News From the Horizontal Drilling Front

For those following the Cotton Valley horizontal drilling play, there is news of a disappointing well from GMX Resources (GMXR). The Baldwin 5-H well, their first horizontal, reportedly has initial production of 1.8Mmcfed. While all the frac water is not out of the well, and initial production may still rise, it is not much better than an average CV vertical well. While it was not reported what the well will cost, the estimates run about three times that of a vertical.

By comparison, the Devon well that GMX is trying to emulate has flowed about 10Mmcfed for the first 45 days. GMX has a significant part of their 2007 cap-ex budget dedicated to horizontal drilling in the CV. Not only will more poor results strain their finances, it may raise other questions about their relatively small acreage position.

Goodrich Petroleum (GDP) will have results on their horizontal drilling in the next few weeks.

Meanwhile large acreage players like EXCO (XCO) and Comstock (CRK) are watching closely. When GMX and Goodrich have paid tens of millions to define the zones and perfect the completion methods for horizontal wells, the conservative oilmen will exploit their holdings.

GMXR has hardly up-ticked since the news. And XCO continues to set new highs.

GMXR/XCO 1-yr comparison chart


Disclosure: The author is long XCO and would be a buyer of CRK at $30. He has no position in any other stocks mentioned in this report.