All Standard Disclaimers & Seller Rights Apply. January 11, 2013 • Volume 06, No. 03 C APITAL MARKETS Serving the marketplace with news, analysis and business opportunities Letter from NY: DJ Basin takes center stage at BMO show Niobrara renaissance stokes interest at 2013’s first analyst conference Carrizo Oil & Gas chief Chip Johnson has been a stalwart on the conference circuit, and over most of the past couple of years he has doggedly discussed his company’s fiscal situation and updated plans to divest a promising but tangential venture in the North Sea. Both of those draining distractions were dealt with last year: The balance sheet was bolstered with the sale of a big chunk of Barnett production to an MLP, and then on December 28 Carrizo closed a deal to divest its North Sea operations to Calgary-based Iona Energy for $184 million. Johnson stepped to the lectern at the 10th annual BMO Capital Markets Unconventional Resources Conference in New York on January 8 with a spring in his step and a smile on his face: “We announced the North Sea deal at the end of last year, and $150 million of those proceeds are going to come in by the end of January and go straight into cash to start our drilling program, which at this point looks like three rigs in the Eagle Ford, two in the Niobrara, and one in the Marcellus.” Johnson added that official capex details would not be released until later in the month, but would be roughly in line with last year’s program of $130 million a quarter. That was a near-constant for companies presenting at the conference: Some revealed official 2013 capex budgets and some did not, but all kept spending plans at or near last year’s levels. As the first analyst event of the year, the BMO conference is the earliest opportunity the industry has to get firm capex figures, and also the initial chance to see what trends are developing for the year. As the numbers rolled out and producers indicated where they would be putting those dollars, it became clear that the Niobrara was the hot topic at the show, with many presenting companies quite sanguine about the near- term prospects for that play. PERMIAN SALE PACKAGE 27-PDP Wells. ~1,930 Net Acres. MIDLAND, ECTOR & ANDREWS CO. SPRABERRY (TREND AREA) PP Multipay: Wolfberry; Strawn, Wolfcamp ---Dean, Spraberry & Clearfork 50-100% OPERATED WI; 75% NRI Gross Prod: 573 BOPD & 1,284 MCFD Net Prod: 320 BOPD & 741 MCFD 443 Net Cash Flow: >$1,000,000/Mn BOED Substantial Drilling Upside Most Acreage is HBP. 2 Wells HBP 100% CALL PLS FOR MORE INFO PP 1695DV SOUTH TEXAS PROJECT 2-Horizontal PDP’s. 22,000-Net Acres. LAVACA & COLORADO COUNTIES CONNIFF & GRAHMANN UNITS PP Eagleville (Eagle Ford). ~14,000 Ft. Austin Chalk, Edwards & Buda. SIGNIFICANT UPSIDE POTENTIAL --Prolific Wilcox Wells Nearby 728 100% OPERATED WI; 74% NRI MCFED Gross Prod: 18 BOPD & 628 MCFD Net Prod: 13 BOPD & 465 MCFD --Northeastern Extension of Word Field COME SEE US AT BOOTH 300 PP 1932DV FEATURED DEALS Tuscaloosa shale IRRs will surprise, says Goodrich For a play notorious for its troublesome rubble zone, the Tuscaloosa marine shale is starting to look more solid for the early movers. Goodrich Petroleum, which has 134,000 net acres in the Louisiana and Mississippi play, expects soon to disclose just how good a prospect it has. “In February and March we will have quite a bit of completion data as a result of our own and others’ work,” said president and COO Rob Turnham. “In the next few months we will release a type curve for the TMS and the final 2013 capex.” He reiterated the estimated range of $175-200 million. Projections call for Goodrich to spend $25-50 million in the Tuscaloosa. Carrizo picking up Niobrara acreage at 25% price vs. two years ago. ‘Very good industry data’ expected within next the six months. Carrizo’s Niobrara Economics Well Only Total well cost $3.6 MM Reserves Gross (GOR=1,500) Net 250 MBOE 200 MBOE F&D Cost $18 / BOE IRR (1) – $100 NYMEX 80% $85 NYMEX 45% $70 NYMEX 22% Undiscounted Payback @ $85 NYMEX 2.9 yrs Type Curve 0 10 20 30 40 50 60 70 80 0 100 200 300 400 500 600 700 800 0 6 12 18 24 Cum Oil (MBO) Oil Rate (BOPD) Months Oil Cum Oil Source: Carrizo December 5 Presentation via PLS docFinder www.plsx.com/finder Continues On Pg 2 Continues On Pg 2 1. Niobrara a clear focus area for 2013 spending. 2. Plans for downspacing, deeper drilling, acreage buys & JVs. 3. Overall capex plans presented stay close to 2012 levels. 4. Tuscaloosa shale operators work to bring down well costs. QuickLook
Transcript
All Standard Disclaimers & Seller Rights Apply.
