonstrated by the Huslig project, field production has increased from 8 barrels of day to over 25 barrels of oil per day with peak production expected to be achieved somewhere in the twelve to eighteen-month range. Once fully operational, the Huslig waterflood is expected to recover at least one additional barrel of oil for every two barrels of primary recovered oil, adding over one hundred thousand barrels of new reserves.

Kansas Huslig Field WaterfloodingWaterfloods Looking Forward
The Huslig waterflood is the first of several waterfloods Coachman Energy Operating Company has planned in Kansas and Nebraska between now and 2020. Over time, we anticipate that 15% of the barrels produced on currently-held CEOC-operated acreage will come from waterfloods. Despite the recent climb in oil pricing over the $60 per barrel mark, we believe the continued pursuit of lower-cost methods of adding new reserves to our bottom line is both prudent and appropriate, helping protect and enhance our holdings’ overall economic potential.

About Coachman Energy Operating Company
Coachman Energy Operating Company LLC (CEOC) is a Denver-based independent oil and natural gas producer with reserves and significant running room in the Mid Continent’s Central Kansas Uplift, Southwestern Nebraska (SWN), and Western Colorado’s Piceance Basin.

The Central Kansas Uplift (CKU) is a conventional, multi-reservoir, stacked-play geologic province that has produced prolific amounts of oil for almost 100 years, predominantly from the Lansing-Kansas City and Arbuckle formations. Southwestern Nebraska (SWN) is a conventional, multi-zone, stacked-play geologic area that is an extension of the CKU into Nebraska with production predominately from the Lansing-Kansas City formation. Southwestern Nebraska is less mature from a development view, with the earliest production after 1940, and has more exploration opportunity relative to the CKU core area in Kansas. Coachman Energy VII’s (CE VII) Mid-Continent acreage features over 140 geologically prospective drilling locations, per pre-existing seismic.

Colorado OilThe Piceance Basin spans approximately 7,000 square miles of Colorado’s Western Slope. The basin is best known as the home of the world’s largest deposit of oil shale––a precursor to oil and gas, which cannot be exploited profitably today. The basin is, however, a prolific producer of potentially economic unconventional oil and gas. The southern portion of the basin is virtually saturated with natural gas, with reserves ranging from 60 to 120 billion cubic feet per square mile. The economics of these predominately gas wells are highly dependent upon natural gas and natural gas liquid (NGL) prices.

CEOC oversees engineering, drilling & completion, geology, reservoir analysis, and project management services with the goal of maximizing asset performance and value on behalf of its working interest partners.


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