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Goodrich Plans 'Minimum Necessary' Gas Drilling

During 2012 Goodrich Petroleum will continue to emphasize oil-directed drilling over natural gas with the majority of its focus, and spending, on the Eagle Ford Shale of South Texas, the company said Wednesday.

The preliminary capital expenditure budget for 2012 is $250-275 million, which includes $235-260 million in drilling and completion expenditures and $15 million allocated to leasehold and infrastructure expenses, the Houston-based producer said. It anticipates drilling 49-54 gross (29-32 net) wells in 2012, with 75% of the anticipated drilling and completion capital expenditures allocated to oil.

Oil-directed activity will be concentrated in the Eagle Ford with $155 million allocated to 29 gross (19 net) wells (which assumes a combination of 6,000-9,000-foot laterals) and the Tuscaloosa Marine Shale (TMS), with $20-45 million allocated to four to six gross (two to four net) wells. Of its natural gas-directed activity, the company anticipates completing 14 gross (six net) nonoperated Haynesville Shale wells previously drilled in the core of the play for $35 million, along with $25 million associated with two gross (two net) Angelina River Trend wells.

Last year Goodrich leased 74,000 TMS acres in Louisiana and Mississippi (see Shale Daily, June 14, 2011).

"A little over a year ago, we initiated a significant transformation from a capital program dominated by gas-directed drilling activity to one dominated by crude oil-directed drilling," said CEO Gil Goodrich. "The strategic shift to oil-directed activity has already produced very positive results in 2011 with cash flow on pace to grow by approximately 65% compared to 2010. Our plans for 2012 will accelerate this transformation with oil-directed activity comprising approximately 75% of our 2012 drilling and completion budget and gas-directed activity representing the minimum necessary to complete a number of gas wells drilled in 2011 and maintain our acreage position in the Angelina River Trend."

Capital expenditures in 2012 in the Eagle Ford Shale trend will be positively impacted by the elimination of a drilling carry associated with the company's leasehold acquisition equal to a 20.8% working interest in the vast majority of the wells drilled in 2011, along with a reduction in drilling and completion costs of an estimated $2.5 million per well as a result of pad drilling, zipper fracks and lower pressure pumping prices.

The company estimates oil volumes to grow by 130-160% in 2012 versus 2011, which will drive very strong cash flow growth. Natural gas volumes are expected to be flat to slightly down, while overall production on an Mcfe basis is expected to increase by 10-15% over 2011. Oil volumes are estimated to grow to approximately 5,000 b/d as the end of 2012.

"While natural gas production is projected to remain roughly flat to slightly down, we are projecting crude oil production to more than double in 2012 versus 2011," Goodrich said.

The 2012 capital expenditures are expected to be funded by cash flow from operations and incremental borrowings.

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