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Michael Filloon, Split Rock (390 clicks)
Oil & gas, small-cap, research analyst, growth at reasonable price
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Samson Oil and Gas has had a great run over the past year. This is great if you have been in this name, but can you get in now?

I have been in this name since late December of last year. On January of this year I wrote this article on the company. The article was written after the release of a report by Enercom. This Enercom report showed some tremendous upside in Samson's stock, which I covered in full detail. The second catalyst was a report by Hartleys that was kindly emailed to me by a fellow Samson stockholder. Both articles placed a large increase in share price over the short term. In early February, I wrote a follow-up article named Samson Oil and Gas: Ten Bagger. This was an overview of how Samson was progressing with its Halliburton (HAL) deal, along with Chesapeake's (CHK) deal with CNOOC (CEO). It also covered why Samson still had upside after such a large move in share price. Since all of the excitement has been in the D-J Basin of the Niobrara, I will cover names in this area.

Samson states its 3D is completed. The JV with Halliburton (HAL) has begun, and Samson will begin its two well carry in June. Samson estimates each well will have an EUR of 413,000 bbls. Thirty-one wells have been drilled in this area by other companies and the average IP has been approximately 650 Boe/d. Samson's Bakken location has fallen behind, but is beginning to get some results. Two wells have been recently fracced. One additional 5000 foot well will be completed for 640 acre spacing and an additional three 10,000 foot wells to complete 320 acre spacing. Samson has stated several times they are currently looking for additional acreage in the Bakken.

Devon Energy (DVN) has 40,000 net acres just south of Samson's leasehold. It has acquired the 3-D seismic. The Goshen area is starting to get crowded. There have been several deals in the Niobrara very close to Samson's 14,883 acres, and these deals have helped to create land price appreciation:

  • Chesapeake purchase at $3,150/acre
  • CNOOC purchase at $4,750/acre
  • Marathon (MRO) purchase at $5,000/acre

The D-J Basin has been an area of interest. Some of the biggest names in oil have purchased very large acreages. EOG Resources (EOG) has 300,000 net acres south of Samson's leasehold. EOG is currently the largest oil producer in the Niobrara. A more in depth article here covers EOG's other oil and gas plays. This company has reported several key facts with respect to the Niobrara:

  • The Niobrara is a highly fractured oil shale play
  • Success converting acres from a fractured to a matrix play
  • Higher recoveries then expected
  • Mix of 94% liquids and 6% gas

EOG has three rigs running, and plans to drill 40 wells here in 2011. In 2010, EOG reported drilling four test wells. The results were:

  • Jake 2-01H at 1558 Bop/d
  • Elmer 8-31H at 730 Bop/d
  • Red Pole 10-16H at 1100 Bop/d
  • Critter Creek 9-15H at 748 Bop/d

More recent well tests done at restricted rates were:

  • Critter Creek 13-17H at 731 Bop/d
  • Elsie 7-34H at 820 Bop/d

Not only has EOG been one of the first players in the Niobrara, they are leading the way drilling. Of its eight wells producing, EOG recorded an average IP of 800 Boe/d. It is important to watch EOG successes as there will be catalysts for other stocks in the region.

GMX Resources (GMXR) has 200 square miles of 3D and 40,260 net acres in the Niobrara. It has one rig contracted for drilling. GMX estimates they have unrisked reserves of 36 MMBbls and 156 net horizontal locations. The area has an EUR of 287,000 and an NRI of 80%. Although GMX will be investing more into its Bakken properties, its still excited about the play's prospects. GMX is estimating it will be able to have four wells per 640 acre unit. This company is working on another 2,500 square miles of seismic in the Niobrara. GMX also joined Core Laboratories' (CLB) Niobrara consortium, which should help to expedite things.

Chesapeake holds the second largest position in the Niobrara. It has 535,000 net acres and 3.4 bboe of unrisked unproven resources. Not all of Chesapeake's acreage is in the D-J Basin, some is in the Powder River Basin. Chesapeake has six wells drilled and two wells fracced in the D-J Basin. Of the two D-J Basin wells producing, Chesapeake had an average IP of 967 Boe/d. Chesapeake has the highest estimated ultimate recovery of 1,250,000 bbls. per well. As mentioned earlier in the article, CNOOC has bought into the play at $4,750 per acre.

