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Buda Well Results On The Zavala/Dimmit Border Remain Compelling

|Includes:Anadarko Petroleum Corporation (APC), CHK, CXPO, MCF, MTDR, SN

Evidence continues to grow showing some Buda wells drilled in a sweet spot on the Zavala/Dimmit County lines in South Texas have better drilling economics than Eagle Ford wells. Two previous articles discussed the newly discovered Buda sweet spot Some Buda Wells In South Texas Outperforming Eagle Ford Wells and 3 Stocks With Lots Of Upside From A New Oil Discovery Underneath The Eagle Ford. The Buda is a naturally fractured oil formation located approximately 100 feet below the Eagle Ford. While a typical Eagle Ford well costs $7 million to $8 million to drill and frack, a Buda well costs less than $4 million because it does not have to be fracked.

The best Buda well drilled to date is the Heitz 302 3H well by private oil company Dan Hughes. According to the Texas Railroad Commission, the Heitz 302 3H well produced 236,011 barrels of light sweet crude oil during its first 11 months of production. In April of 2013, the well was still averaging 655 barrels per day of light sweet crude oil. Additionally, the well also produced 159,099 mcf of natural gas. Dan Hughes has drilled several very good Buda wells on the Zavala/Dimmit border north of Big Wells, Texas. Its success with the Buda formation in that area is being replicated by Sage Energy. The Sage Energy Mills 1H well has produced 42,540 barrels of light sweet crude oil during its first 2 1/2 months of production. In April, the well averaged 671 barrels of oil per day.

Crimson Exploration (NASDAQ:CXPO) is the operator and has a 50% working interest in the Beeler 2H well. This well is an offset well and in very close proximity to both the Heitz 302 3H well and the Mills 1H well. According to Crimson, the well was successfully drilled and brought to full production in mid-May. Crimson plans to announce the results of the first 30 days of production for the Beeler 2H well sometime within the next couple of weeks. Crimson plans to spud another Buda well in July. Once Crimson's pending merger with Contango (NYSEMKT:MCF) is complete they plan to run a full time rig in the Buda. Crimson could have anywhere from 20 to 40 Buda wells to drill on its acreage next to the Dan Hughes discovery of a sweet spot in the Buda. U.S. Energy (NASDAQ:USEG) has a 30% working interest in all of the Crimson Buda wells in Zavala and Dimmit counties.

Sanchez Energy (NYSE:SN) recently completed an acquisition from Hess for 43,000 net Eagle Ford acres, some of which is only a few miles from the Dan Hughes Buda discovery. According to Sanchez, the key to having a successful Buda well is to find natural fractures. While the Buda underlies almost all Eagle Ford acreage, natural fractures that allow the oil to flow freely do not. Crimson and their drilling partners indicated they did find natural fractures in the mud logs of the Beeler 2H well.

Chesapeake Energy (NYSE:CHK) also has significant acreage near the Dan Hughes discovery, but much of it has been put up for sale as part of its Northern Eagle Ford package. Anadarko Petroleum (NYSE:APC) also has acreage in this area of Dimmit County. Unlike Chesapeake, they are in a much stronger financial position and are actively seeking to lease additional acreage. Matador Resources (NYSE:MTDR) also has some acreage a few miles from the Dan Hughes Buda discovery.

What creates a compelling opportunity for investors is because Dan Hughes and Sage Energy are private companies they have not been disclosing to analysts and investors their results. They have not been making the rounds at Energy Investment Conferences held by Wall Street firms, nor issuing press releases. While the oil men is South Texas know about the Dan Hughes Buda sweet spot discovery, most Wall Street investors do not. That will all change when Crimson releases the results of their Beeler 2H well. Of course, a positive change in investor perceptions is dependent upon Crimson achieving comparable results to Dan Hughes and Sage Energy.

 

 

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

Stocks: APC, CHK, MCF, MTDR, SN, CXPO