January 11, 2013 • Volume 06, No. 03
CapitalMarketsServing the marketplace with news, analysis and business opportunities
Letter from NY: DJ Basin takes center stage at BMO showNiobrara renaissance stokes interest at 2013’s first analyst conference
Carrizo Oil & Gas chief Chip Johnson has been a stalwart on the conference circuit, and over most of the past couple of years he has doggedly discussed his company’s fiscal situation and updated plans to divest a promising but tangential venture in the
North Sea. Both of those draining distractions were dealt with last year: The balance sheet was bolstered with the sale of a big chunk of Barnett production to an MLP, and then on December 28 Carrizo closed a deal to
divest its North Sea operations to Calgary-based Iona Energy for $184 million.Johnson stepped to the lectern at
the 10th annual BMO Capital Markets Unconventional Resources Conference in New York on January 8 with a spring in his step and a smile on his face: “We
announced the North Sea deal at the end of last year, and $150 million of those proceeds are going to come in by the end of January and go straight into cash
to start our drilling program, which at this point looks like three rigs in the Eagle Ford, two in the Niobrara, and one in the Marcellus.”
Johnson added that official capex details would not be released until later in the month, but would be roughly in line with last year’s program of $130 million a quarter. That was a near-constant for companies presenting at the conference: Some revealed official 2013 capex budgets and some did not, but all kept spending plans at or near last year’s levels.
As the first analyst event of the year, the BMO conference is the earliest opportunity the industry has to get firm capex figures, and also the initial chance to see what trends are developing for the year. As the numbers rolled out and producers indicated where they would be putting those dollars, it became clear that the Niobrara was the hot topic at the show, with many presenting companies quite sanguine about the near-term prospects for that play.
SOUTH TEXAS PROJECT 2-Horizontal PDP’s. 22,000-Net Acres.LAVACA & COLORADO COUNTIESCONNIFF & GRAHMANN UNITS PPEagleville (Eagle Ford). ~14,000 Ft.Austin Chalk, Edwards & Buda.SIGNIFICANT UPSIDE POTENTIAL--Prolific Wilcox Wells Nearby 728100% OPERATED WI; 74% NRI MCFEDGross Prod: 18 BOPD & 628 MCFDNet Prod: 13 BOPD & 465 MCFD--Northeastern Extension of Word FieldCOME SEE US AT BOOTH 300PP 1932DV
FEATURED DEALS
Tuscaloosa shale IRRs will surprise, says Goodrich
For a play notorious for its troublesome rubble zone, the Tuscaloosa marine shale is starting to look more solid for the early movers. Goodrich Petroleum, which has 134,000 net acres in the Louisiana and Mississippi play, expects soon to disclose just how good a prospect it has.
“In February and March we will have quite a bit of completion data as a result of our own and others’ work,” said president and COO Rob Turnham. “In the next few months we will release a type curve for the TMS and the final 2013 capex.” He reiterated the estimated range of $175-200 million. Projections call for Goodrich to spend $25-50 million in the Tuscaloosa.
Carrizo picking up Niobrara acreage at 25% price vs. two years ago.
‘Very good industry data’ expected within next the six months.