PDC Energy (PETD) has 74,100 acres in the D-J Basin. PDC has an aggressive drilling program. In 2011, it is planning to drill 14 wells. Eight of these wells will be horizontal and in the Wattenberg core. It estimates each well will cost $3.5 million. PDC has one producing well which had an average IP of 625 Boe/d. In 2010, PDC garnered 89% of its total production from the Rocky Mountain region. It has 3-4 rigs working the Wattenberg/Niobrara. One additional rig is running in the Piceance.

The D-J Basin is important to PDC's ability to increase its liquids production. Wattenberg is in the D-J Basin, south of Silo Field. PDC invested $77 million in the Wattenberg last year, and it estimates 2011 cap ex will be $125 million. Estimates have Wattenburg wells producing 60% liquids. PDC's D-J Basin has the possibility of 738 net undeveloped locations (vertical wells only). There are 125 horizontal locations here as well. Estimates have an additional 649 refracs/recompletes. Of the 74,100 net acres in the D-J Basin, 67,900 net acres are in the Wattenberg core. Another 6,266 net acres are in the Krieger prospect. There are 22 horizontal locations in current Krieger leases. For 2011, PDC is planning:

  • 4-5 Krieger Wells
  • 9-10 Core Area Wells
  • 14 Horizontal Drilling Wells

Although the D-J Basin may not be as desirable as its Permian acreage, PDC's outlook weighs heavily here. For additional information on this company, read here.

Marathon (MRO) recently joined the D-J Basin party. They set the bar by paying $5,000/acre for 177,000 net acres. This provides them with the possibility of 600 net locations on 160 acre spacing in the D-J Basin. Marathon will drill eight to 12 wells at this location in 2011. It estimates a well cost of $4 million with all costs, including facilities figured in. Marathon estimates a 30-day IP of 200-300 Boe/d and 250,000 to 300,000 Boe/well. Estimates of operating costs between $5-$6/Boe and net development costs of $15-$20/Boe are expected. This was an interesting purchase with respect to Samson. Marathon is now just south of Devon Energy's leasehold, which in turn is just south of Samson's remaining acres. Additional acreage is being sought, with total net acres reaching 200,000. For more information on its business read here.

Noble Energy (NBL) has 830,000 net acres in the Wattenberg and northern D-J Basin. It has 11 rigs operating here (seven vertical and four horizontal) and is acquiring a 1,000 miles of seismic. Of 12 producing wells, Noble has an average IP of 595 Boe/d. It has 485 vertical and 70 horizontal wells producing over 55,000 Boe/d. Noble reports they are getting over 50% liquids here.

Its Wattenberg leasehold totals 400,000 net acres. Noble is reporting horizontal drilling improves recoveries and returns. With this type of well, It is getting 30-day IP averages over 500 Boe/d. Noble estimates horizontal EURs at 310 MBoe. Noble is ramping up activity with three to four rigs running. There are two sections in the Wattenberg. The core is the center and Noble has eight producing wells here. Of those eight wells, it reports 30-day IP averages of 640 Boe/d. The core is producing 40%-60% liquids. The extended area of Wattenberg is 60%-80% liquids in average of the 15 wells producing. The extended area has 30-day IP averages of 430 Boe/d. Noble estimates it has 600-plus MMBoe of unrisked reserves. This equates to over 2,000 horizontal locations in the Wattenberg field.

Outside the Wattenberg Field, Noble has 430,000 net acres in the central D-J Basin. These acres were cost effective at an average of $480/acre. One rig will drill here in 2011, to test fractures, matrix and lateral geometry. Once these are figured Noble will have a better idea of the best way to drill the area. The 1,000 miles of seismic will be centered here.

Anadarko (APC) holds 900,000 acres in the D-J Basin. This year it plans to drill over 40 horizontal wells. Anadarko's Wattenberg acreage saw a year over year improvement with respect to oil production from the fourth quarter of 2009 (16 MBbl/d) to the fourth quarter of 2010 (19 MBbl/d). During the fourth quarter Anadarko drilled 118 wells at Wattenberg. It has seven operated drilling rigs with spud to spud cycle time of 4.3 days. For the year, Anadarko spud 371 wells here. In the Niobrara outside the Wattenberg field, Anadarko has 550,000 acres. It is continuing to evaluate this area. During the fourth quarter, Anadarko completed its fifth vertical test well and second horizontal. It started producing its first horizontal, fracced its second, and reached total depth on its third horizontal well. Anadarko is using a 20 stage stimulation treatment on its horizontals. Just south of Silo Field, Anadarko has total wells completed and 17 permitted.

