Jim Bob's presentation at HW was typical Jim Bob. For the faithful, he proved the same song and dance about the potential of the Ultra Deep.
The market continues to punish MMR for the lack of data on DJ1. The market knew about the failure of the F perf gun. The fact that the C gun didn't fire was new. Fortunately, it is easy to fix. The big question is the flow rate. I believe pipe capacity is 75. I would like to see 50, even if it has to ramp to that over time. The issue of debris and cooked drill fluid is worrisome. The good news is that after 2+ years we should have the first real flow data from the ultra deep in a week or so, maybe less.
I have been told that the folks at MMR and EXXI believe the the various zones at DJ1 are connected. If so, the fact that the F sands weren't perforated may not matter that much.
The completion problems show that the Ultra Deep is still a science project, and an expensive one at that. 30k PSI and 450 degrees is a tough operating environment. I think all the issues are surmountable with time and money.
The $2 gas environment is tough for all producers. The market structure for gas has changed. Shale plays are the new storage. Once mid-stream infrastructure gets built out, new production can be brought on quickly. We don't have to look for new places to drill to increase supply, all we have to do is drill identified locations and let the flush production flow into the system. The days of $13 gas are over in NA for the near to intermediate term. Once the future strip trades much above $5, producers will lay on hedges and produce into those forward prices. The US now has the ability to quickly ramp gas production in response to higher prices.
In a low price environment, the low cost producer wins. If the Ultra Deep play works, MMR is the low cost producer.
I think the Ultra Deep gas, if it gets produced, ends up on LNG tankers headed to the highest bidder.
It seems like we have been waiting forever. I sold a few April 10 puts for .70
so I guess I am still a believer. I own EXXI in a bigger way. I also like PXP here as well. Lots of to play the Ultra Deep.
Risky |
