Goodrich Petroleum Corp. is exploring the sale of potentially all of its Eagle Ford Shale assets while it plans to leverage drilling efficiencies and an improved frack design in the Tuscaloosa Marine Shale (TMS) next year. Meanwhile, hedging is providing some cover from crashing oil prices.
The company announced a preliminary capital expenditure budget for 2015 of $150-200 million, with flexibility to accelerate with improvement in oil prices and the monetization of the Eagle Ford assets. The company had previously guided spending of $200-225 million. Oil-directed capital is estimated to be more than 95% of the total, with the entire oil-directed allocation going to the TMS, "where costs are coming down and results have continued to improve," the company said.
Goodrich is exploring the potential sale of all or a portion of its Eagle Ford Shale asset during the first half of next year. A sale "...would significantly enhance the company's flexibility to further expand its development activities under better market conditions," it said. Analysts at Tudor, Pickering, Holt & Co. wondered in a note about the company's ability to snare a decent price for the Eagle Ford holdings given the current commodity price environment.
According to a December company presentation, Goodrich has 44,000 gross (30,000 net) acres in the Eagle Ford with proved reserves at the end of last year of 12 million boe. Risked resource potential is 59 million boe.
Company-wide oil production volumes for 2015 are expected to average 6,100-6,700 b/d, which represents 30-42% year-over-year growth. Natural gas volumes are expected to decrease by 15-20% year-over-year when factoring in the sale of the company's East Texas Cotton Valley field for $61 million, which was previously announced and is scheduled to close on Dec. 22. About 5% of the company's 2015 capital budget will be allocated toward natural gas development.
Goodrich entered the fourth quarter with pro forma liquidity of $134.2 million under a $250 million borrowing base, which will be reduced by $20 million after the East Texas asset sale closes. A new borrowing base to be established early next year is expected to include reserve additions from development activities during the second half of 2014. The company said it has sufficient projected liquidity under current market conditions, borrowing base and capital structure to execute its 2015 capital plan.
The company has 3,500 b/d of oil production, or 52-55% of estimated oil volumes for 2015, hedged at $96.11/bbl. Assuming $65.00/bbl oil for the remainder of the projected volumes, the estimated 2015 blended average oil price, prior to any basis or transportation costs, would be $81.00-83.00/bbl.
In the TMS, Goodrich has completed two additional wells in its Blades area of Tangipahoa Parish, LA. The Verberne 5H-1 well [66.7% working interest (WI)], which was drilled and completed with a lateral length of 6,600 feet and was fracked with 21 stages, has been producing on a restricted choke program and has achieved a peak 24-hour rate to date of 1,375 boe/d, composed of 1,335 bbl of oil (96%) and 250 Mcf/d of gas on a 14/64-inch choke. The Williams 46H-1 well (68.2% WI), which was drilled with a lateral length of 6,400 feet and was fracked with 20 stages, is in early flowback and is producing about 1,000 boe/d, but it has not achieved peak rate.
Both of the wells were completed with the company's newly optimized frack design, which includes increased frack stage length with adjusted perforation cluster spacing, resulting in a reduced number of stages with similar proppant per foot; decreased fluid volumes, which reduced pump time per stage; and savings for plug drill out and rental equipment due to the reduced number of stages. In total, these adjustments resulted in a savings of more than $1.1 million per well.
Goodrich is in completion phase on its Kent 41H-1 (99.8% WI) well, which was drilled with a 6,000 foot lateral in 27 days at one of the lowest drilling cost to date, the company said. On the Company's initial two-well pad, the CMR/Foster Creek 8H-1 (78.8% WI) has been drilled and the CMR/Foster Creek 8H-2 (81.8% WI) well is drilling in the lateral.
By achieving drill times of 25-30 days and with modified fracks, Goodrich said it can achieve cost savings of more than $1.5 million for a single well pad prior to any reduction in service costs or savings associated with drilling off of multi-well pads.
Goodrich has 459,000 gross (326,000 net) TMS acres with proved reserves of 4 million boe and risked resource potential of 736 million boe.
"Substantial cost savings combined with the company's strong 2015 hedge position, and the inherent advantages of the TMS, which include premium LLS [Louisiana light sweet] pricing, lower average royalty burden and severance tax relief, allow for the continued economic development of the play in 2015."