Continental Resources (CLR) has 71,712 net acres in the D-J Basin. Two-thirds of this property is in Wyoming with the other third in Colorado. If 320 acre spacing is used there is potential for 224 net locations. Continental estimates this leasehold has 52 MMBoe potential net reserves (unrisked). Continental's first well (Newton 1-4H) has been drilled and is awaiting completion. This well is the first 8,000 foot lateral in the play. Newton 1-4H is the first 1,280 acre spaced well in the D-J Basin/Niobrara. Continental's D-J Basin acreage gets overlooked at times based on its huge position in the Bakken (and other very good plays), but the fact they are here further qualifies the Niobrara. For more information on Continental read here.

REX Energy (REXX) has 45,000 net acres in the D-J Basin. To date, three horizontal wells have been drilled here. REX expects well costs to run between $3.5 to $4.2 million. REX is estimating 320 acre well spacing. This would produce net potential wells of 105. REX explains its D-J basin wells will fall between two distinct types. If the horizontals have matrix porosity the EUR will be 125 MBo. A better scenario would be a duel matrix porosity which would produce 300 MBo. The upside potential to these estimates ranges from 10.9 MBo to 26.1 MBo. With a market cap of $514 million, these acres can significantly influence share price depending on results. So far REX has drilled three wells with an average IP of 340 boe/d. This number is a little low, but REX has reported the need for artificial lift, and is hoping if they start right away these numbers will improve.

QEP Resources (QEP) has 154,600 acres in the Niobrara with 84,600 net acres in the D-J Basin. QEP did have one dry hole on the western margin of the D-J Basin. QEP has a substantial acreage here, but it may take a back seat to its Bakken properties. There are several 1,000-plus Boe/d producers near by in the D-J Basin, which bodes well for QEP.

Carrizo Oil and Gas (CRZO) has 61,000 net acres in the D-J Basin. Its 2011 drilling budget for this area is $35 million, up from $12 million in 2010. Carrizo has drilled and fracced three horizontal D-J Basin wells to date. It plans to run at least one rig here in 2011. Right now, Carrizo is increasing development in the Niobrara and Eagle Ford for the purpose of increasing liquids production. Of its acreage in the D-J Basin, Carrizo states 50% is drillable, and it is planning for 320 acre well spacing. Also, 95 wells can be drilled here, with EUR of 300 MBoe. Well costs are $3.6 million with 5,000 foot laterals and 15 frac stages. IRR at $90 NYMEX is 146%. Carrizo has stated it would be interested in adding acreage to current areas.

The D-J Basin is becoming a crowded space. This is intriguing not only because cost per acre has been increasing, but the names that are buying in. Its similarities to the Bakken are also important:

  • Oil Productive From Vertical Wells
  • Thermally Mature
  • Modest Clay Content
  • Naturally Fractured
  • Bounded by Shale Seals
  • Horizontal Toe Can Be Fracced Initially
  • Dependent on Horizontal Technology to Tap Resource

Terms such as " Baby Bakken" have been used to describe the Niobrara shale, but the main reason to focus on this area is the ability to remove the resource with good margins. Several of the players here have years of inventory, making this a very good long-term investment.

Source: Samson Oil: Competitors Paying Top Dollar for Presence in the D-J Basin

Additional disclosure: Source: Samson Oil and Gas, Source: Carrizo, Source: REX Energy, Source: Continental Resources, Source: EOG, Source: Devon, Source: GMX Resources, Source: Chesapeake, Source: PDC Energy, Source: Marathon, Source: Noble, Source: Anadarko, Source: QEP Resources. This article may contain forward looking information. This information was used from company furnished material and in no way guarantees a good return. These stocks can decrease and increase in value over a short period. This information is to be used as a list and not a person's sole piece of information to decide on an investment. Please study these stocks thoroughly, as to obtain an educated investment. Please feel free to post questions here, or send me a message directly.