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USEC Grows Production, Keeps Stakes in North Dakota and South Texas

U.S. Energy Corp. (USEC) saw an uptick in production during the second quarter of 2014, as it acquired a stake in production in South Texas and sold some of its assets in the Williston Basin.

On Monday, USEC, a small exploration and production company based in Riverton, WY, announced it had produced 116,499 boe (1,280 boe/d) during 2Q2014, a 15.3% increase over 2Q2013 (101,026 boe) and 10.9% above 1Q2014 (105,093 boe). The production came from 117 gross (18.14 net) wells.

USEC currently participates in drilling programs with three operators in South Texas -- specifically, in the Buda Limestone, Eagle Ford Shale and Austin Chalk in Dimmit and Zavala counties -- and with numerous operators in the Williston Basin in North Dakota.

In South Texas, USEC participated in approximately 35,221 gross (9,130 net) acres and 27 gross (7.48 net) producing wells. Broken down by play, the company had stakes in 13 gross (3.6 net) wells targeting the Buda Limestone, 3 gross (0.9 net) wells in the Eagle Ford and 11 gross (2.98 net) wells in the Austin Chalk. Net production from the region totaled approximately 538 boe/d, a 31.9% increase from 1Q2014 (408 boe/d).

During the quarter, four wells were brought into production in the Booth-Tortuga prospect, where USEC holds a 30% working interest (WI) and approximately a 22.5% net revenue interest. Two wells of note were the Beeler Unit D #16H and Beeler #17H, which had peak early 24-hour flowback rates of 1,083 boe/d (89% oil) and 1,326 boe/d (88% oil), and 30-day average production rates of 723 boe/d (78% oil) and 1,109 boe/d (87% oil), respectively. Both wells entered into production in June.

USEC holds a 7.5% WI in another 800 gross (60 net) acres in the Booth-Tortuga, under an area of mutual interest (AMI). One well, Bruce Weaver #2H, was spud by a private Texas-based company on the AMI acreage in June and averaged approximately 760 gross boe/d during the first 10 days of production. The well is currently being tied into sales to capture associated gas that was being flared at the well, and was not included in the 10-day production figure. A second well is planned to be spud in mid-August.

Last May, the company acquired a 33.3% WI (22.5% net revenue interest) on approximately 12,100 gross (3,384 net) acres in Dimmit County from an undisclosed seller for $3.9 million. The acreage includes 4,020 gross (1,181 net) acres of primary leasehold and 8,080 gross (2,203 net) acres of farm-in acreage to be earned through a continuous drilling program.

Also last May, USEC agreed to sell some of its assets in the Williston Basin -- approximately 285.7 net acres and 16 gross (0.62 net) producing wells in McKenzie and Williams counties, ND -- to an undisclosed buyer for $12.2 million. The transaction closed in June with an effective date of Jan. 1.

Net income for 2Q2014, after taxes, was $56,000 ($0.00/share), compared to $573,000 ($0.02/share) during 2Q2013. Adjusted net income, excluding non-recurring items and mark-to-market gains and losses on derivatives, was $293,000 ($0.01/share) in 2Q2014, compared to $244,000 ($0.01/share) in 2Q2013.

USEC said that through the second quarter it had already spent about $17.3 million of the $30.2 million budgeted for capital expenditures (capex) for the full-year 2014. The company said the remaining capex would be "spent on exploration, development and acquisition initiatives in South Texas and in the Williston Basin of North Dakota."

During an earnings call to discuss 2Q2014 on Tuesday, CEO Keith Larsen said the company plans to keep all of the acreage that it currently has. "We had that opportunity to sell a small acreage position," he said. "We just felt like the value was there and we went ahead and pulled the trigger on it. But we're not looking to sell additional acreage at this time."

Larsen said the Buda Limestone remains a statistical play.

"These wells are controlled by natural fractures. Now that we've gone to 9,000-foot laterals, our chances of hitting those natural fractures have increased," Larsen said. He added that Contango Oil & Gas Co., which has a 50% interest in the aforementioned Beeler wells, had been doing an excellent job of keeping well costs below $3 million.

"It still remains a statistical play. We have had some lesser wells, but it appears right now that the wells that are performing exceptionally are going to not only carry themselves and offer an excellent rate of return, but they'll carry some of those lesser wells as well."

He added that USEC was considering taking on an operating role in 2015. "We are looking at acquiring acreage both in Texas and in North Dakota for our own account and operating it at some point."

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