Carrizo’s Niobrara Economics
Well Only
Total well cost $3.6 MM
Reserves Gross(GOR=1,500) Net
250 MBOE
200 MBOE
F&D Cost $18 / BOE
IRR (1) – $100 NYMEX 80%
$85 NYMEX 45%
$70 NYMEX 22%
Undiscounted Payback @ $85 NYMEX 2.9 yrs
Type Curve
0
10
20
30
40
50
60
70
80
0
100
200
300
400
500
600
700
800
0 6 12 18 24
Cum
Oil
(MB
O)
Oil
Rat
e (B
OPD
)
Months
Oil Cum Oil
Source: Carrizo December 5 Presentation via PLS docFinder www.plsx.com/finder
Continues On Pg 2
Continues On Pg 2
1. Niobrara a clear focus area for 2013 spending.
2. Plans for downspacing, deeper drilling, acreage buys & JVs.
3. Overall capex plans presented stay close to 2012 levels.
4. Tuscaloosa shale operators work to bring down well costs.
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CapitalMarkets 2 January 11, 2013
“The challenge in the TMS is the rubble zone where the well just wants to cave in on you. We have been drilling above and below it with good results so far, but well costs are high—$12-13 million,” said Turnham. “EOG, another big operator in the play, has reported 28-30 days and been able to get their well costs down to $10.5-11.0 million, and we are very confident we can bring our wells down as well. Within six months we are all going to have very good industry data on this play.”
Turnham noted that Goodrich is being particularly disciplined about spending, and said he was encouraged to see that many other producers were doing likewise. “It is all about internal rate of return now,” he stated. “We ask every day, ‘What is the best use of every dollar of capital?’ We are going to put out the data for the TMS, and people are going to be surprised at the IRR, even for a $13 million well. Still, we are confident we can get that down to $10-11 million, especially with pad drilling and zipper fracs.”
He continued, “We have a $210 million borrowing base, and the banks have renewed our price decks at the same levels as last year or a little higher. That varies a little from bank to bank but generally is now at about $75-$85/bbl for oil and $2.75-$3.00/Mcf for gas.”
Letter from NY: DJ Basin takes center stage Continued From Pg 1
Arkansas: $70 million • Cotton Valley: 30 wells • Cotton Valley (5-acre test): 6 wells • Cotton Valley: 114 recompletions • Other: gas plant, SWD
• 4 Hz rigs in Wattenberg by 2Q • 2 vertical rigs in Arkansas
Operated Rig Count
Source: Bonanza Creek January 8 Presentation via PLS docFinder www.plsx.com/finder
The enthusiasm was a resurgence of sorts for a shale region that has a short but checkered history. Niobrara players laid out 2013 plans for downspacing, deeper development, acreage acquisitions and partnerships to further develop the Colorado
and Wyoming play.For a company with operations in
most of the hot US basins—Niobrara, Eagle Ford, Utica and Marcellus, the Bakken being absent—Johnson said it was a drag having to spend so much time on the North Sea disposition and the Barnett cull. But now he is free and clear to build on growth. “We have had 28% growth in oil production and 33% in cash, and yet not many people seem to be talking about that.”
Carrizo is coming out of the woods at a propitious time, Johnson said. “The Niobrara was everyone’s favorite play, then a few people drilled a few dry holes and it fell off the list. We still like it, but it is the most complex shale play. There are
four or five bigger companies who could never block up their acreage, which is what their operating plans call for. So we have some great opportunities to pick up acres at a quarter of what they were going for two years ago. And we can block it up.”
Encana & Bonanza Creek also dig on the Niobrara—Rocky Mountain High is not just a song, but a conviction among the players that
have found success in the Niobrara despite its fragmented acreage and frustrating geology. These companies range from big boys, notably Encana, to up-and-comers such as Bonanza Creek Energy.
Encana’s Niobrara goal for this year is to accelerate commercial development, said Kevin Smith, VP of the company’s Northwest business unit. The company has two wells on production, nine completed or soon to be, and plans to drill and complete 18 net wells this year with two rigs.
Tuscaloosa shale IRRs will surprise Continued From Pg 1
Banks' 2013 price decks inline with 2012: $75-$85/bbl & $2.75-$3.00/Mcf.
