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Synergy Signs Joint Development Agreement in DJ Basin

Synergy Resources Corp. announced Monday that it has entered into a joint development agreement with Johnson Production Corp. (JPC) and Kodiak Petroleum Inc. to drill oil wells and develop acreage in the Nebraska portion of the Denver-Julesburg (DJ) Basin.

Synergy, based in Platteville, CO, said the agreement will cover 8,011 net acres in Dundy County, NE. The agreement has an initial term of one year, contains annual extension provisions for an additional four years, and calls for the drilling of up to 10 wells. The wells will be operated by either JPC or Kodiak.

"We are anxious to begin the development of our Nebraska assets with this agreement with JPC," Ed Holloway, co-CEO of Synergy, said in a statement. "We have been closely monitoring the increasing success by other operators in this area and believe this is an opportune time to begin deploying drilling capital to these assets."

Under the terms of the agreement, JPC and Kodiak will pay five-eighths (62.5%) of the drilling and completion costs of every well they drill, thereby earning a 50% working interest (WI) in both the well and the well's spacing unit. JPC and Kodiak will also earn, for every well they drill, a 5% interest in Synergy's interest in the remainder of the contracted acreage.

If all 10 wells are drilled, JPC and Kodiak will earn a 50% interest in Synergy's interest in the contracted acreage. Synergy will pay three-eighths (37.5%) of the drilling and completion costs for each well, retaining both a 50% WI and an overriding royalty interest.

"This is a conventional, shallow oil play with low drilling and completion costs for vertical wells," Holloway said, adding that the first permits to begin drilling would be submitted in the next few months. "It is the first step in the long term plan for the development of these assets."

Synergy holds 439,000 gross (298,000 net) acres of leasehold, and its core area of operations is the DJ Basin. The company holds 172,523 acres in Nebraska. According to Holloway, 36,000 net acres of that total surrounds the contracted acreage with JPC and Kodiak. Synergy also holds 53,151 net acres in the Wattenberg Field in Colorado, including 27,386 acres in the core area and 25,765 acres in the Northeast Wattenberg Extension.

Last Month, Synergy reported net income of $7.2 million (9 cents/share) for its fiscal 3Q2014, up 98% from the year-ago period ($3.6 million, 7 cents/share). Net oil and gas production was 379,081 boe in 3Q2014, an 83% increase over 3Q2013 (207,543 boe).

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