Resolute: Stable Production and a Bakken Upside

| About: Resolute Energy (REN)

Resolute Energy Corp. (NYSE:REN) is an independent oil and gas company with locations in North Dakota, Utah, Alabama, Wyoming and Oklahoma. You guessed it, another Bakken play. As of December 31, 2009, SEC case proved reserves were 64 MMBoe. More importantly, 90% of this is in liquids. This is a very large number for a company with a market capitalization of under a billion. It had an R/P ratio of 23 years when using production rates from 2009. It had a production rate of 7628 Boe per day as of the end of the third quarter last year.

Resolute seems to have upside based on significant acreage in the Bakken. It has one well completed, two wells awaiting completion and two wells drilling. This company also has exposure to the Mowry shale. It has 45000 HBP net acres in the Powder River Basin and approximately 70000 net acres in the Big Horn Basin. Over last year, this company has been increasing production. From the first to the third quarter of 2010 production has increased from 7062 Boe to 7628 Boe.

Resolute has a project in the Aneth field. This area has a long history of production. It was discovered in 1956. 419 million barrels of oil have already been produced, which is 29% of the original oil in place of 1.5 billion barrels. It is thought that 37% recovery is possible (proved reserves only). Resolute could stand to benefit significantly if a higher percentage of oil is recoverable. For every one percent of recovery, Resolute will have an additional 8.1 million barrels of oil. It is reasonable to believe that this number could be increased given new technologies. Aneth is 93% of Resolute's production.

Resolute, like Denbury Resources (NYSE:DNR), is engaged in enhanced oil recovery procedures. It uses CO2 injection into old oil wells to stimulate further production. Aneth is a perfect area for this. It has a 25 year established CO2 flood, which should allow for years of production. There are also opportunities at Desert Creek, where 10 recompletions have taken place in 2010. The CO2 response at Aneth is continuing to show improvement. Production is ramping up and expanding to other wells. McElmo Creek is also showing a response, with six wells producing in 2010 for one to six months. Average production is 130 Bbls from DC-IIC.

The Aneth field 2009 SEC case has prove reserves at 60 MMBoe and PV10 of $433 million. The SEC case had product mix of 94% liquids. Reserves by category had 49% PUD, 33% PDP and 18% PDNP. The 2009 year-end strip case has proved reserves at 76 MMBoe and PV10 of $951 million. The first quarter of last year production was 5428 Boe per day and by the third quarter production was at 5791 Boe per day. Aneth has significant organic upside with respect to production. A 15% CAGR is expected in net production from 2010 to 2014.

The cost related to Aneth is $61 million to support proved developed resources over the next five years. Average annual maintenance capital is $12. Total capital to support growth over the next five years is $260 million with an average annual capital requirement of $52 million.

Resolute's Hilight field was acquired in July of 2008. 2009 SEC reserves are 23% oil, 26% natural gas liquids, and 51% gas. There is minimal coal bed methane at this location. It has 45000 net acres HBP. The oil shale in this area seems to be getting the most attention. The year-end 2009 SEC case has 5 MMBoe and a PV10 of $46 million. By category, this area is 57% PDP, 42% PDNP, and 1% PUD. 2009 year-end strip case shows total proved reserves of 7 MMBoe and PV10 of $116 million. Production here is much lower then the Aneth field, but still significant at 1634 Boe per day in the first quarter of 2010. By the third quarter of last year it was producing 1823 Boe per day.

Hilight field has plenty of room for growth. Resolute's muddy refrac program had five wells done, with three refracs to do. The Mowry shale is emerging as a decent oil reserve. Currently EOG Resources (NYSE:EOG) and Baytex (NYSE:BTE) have new horizontals up. EOG gives me confidence this is a legitimate play. This area is emerging with plenty of interest. Resolute seems confident this area will produce growth.

Now, in my opinion, here's the best portion of Resolute's outlook. It has three leased areas in New Hope, Paris and Shep. Resolute's gross acres are 91084, with a net of 33415. Well activity has seen one well completed, two waiting on completion and two wells being drilled.

Resolute has a joint venture with GeoResources (NASDAQ:GEOI), another good company I recently wrote about. This JV is in Williams County. Resolute and GeoResources have equal skin in the game at 47.5%. Resolute has three joint ventures in this area, with working interest between 34% and 42%. Just south of this location has Bakken experts Brigham (BEXP), Oasis (NYSE:OAS) and EOG Resources (EOG). Five of the wells at this southern location have reported initial flow rates between 1181 to 2080 BOPD. Five additional wells are all in the process of completion, drilling or permitting.

Resolute's New Home JV GEOI has 68713 gross acres or 23527 net. Players in this space are:
Brigham (BEXP)
Oasis (OAS)
EOG Resources (EOG)
Continental (NYSE:CLR)
Newfield (NYSE:NFX)

Resolute has three wells here, one on 640, and the other two on 1280 spacing. Working interest is between 41.6% and 33.9%.

The Marathon farmout at the Paris location is has two wells. Resolute has 19000 gross acres or 8425 net. These Marathon wells have Resolute's working interest at 45% and 35% with both on 1280 spacing. Neighboring players are:

Conoco (NYSE:COP)
Marathon (NYSE:MRO)
Continental (CLR)
Newfield (NFX)

Resolute's 2010 production guidance for this year is 2.7 to 2.8 MMboe. Daily rate is 7400 to 7700 Bbl. Revenue will be 91% liquids. Volume will be 84% liquids. It seems most of the capital expenditures will go to Aneth until otherwise noted. Resolute is an intriguing company. It operates in some aspects like Denbury (DNR) in revitalization of old wells with CO2, but also is a growing Bakken player with JVs to expedite completion. Lastly its Niobrara location is a bit of a wildcard. I think this company is a nice sleeper, even after its run and would compare it to GeoResources (GEOI) with respect to possible exponential growth, with stable production to protect to the downside after a big run. Buy on a pullback.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BEXP, GEOI, OAS over the next 72 hours.