Continues On Pg 3
Encana’s 2013 Capital Guidance ($ billion)
2012F 2013FCap. Invest. $3.5 $4.0-$5.0
Net Divest. $3.0 $1.0-$1.5
Net Cap. Invest. $0.5 $3.0-$3.5
Cash Flow $3.5 $2.5-$3.5
Total Debt $7.7 $7.2
Cash $2.5 $1.0
Net Debt $5.2 $6.2
Source: Encana January 8 Presentation via PLS docFinder www.plsx.com/finder
Preliminary 2013 Goodrich Capex ($ million)Eagle Ford $115-$137
Tuscaloosa $25-$50
Haynesville Core* $18
Haynesville/Shelby Trough* $4
Leasehold, infrastructure & other
$15
Total $175-$200
* To complete 13 wells cased in 2011. Source: Goodrich Petroleum January 8 Presentation via www.plsx.com/finder
Access PLS’ archive for previous energy finance news
Overall, Encana is allocating about three-quarters of its 2013 capex toward gas, Smith said. About half of that will be allocated to liquids-rich plays with another 23% to dry gas. Encana’s biggest recent move is its $1.8 billion JV in the Duvernay with PetroChina, announced in December.
Bonanza Creek is a favorite of conference sponsor BMO Capital. “Bonanza continues to report higher IP rates for its horizontal Niobrara wells,” BMO wrote in its January 6 oil and gas report, “and our review of public data confirms that the more recent wells are showing higher recoveries over an extended period. We think Bonanza’s recently announced aggressive capital budget [$394 million] reflects the high return nature of its Wattenberg (and Arkansas) assets. This growth rate validates Bonanza’s improving horizontal Niobrara results and should alleviate Wattenberg take-away concerns.”
Bonanza president and CEO Michael Starzer confirmed that Wattenberg returns “are right up there with expectations. Our plan for this year is four horizontal rigs drilling 56 wells on 80-acre spacing in the Wattenberg, as well as two vertical wells in Arkansas. We will be working on driving down operating costs—$9 million a well can certainly be driven lower—and we will also be testing 40-acre spacing.” Starzer said his firm has gotten favorable results from controlled flowback, which “gives the frac time to heal and limits sand production.”
Warren looking to enter the play, PDC drilling deeper—
Like Carrizo, Warren Resources is a bit of a come-back story. Best known for its steady production in two Wilmington units of the Los Angeles Basin, the company has just expanded its coalbed methane production and midstream position in Wyoming, which gives it a leg up on a possible entry to the Niobrara, says SVP and CFO Tim Larkin.
FRIO CO., TX ACREAGE ~1,970-Net Mineral Acres On Trend.EAGLE FORD SHALE PLAYLIQUID RICH SOUTH TEXAS LEagle Ford, Buda, Austin Chalk & PearsallProposed 5,000 Ft. Effective Lateral Lengths100% OPERATED WI; 72% NRIOver 200’ of Combined Pay >5% Porosity EAGLEAmple Upside for Long Lateral Development FORDWell Rsrvs (Eagle Ford): 351 MBOE/WellTotal Eagle Ford Potential: >3.5 MMBOCompleted Well Cost: +/- $8,300,000COME SEE US AT BOOTH 300L 1819DV
Letter from NY: DJ Basin takes center stage Continued From Pg 2
'Wattenberg returns are right up there with expectations' —Bonanza Creek CEO
Continues On Pg 4
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Atlantic Rim Producing ZonesAtlantic Rim
W
- 2,000'
- 6,000'
- 10,000'
Ten Miles
E
CBM
Down Dip
Productive
Limits
Spyglass Hill Mega Unit Mesaverde Outcrop
6 NASDAQ: WRES Source: Warren Resources January 8 Presentation via PLS docFinder www.plsx.com/finder
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CapitalMarkets 4 January 11, 2013
Two other factors add credibility to Warren’s growth plans: First is an increase in its borrowing base, and second is the hiring of new CEO Phil Epstein, known as a dealmaker. Larkin acknowledged that the borrowing base increase from $130
million to $140 million is modest but said the vote of confidence from lenders is more significant than the absolute amount. On his new boss, Larkin added, “Phil is the
former CEO of Belco, which was recently acquired by Marathon. He has founded and sold other energy companies and has extensive experience in transactions.”
