BKX included and operations update in their Q2 results last night. The read-through on the Caney well data is quite positive in my view.
Their first Caney well (Barnes 6-3H) had a less than optimal well completion (the frac job wasn't executed properly, which can happen) and the well is still doing ~150 bopd and climbing with total fluid rates over 300 bpd and still cleaning up. That's not too shabby, but it'll likely never live up to the Dunn 2-2H well.
Their second well, Dunn 2-2H is free flowing up to 1500 bfpd (barrels of fluid per day) after 2 weeks, up to 550 boepd already, with only 20% of frac fluid recovered. I would expect it to do even higher fluid rates with gas lift. That's a very good well and highly encouraging.
I believe this bodes well for the Caney play and shows why XTO (Exxon) surrounds them. BKX has ~13,000 net acres of prospective land. As discussed, it should be possible to get $25k/acre for this play once a couple/few more wells are shown to verify the play (that's at the lower end when you look at Eagleford). That's $325 million... well over $2/share. Investors get Poland for free. The company has zero debt and $90mm in cash as of June 30, which is a little over 60c/share in cash.
The 3rd well is ahead of schedule and under budget. That's never a bad thing.
The 4th well will be drilled right south of Dunn 2-2H. That should be received well by the market.
Based on this update, I believe the Caney looks very good for BKX. The market always pays more for more data (and I expect a steady climb in share price as more wells are completed, all else being equal), but at this stage I think there's enough data to put the "green checkmark" next to the play for me. Risk is still present, but for me the Dunn 2-2H early flow data demonstrates what I was hoping to see from this play.
An excerpt from the Q2 results is included below.
BNK's President and Chief Executive Officer, Wolf Regener commented:
"With the completed sale of our Woodford assets in our Tishomingo field in April, the Company continues to make significant progress in our ongoing Caney drilling program during the second quarter. The first well in our 2013 drilling program, the Barnes 6-3H, was drilled with the entire 5,200 lateral located in the most productive Caney subinterval but unfortunately we were only able to fracture stimulate 11 out of the 17 planned stages. The lateral portion of the wellbore was recently cleaned out where two proppant blockages were encountered after which flow back operations just re-commenced. We believe these blockages have restricted the frac fluid recovery to only 12% to date. The gross oil and water production rate is fluctuating between 250 to 350 gross barrels a day with the oil percentage increasing to between 40-50% as we continue to optimize our flowback.
We also drilled the Dunn 2-2H Caney well, completed a 15 stage fracture stimulation and are currently flowing back the fracture stimulation fluid. The fracture stimulation design for this well was improved based on what we learned from the Barnes 6-3H results. After two weeks of flowback, the Dunn 2-2H continues to free flow up the casing at rates between 1200-1500 barrels of fluid per day and has recovered only 20% of the frac fluid to date. The oil cuts continue to improve and the well has already produced at rates of 550 BOEPD with 300 BOPD being oil. Due to the strong flowrate and high flowing pressures, a snubbing unit is currently installing the tubing string and gas lift valves which is expected to further improve production from the well.
The third well in our 2013 drilling program, the Hartgraves 5-3H, was spud in mid-July and although we are only on day 20 of drilling we are anticipating finishing the drilling of the lateral in the next few days. This well is on track to be drilled considerably faster and at lower cost than the previous wells due to continuous design and performance improvements. The Hartgraves 5-3H well is expected to be fracture stimulated during the first week of September.
Based on the improving excellent results of our Caney wells, the Company will immediately proceed to the Barnes 7-2H.
To date, the lessons acquired from our Caney drilling program has helped improve our costs to drill and complete each well, substantially reduce our rig spud to production time and improve the productivity of the wells.
In Poland the Company has now received the final approval for the EIA on its Bytow concession. The Company has filed a concession modification request and is awaiting the final drilling permit which would permit the re-entry of the Gapowo B-1 well so that the horizontal leg can be drilled.
The Company recorded a gain of $9.7 million on the sale of the Tishomingo field assets, excluding the Caney and Upper Sycamore formations, and used a portion of the proceeds to pay down its debt from $41 million to $100,000. Offsetting this gain was $3.5 million related to the amortization of deferred financing costs, a pre-payment penalty of $2.5 million and a $2.5 million payment to settle all of our financial commodity contracts. At June 30, 2013, we have cash on hand of over $90 million some of which the Company will use to complete our 2013 drilling program in the Caney and to move forward our exciting European projects once permits are approved.
Disclosure: I am long OTCQX:BNKPF.