Crimson Exploration Successfully De-Risks Eagle Ford Acreage

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 |  About: Crimson Exploration Inc. (CXPO), Includes: APC, CHK, MTDR, NFX, SN, USEG
by: HiddenValueInvestor

Crimson Exploration (NASDAQ:CXPO) announced the successful completion of the K.M. Ranch #2H well on a short lateral of 5,250 feet with 16 stages of fracture stimulation. The well had an initial 24 hour gross initial production rate of 511 Boepd, or 457 barrels of oil and 326 mcf of natural gas. The company reported that other operators have had success with wells adjacent to Crimson's property line in eastern Zavala County, Texas, using 7,500 foot laterals. The K.M. Ranch #2H well is comparable to those wells on a normalized basis. The success of the test well means Crimson plans to enter a development phase with laterals over 7,000 feet in length, which its property configuration allows for. Crimson has reported in its corporate presentation that in Zavala County, Chesapeake (NYSE:CHK) has completed the Winterbotham #A-1 well on a long lateral with an IP of 1,487 Boepd not far from the Crimson property line. Chesapeake considers its Eagle Ford acreage its most valuable acreage out of its 10 core acreage positions around the U.S. Other operators with acreage positions in Zavala County include Anadarko Petroleum (NYSE:APC), Matador Resources (NYSE:MTDR), Sanchez Energy (NYSE:SN), and Newfield Exploration (NYSE:NFX) and additional information on the Zavala assets can be found in the article Key Eagle Ford Wells Unlocking Value in Zavala County.

Crimson has approximately 13,100 acres with a 50% working interest giving the company 6,550 net acres in Zavala and Dimmit County. Crimson has over 200 drilling locations in the Eagle Ford on this acreage and estimates that when fully developed the acreage could add over $350 million in PV-10 value to the company's reserve base assuming $95 WTI average prices. That is very meaningful for a company with an enterprise value of $442 million and a market cap of only $215 million. Additional information on Crimson's other recent discoveries can be found in the article Crimson Finds A Sweet Spot in the Woodbine. The Eagle Ford acreage also has potential in the Austin Chalk, Pearsall, and Buda that could add additional reserve value to Crimson.

U.S. Energy (NASDAQ:USEG) has around a 30% working interest in the acreage which Crimson operates for a total of 4,136 net acres. U.S. Energy has a current enterprise value of $67 million and a market cap of $63 million. Additional information on U.S. Energy can be found in the article U.S. Energy Offers Compelling Upside for Investors.

By derisking its Zavala acreage Crimson Exploration has added significant value to an already under valued company based on its recent discoveries in the Woodbine. Crimson represents a strong buy and hold for patient investors willing to wait for the development wells in the Woodbine and the Eagle Ford to be developed later this year and in the first half of 2013. Crimson is a small-cap company and does not have a lot of trading volume. It can be volatile and faces the same difficulties financing operations as other small-cap operators. Crimson should only be considered for diversified portfolios willing to accept higher risk for higher return.

Disclosure: I am long USEG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.