Friday, September 6, 2013

Houston Business Journal Article



A recent article in the Houston Business Journal:


Goodrich Petroleum president shares Tuscaloosa Marine Shale plans


It would be tough not to notice the action heating up in the little-known Tuscaloosa Marine Shale as Houston energy companies have been scooping up assets in the Louisiana-Mississippi basin.
Houston-based Goodrich Petroleum Corp. (NYSE: GDP) has led the way into the Tuscaloosa. Goodrich has been there for almost three years, diligently drilling to prove out the hydrocarbons and lowering the cost to drill along the way.
During the past 18 months, the company has expanded its footprint there, buying Oklahoma City-based Devon Energy Corp.’s (NYSE: DVN) 185,000 acres, which made it the largest leaseholder in the basin. The net cost comes out to about $245 per acre, according to information from Goodrich.
Rob Turnham Jr., president of Goodrich, explained some of the economics behind the Tuscaloosa in a recent interview.
In the early days of the Eagle Ford, a company could buy an acre for $2,000. Now that the play’s reserves have been proven, the price has shot up to $25,000 per acre.
“That’s our model” for the Tuscaloosa Marine Shale, he said, adding that at just $5,000 per acre, the value of Goodrich’s position in the Tuscaloosa would be about $1.6 billion. That would put shares of Goodrich at close to $45 each.
As of closing time Sept. 4, Goodrich shares were trading at $23.50 a piece, up more than 5 percent from the previous day.
“It’s significant, there’s no question, to the potential value to the company,” he said. “Even at the lower price per acre, it’s significant for the company and the shareholders.”
And as the cost of drilling in the Tuscaloosa goes down, the economic benefit climbs up. Over time, the drilling can happen faster, which reduces costs. Also, pad drilling, in which several wells are drilled from a single concrete pad site, speeds along the process and makes it more cost efficient — saving as much as $1.5 million per well, he said.
Turnham explained that the Eagle Ford and the Tuscaloosa are the same geologic age and share similar characteristics.
“Give us a year or so, and we should be well on our way to driving the cost to $10 million” per well, he said.
One thing the plays in Louisiana and Mississippi have as a benefit that the Eagle Ford does not is a severance tax incentive policy. As Turnham explained, during the first two years of drilling in Louisiana, there is no severance tax on the sale of the oil produced. The kicker, though, is that the Louisiana tax shoots up to 12 percent after two years. Mississippi has a rate of about 1.3 percent for the first 30 months of production, he said. In Texas, the rate is 6 percent.

7 comments:

  1. Just how realistic is that $25,000 per acre in Amite county? When could someone expect to see those kind of numbers here?

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  2. Mark, I would guess 'no'. Not enough competition between oil companies.

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  3. One reason for little competition is that huge blocks of land, not every inch, but the majority of the acreage in what is perceived to be the likely core areas is already leased and the players that have that acreage leased can't drill it all for years to come. Secondly, the economics are still not quite proven enough to bring in many operators. Thirdly the high cost of drilling this unproven play and the fact that there are numerous shale plays to chose from also thins out the competition. The only reason we got any operators in the TMS to try it at all was in large part that the acreage was so cheap to lease. There are not many operators willing to throw $20 million dollars at a well even if if would have been a sure money maker. Even though the cost is down to $13 million it still isn't a guaranteed money maker this early on in the play's history. IMO

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  4. never try to compare yourself to the older brother. you'll never win that battle. The Eagle Ford is the Eagle Ford.

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  5. FM,

    I don't agree that the majority of the acreage is already leased. There is hundreds of thousands of acres that is still not leased. The problem with the lease price still being low is: (1) The play is not considered proven by any stretch of the imagination . (2) There is completion from other plays that are more proven. (3) The economics (Southwest MS and LA) of the area will dictate what price the companies will offer in the near future. It should be noted that these two areas of LA and MS are very depressed economically.

    IMO we are stuck on low bonus prices until GDP continues to make GOOD/Excellent Wells. Time frame: 18 months or so and this will only go up if the well completion/performance is repeatable.

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  6. Joe, you are right that there is still a lot of unleased acreage in the TMS if you include anywhere to the west, south, north and east of the "high resistivity acreage" or in the high resistivity area where the TMS is 14500 ft. or deeper. However, there is hardly any large acreage blocks left unleased in the high resistivity area which seems, for now at least, to be the most likely acreage for competitors, if any, to be interested in. EOG, Halcon and Indigo have leased in some of the lower resistivity areas to the west and have yet to drill a productive well. Unless someone does drill a good well in some part of the low resistivity area, I think the majority of the acreage that will be leased has already been leased by the current operators - this is certainly true of Amite County where Mark is hoping for competition to drive bonuses way up. Looking at the map of leased acreage within the high resistivity areas at depths above 14,500 ft., I don't see any large available blocks of land that could draw a major operator. Poor economics in the Amite County area are not the reason IMO that bonuses have stayed low. The fact that you have 2 operators with most of the land leased and the play is yet unproven is the real reason for no competition and low bonuses. Even if they play is proven in Amite/Wilkinson County, you still will have the problem of no large acreage blocks left available in the proven area therefore, still no major operators will be interested in paying high prices for only a toehold. Additionally, Goodrich and Encana have more acreage in that area than they can drill so I would not expect them to get in a big bidding war for the remaining acres. IMO

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  7. P.S. Why do you think so much land was leased early ? The reason: Encana, Devon and Goodrich leased so much land in the high resistivity area in the 1st place is because they wanted to keep competitors out/prices low in the event the play was eventually proven - I think this strategy has worked well. Maybe they learned something in the Haynesville and other plays?

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