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SM Energy Sees Encouraging Results From Woodbine Test

SM Energy Co. is seeing encouraging results from a test well drilled in the Woodbine formation and has added about 10,000 net acres to its position on the northeastern edge of the Eagle Ford Shale in East Texas.

CEO Tony Best, speaking at the Independent Petroleum Association of America's Oil and Gas Investment Symposium on Tuesday, said the test well achieved a 24-hour initial production (IP) rate of 740 boe/d, at 1,520 pounds per square inch gauge. The well produced 305 b/d of oil and 2.6 MMcf/d of natural gas.

SM now holds about 105,000 net acres primarily in San Jacinto, Walker and Washington counties in East Texas. The core of the Eagle Ford oil development is in South Texas, several hundred miles away, but producers are finding success in the north, where the Eagle Ford meets the Woodbine to form what some call the "Eaglebine."

"We are cautiously optimistic," Best said. "We've got a great position now in this area, and this first well came on, we think, with some very positive news."

He conceded that the test well's simulated lateral of 2,500 feet was short.

"Obviously, there is room for improvement there, but this is primarily a science well. We recovered core and we also ran a full suite of logs. We're going to need to install gathering [lines] and some infrastructure there. So we're holding off a bit on bringing rigs in. However you can expect to see us bring in two rigs in the second half of this year, and we'll commence with our additional drilling at that time."

Segueing into an operations update, Best said SM's net production in Woodbine had increased 50%, from 30,100 boe/d in 4Q2011 to 45,200 boe/d in 4Q2012. Proved reserves in the play also increased 127% during that same time frame, from 63,500 boe to 143,900 boe. The company has targeted more oily locations -- from 1,455 with 883 million boe of resources in 2011, to 1,513 with 967 million boe in 2012.

Nonoperated production also has increased 32% during the same time frame, from 11,700 boe/d to 15,500 boe/d. SM expects to be essentially 100% carried on its nonoperated drilling program into 2014.

"This continues to be the centerpiece to our portfolio, and we're very excited with the continued improvement we see in the play," Best said.

The CEO said 32% of SM's total oil production in 4Q2012 was condensate, essentially all of which came from the Woodbine. The company estimates that 38% of its oil production in 2013 will also be condensate.

Best said operated production in the Woodbine has regularly exceeded 300 MMcf/d of gross wet gas during March and April, but additional firm transportation would be available in mid-2013.

In the Bakken Shale/Three Forks Formation, where SM holds about 162,000 net acres, the company is currently operating four rigs targeting infill areas in the Bear Den, Gooseneck and Raven and prospects in North Dakota, Best said. Net production had increased 40% from 4Q2011 to 4Q2012 (from 8,500 boe/d to 11,900 boe/d), while proved reserves increased 13% (from 48.4 million boe to 54.8 million boe).

Best said about 80% of the company's capital expenditures for 2013, about $940 million, would be devoted to the Woodbine and the Bakken/Three Forks plays.

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