Goodrich Petroleum Corp. and its peers have had some recent disappointments in the emerging Tuscaloosa Marine Shale (TMS) of Louisiana and Mississippi. Goodrich shares are off about 35% since mid-June, but CEO Gil Goodrich remains a TMS believer and said the industry’s understanding of the play is advancing rapidly, if a bit unevenly.

“While the recent stock price performance may not recognize it, we and our partners in the TMS are making excellent progress in the delineation and defining of the play — and doing so at a significantly faster pace,” Goodrich said during a second quarter earnings conference call Thursday. “Among the five largest participants in the play, there are approximately 1 million acres under lease in the eastern TMS, which extends over 100 miles east-to-west and approximately 45 miles north-to-south.

“This is a very large geographic area and will require many additional delineation wells to fully define the play. But as I said, we and our partners are making tremendous progress and beginning to define those areas of highest prospectivity.”

A couple of recent Goodrich TMS wells have come in with underwhelming initial production (IP) rates compared with earlier wells (see Shale Daily, July 7; June 19). Sanchez Energy Corp. is currently sidetracking the lateral of its first operated TMS well after running into trouble (see Shale Daily, July 25). Halcon Resources Corp. recently ran into trouble with its second TMS well (see Shale Daily, Aug. 1). Sanchez and Halcon share prices also are off from mid-June/early July levels.

The thinking is that weak IP rates could be due to less natural fracturing in the vicinity of the lower-performing Goodrich wells, according to BMO Capital Markets analyst Dan McSpirit.

Goodrich’s SLC Inc. 81H-1 (67% WI) well — the company’s deepest TMS well to date — in West Feliciana Parish, LA, had a peak 24-hour production rate of 900 boe/d. The Beech Grove 94H-1 (67% WI) well — its second deepest — in East Feliciana Parish had a reported IP rate of 740 boe/d and achieved a 30-day average production rate of 600 boe/d, according to Goodrich. The company said the well’s decline curve is flattening and it is tracking with the company’s 600,000 boe type curve. Beech Grove is currently producing about 550 boe/d. These results “…could support the theory on less natural fracturing found in this part of the TMS oil play,” McSpirit said in a note Thursday, adding that the “…flatter production profile may support the same theory.”

In its second quarter results Goodrich reported on two nonoperated wells in Amite county, MS, in which it has an interest. The Lewis 7-18H-1 (17% WI) achieved a peak 24-hour production rate to date of 1,500 boe/d (1,400 bbl of oil and 600 Mcf of natural gas). Goodrich has a reversionary interest in the nonoperated Mathis 29-32H-1 well, which achieved a peak 24-hour production rate to date of 1,300 boe/d (1,200 bbl of oil and 600 Mcf of natural gas).

McSpirit wrote that the Amite County portion of the TMS is thought to have greater natural fracturing and that may explain the higher IP rates of the Lewis and Mathis wells. Goodrich had “positive” results in the second quarter, he wrote. “Important to us is that another operator is realizing success…with the nonoperated results. ECA [Encana Corp.] was the operator on the Lewis and Mathis wells — says something about the play’s economic promise.”

During the earnings call, Goodrich was asked about whether there is less natural fracturing in the play at depths below about 13,000 feet. He said the SLC and Beech Grove wells probably don’t have as much natural fracturing as shallower wells.

“…[I]t’s becoming a little bit clearer to us that these 1,200-1,500 b/d wells in terms of initial rates are being juiced a bit with natural fractures,” he said. “I’m not ready to completely go to the bank on that, but that’s what it appears. And it dovetails with the geologic data, which was suggesting very, very little nuanced differences in rock properties, really across a very, very broad area, including the area around our Beech Grove and SLC wells. So whether or not that is something that continues with depth or is driven by depth is really an open question in our mind.”

Goodrich was also asked whether the company has been trying to map natural fracturing in the TMS. He said the company has been working with Schlumberger on such a project, but it is still early in the analysis. Others are engaged in similar efforts, he said, adding that it is “a little bit difficult.” It’s doubtful that the natural fracturing will show up on 3-D seismic surveys at resolutions fine enough to be helpful, Goodrich said, leaving the hunt for the best-fractured portions of the play largely up to “trial and error.”

The CEO said the industry has drilled about 45 “modern-era” horizontal wells in the TMS over the past couple of years and about a dozen are in either drilling or completion phase. “While still early, these 45 wells are beginning to give us some insight into the variability of well performance, normalized for early stage frack designs and mechanical issues, which may be influenced and driven by rock properties,” he said.

“…[W]hile still very early, we currently believe wells with initial production rates in excess of approximately 700 bbl of oil per day and following the range of type curves we have developed internally and made public will ultimately be very economic wells at current commodity prices. This is particularly true in development mode, where we can significantly reduce individual well costs through multiwell pad drilling. And all recent wells have exceeded these production levels.”

Goodrich has more than 300,000 net acres in the TMS.

In Amite County Goodrich is drilling its Spears 31-6H-1 (77% WI) well, which is an offset to, and drilling off the same pad as, the company’s C.H. Lewis 30-19H-1 (81% WI) well. In Wilkinson County, MS, the company continues to conduct drilling operations on its CMR/Foster Creek 31-22H-1 (90% WI) and its CMR/Foster Creek 24-13H-1 (97% WI) wells, both of which are offsets to its Crosby 12H-1 (50% WI) well.

Goodrich began completion operations on its Denkmann 33-28H-2 (75% WI) well in Amite County. This well was drilled with a 6,200-foot lateral and is to be completed with 22 frack stages. Upon completion of the Denkmann well, the same frack crew will move to the company’s Bates 25-24H-1 (98% WI) well. Completion and frack operations on the CMR/Foster Creek 24-13H-1 (97% WI) and CMR/Foster Creek 31-22H #1 (90% WI) wells are expected to begin in late August or early September. Goodrich said it will release results on all four wells during the third quarter.

Companywide, second quarter production totaled 6.2 Bcfe, or an average of 68,600 Mcfe/d, versus 6.7 Bcfe, or an average of 73,200 Mcfe/d, in the prior-year period. Oil production was 381,000 bbl, or an average of 4,200 b/d, versus 292,000 bbl, or an average of 3,200 b/d, in the prior-year period. Natural gas production was 4 Bcf, or 43,500 Mcf/d, versus 4.9 Bcf, or 54,000 Mcf/d, in the prior-year period.

The company reported a net loss for the second quarter of $32.5 (minus 73 cents/share) versus a net loss of $20.1 million (minus 55 cents/share) in the year-ago quarter. The adjusted net loss for the quarter was $21.3 million (minus 48 cents/share), which excludes the impact of unrealized losses on derivatives not designated as hedges of $6.7 million, non-cash leasehold expiration of $1.1 million, and non-recurring other expenses of $3.4 million. The adjusted net loss for the year-ago quarter was $23 million.

Revenues were $53.3 million in the quarter versus $48.5 million in the prior-year period. Average realized price per unit was $8.53/Mcfe versus $7.22/Mcfe in the prior-year period. When factoring in derivatives not designated as hedges, revenues totaled $50.2 million versus $48.6 million in the prior-year period, and average realized price per unit was $8.04/Mcfe versus $7.23/Mcfe in the prior-year period.