As for specific acquisition targets, Larkin was coy: “You are not going to see us buy huge acreage positions and start drilling developmental wells. We will go where we can deploy our expertise. There is Niobrara potential in 70,000 contiguous acres under the CBM we have in south-central Wyoming, and we are doing seismic right now. If we were to develop that, it might make sense to bring in a larger partner and for us to keep a smaller percentage.”
PDC Energy was one of the Niobrara boosters more focused on stepping out the play. “We have just seven Codell wells online and have 30 more planned for 2013,” said E&P SVP Bart Brookman. “We are very pleased to be focusing on the northern part of the field where it has been less developed on a vertical basis.”
PDC completed its first Niobrara A and C bench tests in December, Brookman added. “We downspaced,
and expect to have data to report by the end of the first quarter. So far we have been extremely pleased based on the pads we have online. We will continue to focus on the B bench and Codell as well as testing the A and C benches. A third to half of our horizontal wells will be in the Codell.”
Logistics have been a challenge in the Niobrara, but Starzer said the pipeline and processing issues of 2012 have been largely resolved: “DCP is the major processor in the region, and they have done a good job of building out.” And operators themselves have taken steps to mitigate potential bottlenecks, as Starzer illustrated: “We gathered our own wells into two central nodes, which allowed us to add compression, which we did. We have a gas plant with capacity of 40 MMcfd, which we expect to fill this quarter. And DCP is investing about $1.0 billion in the Wattenberg, including a new plant due on in August.”
PERMIAN BASINPERMIAN BASIN PROPERTIES14-Active. 19,172-Gross Acres.UPTON COUNTY, TEXASWOLFBERRY TREND PPATTRACTIVE HORIZONTAL WOLFCAMPHigh-BTU Devonian DevelopmentUpside Potential Clearfork/Spraberry3-D Seismic Available Over Entire Acreage100% OPERATED WI; 75-79% NRINet Production: 500 BOED 500Forecast Net Peak Prod: >13.4 MBOED BOEDNet Operating Income: $600,000/MonthTotal Net Rsrvs: 67 MMBOE (84% Liquids)Net PDP Reserves: 2.1 MMBOETotal Reserves PV10: $593,000,000CA Required to View Data RoomCONTACT AGENT FOR UPDATEPP 1975DV
WEST TEXAS PROJECT57-Active. 12,268-Acres. 234-Locations.BORDEN, MARTIN & HOWARD CO.PERMIAN BASIN PPWolfberry, Spraberry, Canyon, StrawnChester, Miss Lime & Penn Shale 1,785Avg Prod: 1,785 BOPD & 6,880 MCFD BOPDCA REQUIRED TO VIEW DATACALL AGENT FOR MORE DETAILSPP 1131DV
ROCKIESEAST MONTANA BAKKEN ACREAGE 5,200-Net Acres. All Depths.SHERIDAN & ROOSEVELT CO.WILLISTON BASIN LBakken & Three Forks Objectives.Red River & Shallower Ratcliffe Upside.Will Deliver 80% NRI.PROVEN PRODUCTION IN AREA BAKKENOffsets: Samson, Whiting & Marathon.Good Remaining Primary Term.Extension Options Available.CONTACT PLS FOR MORE INFOL 1212DV
MULTISTATE ROCKIES NONOP238-Active Wells. ~12,220-Net Acres.NORTH DAKOTA & MONTANABAKKEN / THREE FORKS PLAY PP>170-Active Rigs in the AreaOperators Rapidly Developing AcreageAvg 4.3% NonOperated WI; 3.5% NRIEst October 2012 Net Prod: ~885 BOEDOperators Include: Continental, EOG, ~885Hess, Marathon, Statoil, Slawson & Oasis. BOEDNet PDP Reserves: 1,701 MBOETotal Proved Reserves: 4,027 MBOENet Proved PV10 Rsrvs: $87,500,000CA Required to View Data RoomCONTACT AGENT FOR UPDATEPP 1974
Letter from NY: DJ Basin takes center stage Continued From Pg 3
'There is Niobrara potential under the CBM we have in Wyoming' —Warren CFO
'Downspacing data by the end of the quarter.' —PDC Energy SVP for E&P.
