Discussion On Central Louisiana Oil & Gas Activity
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.