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Williston-Focused American Eagle Suspends Drilling in 2015

American Eagle Energy Corp. said it has suspended drilling operations and released a drilling rig, citing the collapse in world crude oil prices, but it still plans to complete two wells in the Williston Basin during the first quarter of 2015.

Denver-based American Eagle, an independent exploration and production (E&P) company focused on oil targets in the Bakken Shale and Three Forks formation, said Wednesday that it plans to spend about $4.5 million on capital expenditures (capex) in 2015 to complete two gross (1.9 net) wells that were drilled in 4Q2014: the Byron 4-4 and the Shelley Lynn 4-4N.

"The company continues to be focused on capital discipline and maintaining liquidity," American Eagle said. "Given current crude oil prices, American Eagle has suspended its 2015 operated drilling budget and does not anticipate resuming drilling operations until crude oil prices improve."

According to American Eagle's most recent investor presentation from October, the company holds 54,262 net acres in the Williston Basin. Of that total, 46,812 net acres are considered its core asset: the Spyglass prospect in northwest Divide County, ND, prospective to the Three Forks and Middle Bakken formations. The remaining acres are non-core assets, located mostly in Montana's Daniels and Sheridan counties.

The company said it released a rig after drilling its Huffman 15-34S well in November. American Eagle said it added three new gross (1.8 net) operated wells, including Huffman, to production in 4Q2014. It also recompleted two gross (1.3 net) operated wells and added them to production, too.

American Eagle said the first of the three new operated wells -- Donald 15-33S, with a long lateral targeting the Three Forks -- was also the last of six wells developed under its farm-out program. The Donald well began producing oil in early October at a rate of approximately 312 boe/d during the first 30 days of production.

The company said it has an 85% working interest (WI) in the second new operated well, Rick 13-31, which has a short lateral targeting the Three Forks. The Rick well was stimulated in mid-October and began producing oil in late October. During the first 30 days of production, it produced at an average of about 267 boe/d.

The third new operated well, Huffman (94% WI), also has a long lateral targeting the Three Forks. American Eagle said the Huffman well was stimulated in November "using a slickwater stimulation and has been cleaning up after being put on pump in mid-December with rates exceeding 250 boe/d for the last few days."

American Eagle said that during 4Q2014, it performed "remedial completions to correct problems with faulty sleeves" at its Shelly 3-2N (Three Forks short lateral, 97% WI) and La Plata State 2-16 (Three Forks long lateral, 39% WI) wells. Both wells had been drilled and completed during the first half of 2014.

"Reperforating and restimulation operations were successfully conducted on both wells, and they have been cleaned out and put on pump, but no meaningful production data is available yet," the company said.

American Eagle said it anticipates average production during 4Q2014 will be approximately 2,600-2,700 boe/d, down from previous guidance range of 2,700 to more than 3,000 boe/d. The company said it had reduced its production guidance for the quarter due to the Byron and Shelly Lynn wells being completed in 1Q2015, rather than 4Q2014.

The company said it had recently monetized all of its crude oil hedge positions for December 2014 through December 2015, generating proceeds of $13 million. The hedges represented approximately 414,000 bbl of oil at an average price of $89.59/bbl. American Eagle said the proceeds would be used to improve its liquidity position.

In response to American Eagle suspending its drilling operations for 2015, Wunderlich Securities Inc. kept a “hold” rating for the company's stock with a $1/share price target.

"American Eagle will remain solvent given its cash balance and low capex and can wait for higher prices," Wunderlich analyst Irene O. Haas said in a note Friday. "As a result, we maintain our ‘hold’ rating. However, while our final NAV [net asset value] remains $1/share, we are suspending our price target as volatility in the market may keep the share price under NAV for an extended period of time.

"American Eagle's original plan was to idle its two rigs for the winter and bring one back in the spring with a planned capex of $60 million for 2015, down from $120 million. The one rig was set to drill 10 gross wells. However, under the new plan, the company will not drill at all in 2015 until pricing improves...If oil gets back to $70/bbl, [they] will start thinking about adding back a rig."

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