Independents Gearing Up With Renewed E&P
Oh, to be an independent today holding properties with
discovered natural gas! Two years ago, you may not have been able
to use that collateral for much, but those days are gone. Natural
gas prices have skyrocketed, coupled with consumers' thirst for it,
and if you have properties ready to be tapped for natural gas,
these are the days.
According to Houston's Baker Hughes Inc. rig counts have
rebounded big time. In the United States, soaring energy prices and
a tight supply market is keeping producers drilling on and
offshore. In August, the U.S. rig count was 987, up 45 from July
and 348 from August 1999. The Canadian rig count, artificially low
because of bad weather, saw its rig count rise to 319 in August, up
11 from July and 49 from August 1999.
But even if producers have the properties, it's not full steam
ahead yet. The Independent Petroleum Association of America (IPAA)
estimates it takes three to 15 months for a "relatively routine
project" to be completed, depending on government permitting,
availability of drilling equipment, labor availability, time to
drill the well, infrastructure to connect to natural gas pipelines
and the weather at the drilling site. The larger and more
complicated sites take even longer.
Still, it has been a remarkable summer for many North American
independents. In just the past few weeks, some of the smaller
companies, which sat on many of their properties through the
downturn, now are primed for production, and are pushing new
production through the end of the year.
The future never looked so bright for San Diego-based Royale
Energy, which has successfully drilled and completed two new wells
in its Victor Ranch/East Rice Creek field, and now is producing at
a cumulative rate of 3,800 Mcf/d. A third well was logged on Sept.
2, with more than 30 net feet of natural gas-filled sands. The
company is now drilling a fourth well in the field, and expects to
drill three more wells there before the end of the year.
"We're taking advantage of the current strength in commodity
prices and the resulting cash flow generated to increase our
capital expenditures and drilling schedule through the remainder of
the year," said Royale President Don Hosmer. Despite the downturn
in prices, Royale made an investment in seismic data in 1998 and
1999, and Hosmer said that the recent success has "validated our
Calgary's Tusk Energy Inc. has seen a dramatic rise in its
production since the beginning of the year, too. During the third
week of August, including a recent well success at Saddle Lake,
production was 684 boe/d, or 26% higher from the average levels of
the entire second quarter. (Tusk uses a 10:1 ratio to convert gas
to oil equivalent; using 6:1; Tusk's boe would be 835 boe/d.)
"The focus on the second half of the year will be on adding
production and cash flow through drilling," said the company in a
statement. Since June 30, the Canadian independent has been
involved in five wells, including a gas well at Saddle Lake, AB,
(40% ownership) and oil wells at Silverdale. Current plans call for
the drilling of at least two more wells at Silverdale and up to
four more in the Saddle Lake/Whitefish Lake areas before the end of
The increased cash flow to operations also is allowing a lot of
the independents to do more exploration and take chances. Houston's
EEX Corp. invested nearly $36 million in the first six months of
this year to increase production and add reserves in its onshore
producing assets. Tom Hamilton, CEO, said that the investment is
providing a "solid base for our long-term growth strategy."
By all accounts, the strategy is paying off. Following a recent
success at its Llano No. 3 in the Gulf of Mexico, EEX now is
drilling a well to test the Jason Prospect in water depths of up to
18,000 feet. It also has an interest in a second well drilling in
the Mason Prospect on Garden Banks 562.
"We believe that these two wells are important steps to define
the potential of the area surrounding the Llano discovery," said
EEX's David Henderson, COO. "Additional discoveries would enhance
the value of our major leasehold and infrastructure holdings in the
Denver's Credo Petroleum Corp. is enhancing its production,
especially in the Powder River Basin of Wyoming, where it owns an
average 23% in 17,000 gross acres of coal bed methane leases.
Nearly 20 wells already have been drilled on the Recluse Prospect,
and production testing and pipeline connections are expected by
year's end. It also is developing four gas wells in Woods County,
OK, where initial production rates ranged up to 1.5 MMcf/d.
Clayton Williams Energy Inc., based in Midland, TX, has
completed and is testing the bottom 104 feet of reef in its fourth
Pinnacle Reef well, the McGrew Unit #1, in Robertson County, TX for
9.9 MMcf/d with 4,000 psi flowing tubing pressure and 465 barrels
of water per day. After the testing, the company plans to complete
the drilling and begin production.
Just last week, Houston's Beta Oil & Gas Inc. announced two
new successful wells in the Expanded Yegua/Frio trend in Jackson
County, TX. One well tested at a rate of 2.8 MMcf/d with nearly 30
barrels of condensate/day. The other tested at a rate of 1.2 MMcf/d
Also last week, Osprey Energy Ltd., based in Bridgewater, NS,
began production on an additional six wells in its Northern
Louisiana Cotton Valley field. Three more wells are expected to be
in production by the end of the year. All of the wells there now
were drilled in 1997 and 1998 by a major producer, and 11 of the 12
wells are fully equipped and tied to gas pipelines. Osprey said
that it would continue to "pursue opportunities in the oil and gas
marketplace to enhance shareholder value by increasing cash flow
and building reserves."
Danoil Energy Ltd., headquartered in Calgary, said last week
that it has passed a "significant milestone," and estimates that
its current daily production exceeds 5,000 boe - 16 MMcf/d and
3,400 b/d of oil and NGLs. The production additions resulted from
stepped up drilling activity and the completion of an existing
well. Six new wells were added in the third quarter alone, and the
company plans to drill six more before the end of this year.
United Heritage Corp., based in Cleburne, TX, said that its
wholly owned subsidiary UHC New Mexico Corp. will begin an infill
well drilling program in the northwest portion of the Cato unit in
Caves County, NM on Oct. 1. The program will consist of as many as
five wells, drilled on 20-acre spacing. The first phase of the
project calls for production of up to 1 MMcf/d of gas by Dec. 31
and up to 1,000 b/d of oil.
Irving, TX-based Magnum Hunter Resources Inc. has participated
on two natural gas discoveries in the shallow water shelf of the
Gulf of Mexico, and estimates that its net daily production should
reach 9 MMcf of natural gas by the end of summer, and exceed 25
MMcf/d by early 2001 from just its latest discoveries.
Chieftain International Inc., based in Edmonton, has brought in
eight new fields that will begin production in the last few months
of this year and first quarter of 2001. So far this year alone,
Chieftain has participated in drilling 16 wells in the Gulf of
Mexico and onshore South Louisiana --- nine have been successful.
Carolyn Davis, Houston