Denver-based Gasco Energy Inc., a junior independent that has struggled to stay afloat, Thursday said it will release its only rig later this month and pay an early termination fee to the rig contractor. It also halved its capital expenditure (capex) plan for 2009.
Gasco issued its 2009 guidance and provided a year-end 2008 reserves estimate. The announcement indicated that Gasco would pay the rig contractor a $4.6 million early termination fee for canceling the rig. The drilling contract, at $12,000/day, had been set to expire on March 15, 2010, Gasco said.
Gasco's board also approved a revised initial 2009 capex budget of $10 million, just half of what the company said it would spend in November. "The change in plan is a direct result of further weakening in commodity prices, high service costs for drilling and completing wells and limited capital markets," the company stated.
Even with the cutbacks, Gasco will complete its promising Gate Canyon State No. 23-16 well in the Uinta Basin of Utah. It also plans to drill and complete two wells (gross) and recomplete 12 (four net) uphole zones on its Riverbend Project in the Uinta leasehold. The revised budget does not include possible acquisitions, but it may include funds to install pipeline infrastructure, distribution facilities and certain geophysical operations, Gasco stated.
"The high flow rates observed during the early stages of our Gate Canyon well are encouraging initial signs," said CEO Mark Erickson. "There remains additional uphole pay to complete in the well, which should allow us to learn more from the completions and further production testing. The results are early, but indicate a gas-charged system at least in this part of Gate Canyon...
Based on the closing prices for oil and natural gas on Dec. 31, 2008, Gasco's total proved reserves at year's end totaled 53.1 Bcfe, which included 50.9 Bcf of natural gas and 361,000 bbl of liquids. By comparison, Gasco's total proved reserves at year-end 2007 were 110.7 Bcfe, which included 50% classified as proved developed and 50% were proved undeveloped.
"With respect to reserves, the drop in commodity prices along with high services costs did not allow us to clearly demonstrate the critical improvements we continue to achieve on our Riverbend Project," said the CEO. "Our revisions of 46.6 Bcfe are attributed to lower prices received and higher well costs during 2008, which resulted in the booking of no proved undeveloped locations."
Gasco said it would fund its capex "entirely through cash flow from operations. Consequently, the company will monitor spending and cash flow throughout the year and may accelerate or delay investment depending on commodity prices and cash flow expectations." The company said it had a $250 million reserve-based revolving line of credit with a borrowing base of $45 million, of which $31 million was drawn at the end of 2008.
Erickson noted some good news. "Now, in 2009, we are experiencing softening of services costs, which should benefit our planned 2009 program. During 2008, all wells drilled penetrated the Mancos [in the Uinta Basin], which expanded our core producing area to nearly one full township. We continued to work diligently to reduce drilling days while constantly improving tight gas sands and shale completion techniques...The play is clearly ready for the implementation of new technology, including horizontal drilling which has proven successful in other shale plays in North America."
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