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Micro Shale E&P, Service Company to Merge

A year-old, privately held California micro exploration and production (E&P) company founded by former senior executives from a predecessor Chevron Corp. company (Texaco), Pacific Energy Development Corp. (PEDCO), plans to merge with publicly held Houston-based energy services firm Blast Energy Services to form a new publicly held company headed by PEDCO CEO Frank Ingriselli.

The new entity should have a market cap of about $50 million, former Texaco executive Ingriselli told NGI's Shale Daily on Monday. PEDCO owns oil-producing acreage in the Niobrara formation in Colorado and Eagle Ford Shale in Texas. It is also eyeing acreage in the developing Mississippian Lime in Kansas, Ingriselli said. The merger is expected to be completed by June 1, or sooner depending upon conditions and approvals.

PEDCO's shale plays are complemented by Blast's drilling expertise, which includes a patented hydraulic fracturing (fracking) technology called "fluid jetting down-hole stimulation." Ingriselli anticipates that the merger will help in future acquisition efforts of additional plays in both the United States and abroad, along with opening access to the public capital markets.

In the Niobrara PEDCO holds about 7,500 acres on which four vertically drilled wells have been completed, and now with Blast merging the plan is to switch to horizontal drilling beginning in April, Ingriselli said. "We already have gotten the permitting done [in Colorado], and we start drilling horizontally in April -- between two to four wells this year," he said. "There has been oil discovered on that acreage; it is just a matter of drilling it with more productive horizontal wells."

In the Eagle Ford Ingriselli said there are already two producing wells drilled, and PEDCO plans to drill up to 25 more. He said the Niobrara property has the capacity for up to 100 wells while the smaller Eagle Ford tops out at about 25. PEDCO plans to drill two or three more wells this year and four to six wells next year on its Eagle Ford property.

"Eagle Ford will bring us immediate cash flow into the business," he said. "They're both oil. We are really concentrating on oil right now, given the price of oil these days and the low prices from gas. Oil is very valuable and natural gas has sort of hit the skids right now." He said the company's 8% interest in Eagle Ford properties produces about 90% oil with 10% going to liquids that draws about $6-7/MMBtu.

"We are going to be a full-fledged oil and gas micro company. We are a full-fledged operator in Niobrara, and we know how to do it smartly and think we are in a good niche play where we can pick up more acreage and assets at a much higher value to us than they would be if we were trying to do it on a much larger scale. I think so far we have picked up some really good acreage."

Chinese oil giant Sinopec Group said earlier in January (see Shale Daily, Jan. 4) it was making a $2.2 billion investment in five Devon Energy Corp. onshore plays, including the Mississippian in Kansas, and Ingriselli said his company's Hong Kong-based company, Mie Holdings Corp., is joining it in looking for more acreage to buy there. "We're getting close to 25,000 to 30,000 acres there with our Chinese partners."

Ingriselli founded Pacific Asia Petroleum Inc., a $200 million company, in 2006 following 23 years with Texaco during which he signed the first successful international oil contract in China. He also was president of Texaco Technology Ventures and Texaco International Operations.

Blast CEO Roger (Pat) Herbert said by merging with PEDCO his company has "an immediate gateway into the highly prospective Niobrara and other major U.S. shale plays, as well as future access to the international energy market, including China, where we believe early stage shale developments represent a significant market opportunity."

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