Goodrich Petroleum Is The Way To Play The Tuscaloosa Marine Shale

Aug.13.12 | About: Goodrich Petroleum (GDPM)

What could turn out to be one of the better new emerging oil shale plays is the Tuscaloosa Marine Shale in Louisiana and Mississippi. The Tuscaloosa consists primarily of light oil and is 11,000 to 13,000 feet deep and the shale ranges in thickness from 100-200 feet. Well costs are currently ranging from $12-14 million for long laterals, which is higher than the Eagle Ford and somewhat higher than the Bakken. However, oil from the Tuscaloosa is sold into the Louisiana Light Sweet market and transportation costs are much less those in the Bakken due to the close proximity to the Gulf of Mexico. Louisiana Light is trading at prices comparable to Brent pricing and the current premium to West Texas Intermediate oil is close to $20 per barrel.

There are a handful of companies that have taken positions in the Tuscaloosa including EOG Resources (NYSE:EOG), Encana (NYSE:ECA), Devon Energy (NYSE:DVN), and smallcap Goodrich Petroleum (GDP). All of these companies have a data sharing arrangement to learn as much as possible as quickly as possible. Normally competing oil and gas companies remain tight lipped about emerging plays, but a data-sharing arrangement is smart business that will benefit all of the participants. Encana has announced two wells with 24 hour initial production rates over 1,000 Boepd. Encana estimates the EURs on these wells are in the range of 750,000 BOE.

Goodrich Petroleum has put together an impressive portfolio of 132,000 net acres in the play. The company is currently drilling its first operated well, the Denkmann 33 H-1, and participating for a non-operated interest in the Joe Jackson 4H-2 well, both of which are expected to be completed within 30 days. The company is so encouraged by the results from nearby operators that it plans to have two full-time rigs running in the Tuscaloosa in 2013 to prove up its acreage. Goodrich Petroleum has a marketcap of $451 million and very little value is assigned to the Tuscaloosa in its share price. Over the next several months as the Tuscaloosa is de-risked valuations per acre could rise substantially. Chesapeake (NYSE:CHK) claims its Eagle Ford acreage is worth $30,000 to $50,000 per acre which benefits several surrounding companies. Unlike in the Eagle Ford, Goodrich Petroleum is the only smaller player with a position in the Tuscaloosa Oil Shale significant enough to impact its share price.

Since the Tuscaloosa Oil Shale is not de-risked it is not possible to know at this time if there are broad areas of the shale with commercial potential, or if there are only sporadic pockets and the Encana wells simply found a pocket. Should the Tuscaloosa prove to be similar to the Bakken and Eagle Ford it will raise the question just how many high quality oil shale plays does the U.S. have.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.