TMS related news.
In recent quarters, a handful of independent exploration and production (E&P) outfits have touted their acreage in the Tuscaloosa Marine Shale (TMS), a formation that stretches from Texas to Louisiana and Mississippi. The field is far from a new discovery; famed Mississippi wildcatter Alfred Moore spearheaded drilling in the TMS in the 1960s.
The play’s proximity to the Haynesville Shale should make it easier for producers to redirect drilling rigs from the out-of-favor dry-gas play and limits bottlenecks associated with a lack of midstream infrastructure. Despite boasting similar geologic characteristics to the Eagle Ford, the TMS is far from a slam dunk, which explains the low prices that early movers have paid to build an acreage position.
Goodrich Petroleum Corp (NYSE: GDP), for example, amassed about 74,000 acres, paying an average of $175 per acre. Meanwhile, Devon Energy Corp (NYSE: DVN) has accumulated 250,000 acres on the Louisiana-Mississippi border at an average cost of $180 per acre.
Thus far, early movers in the TSM have yet to report drilling results, though management teams have indicated that these tests have been encouraging. Devon Energy recently completed drilling, coring and logging its first vertical well in the play and plans to sink its first horizontal well later this year. Denbury Resources (NYSE: DNR) and its partner EnCana Corp (TSX: ECA, NYSE: ECA) are at a similar stage in their drilling program and plan to sink a horizontal well in September.
During EnCana’s conference call to discuss second-quarter results, Executive Vice-President Jeff Wojahn described its TMS assets as “a promising liquids-rich opportunity” based on “how the rock breaks, the hydrocarbon content and gas in place, and the like.” Management also pegged the drilling costs for its first horizontal well–a 12,000-feet deep vertical shaft with a 7,500-foot lateral segment–at about $8 million.
Meanwhile, Goodrich Petroleum’s CEO provided a bit more color on his outlook for the TSM during the Q-and-A portion of the firm’s Aug. 4 conference call:
We’re very comfortable today with what we see from a geologic standpoint of going ahead and drilling wells. In fact we don’t really even see much need, at least in most of our acreage, for pilot holes. There [are] sufficient amounts of historical vertical wells that have been drilled through the Tuscaloosa Marine Shale that we’re comfortable going out and drilling today. I would characterize at least in our view that the sole or the largest single risk to the play is just one of the economic performance versus well costs. We know the Tuscaloosa is present, sufficiently thick, thoroughly oil saturated. It’s just a little unproven in that no one has drilled yet a well that’s demonstrated in the EUR horizontally that would match up to costs. And that’s just [be]cause there haven’t been really many or any of them out there that have done that.
Drilling results in this frontier play could provide a meaningful upside catalyst for these E&P operators. At the same time, if the play proves uneconomic to produce or drilling results disappoint, the low cost of acreage provides a degree of downside protection.
Post any articles or information you believe to be relative to the TMS.
Supply and demand, Steve.
There are a limited number of deep pocket folks out there
and there are other shale plays that are also profitable.
Sinopec may feel like they have a big enough commitment
to the TMS or, more likely, they aren't willing to pay what
So, GDP is going to go on the road and show their cards
to investors publicly and to other deep pockets under
non-disclosure agreements and see if anyone else is
If not, then Sinopec may remain an option or Sinopec
may decide the price offered is indeed fair.
Either way, it's an interesting situation.
Also, don't forget that GDP had a substantial acreage position all on their own before they went in on that deal with Sinopec/Devon or whoever it was. There may be some caveats or something that are particular to only that acreage and it might be that GDP is not "shopping", for lack of a better word, that acreage and it might only be their own previously controlled acreage.
What Bernell writes is absolutely correct, supply and demand. Us lay people do not know, and probably won't ever know, the particulars so who is to really say what all is going on.
It's not about the money. Sinopec is in several shale plays for the drilling technology to develop it's own resources.
I think it is still too early for GDP to make a deal. More good wells in the next few months will de-risk and delineate their holdings. If the wells are good and repeatable across a broad area of the TMS, their total acreage will increase substantially in value from where it is now. When it is worth more, then they will make a deal. If they didn't believe in the TMS, they would make a deal now. I predict they will eventually sell about a third of their TMS holdings and use that money to finance the drilling of the remaining 2/3.
I think pip318 is right on about it being too early for a Goodrich JV, particularly with Sinopec. By my count, Goodrich has completed two wells with Sinopec participation: Weyerhaeuser 51H (which was a disaster) and Blades 33H (which was excellent). They're currently drilling another two, the SLC Inc 81H and Beech Grove 94H. If I were in Sinopec's position, I would want to see consistently good results across a few more data points before committing to anything. Especially if I were to consider paying the $5,000-$20,000 per acre Goodrich says it wants to do a JV.
I suspect you are right. Sinopec was probably unhappy with the 1st two wells messed up by the permanent plugs and is probably waiting to see if GDP can repeat the Blades results and that they have permanently resolved the plug drilling problem. Rumor is that the C.H Lewis will be better than the Blades. GDP is also probably waiting to see if someone else steps up with a JV offer. The results from the next few wells could be a boom for all the current operators if Kirk Barrel's IP projections are accurate.
JVs and other corporate mergers usually don't happen over night. Usually a lot of time is spent laying the ground work out of the public view. I think Goodrich is trying to get a feel for the interest in a JV, because they don't want to announce an opening of a data room and have nobody serious show up. So if they open a data room late in the 3rd quarter, with a target close date of 12/31/14, they will have data on another 10-15 well completions.
Going UMI in Louisiana rarely turns out to be more financially beneficial than leasing, and it is very hard to accurately predict the specific situations in which it would be the better option. As expensive and unpredictable as TMS wells have been so far, you're far better off getting a lease royalty without sharing in well costs than being a partner with the operator.
http://www.palomaresources.com/paloma-partners-iv/# just found this.
Very interesting, Danny. Note what they say about themselves:
"Paloma Resources is a private oil and gas exploration and production company founded in 2004 and headquartered in Houston, Texas. Backed by the financial strength of Encap Investments and Macquarie Americas, Paloma Resources has established an extensive track record of creating significant value for its stakeholders."
EnCap is a financial backer of Halcon (has a seat on the Board) and EVEP and Venado Oil & Gas, among many many others.
Possibly explains why they are such an aggressive company.
Louisiana TMS reporting thru 3-1-14 (some thru 4-1-14)
23 wells added 29,524 Oil Prod (BBL) and 20,618 Gas Prod (MCF)
Total Production 1,020,166 Oil Prod (BBL) and 547,900 Gas Prod (MCF)