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Endeavour Excited, But Waiting, on Heath Shale Development

Endeavour International Corp. said it plans to spend 2012 focusing on developing its offshore oil assets and ramping up production in the North Sea while it waits to see the results from tight oil test wells drilled into the Heath Shale play in Montana.

CFO Michael Kirksey told attendees of its Investor Day conference on Tuesday that the Houston-based company plans to spend between $175 million and $200 million on capital expenditure (capex) projects during the 2012 fiscal year. Nearly all of it will go toward developing the Rochelle and Bacchus offshore oilfields in the UK.

"What you're left with as you move forward into [the 2013 fiscal year] is a de-leveraging stage," Kirksey said. "You will have some maintenance capital [costs] in the UK -- primarily for the infill drilling of the Alba [offshore oilfield] -- and whatever we decide to spend in the U.S., depending on gas prices and how the Heath program turns out.

"There's a lot of excitement going on in the Heath right now, and we're excited about that, but we're set up to enjoy the opportunities that afford themselves [in the UK]."

Jim Emme, executive vice president for North American operations, said Endeavour has completed a four-well vertical pilot drilling program in the Heath, where it has a 25% joint venture (JV) interest with two independent Montana-based producers on more than 430,000 gross acres, located primarily in Garfield and Rosebud counties.

"We think [it] has a lot of upside potential," Emme said of the Heath. "We're being very methodical here. It's important to get rock data first, both for geochemical and geomechanical purposes." He added that the company would use the test results to identify reentry targets for a future horizontal testing program, likely to be drilled during the third or fourth quarter of this year.

Endeavour's North American net unconventional acreage portfolio includes 94,000 acres in the Heath Shale, 18,400 acres in the Haynesville Shale and 7,100 acres in the Marcellus Shale, according to company data.

According to Emme, over the last 18 months other oil and gas companies had drilled about 20 test wells for their own pilot programs in the Heath Shale.

"What's intriguing to us is that the play seems to be learning and focusing back toward our acreage position," Emme said. "In a way, this play is so big it can benefit from learning from a little bit of competition."

Emme said Endeavour was also targeting what the company coined "less active, emerging areas," specifically stacked oil and gas fields in the Niobrara Shale.

Endeavour has a 50% JV interest with J-W Energy Co. on 15,600 gross acres in the Haynesville Shale, where more than 120 future horizontal drilling locations are currently being held by production. Emme said that in the last two years, the partnership has drilled 24 successful wells in the Haynesville and three in the Cotton Valley Sand play. He added that the wells produced a record of 18-20 MMcf/d net (77-88 MMcf/d gross) in January.

In the Marcellus, Endeavour has another 50% JV interest with J-W, on 38,000 gross acres. Emme said the company's plans in the Marcellus for 2012 include expanding existing gathering lines in Cameron County, PA, evaluating new 3D seismic data and negotiating access to unleased state forest land minerals.

Last December, Endeavour terminated an agreement to purchase 42,000 acres of leasehold from SM Energy Co. for $80 million. SM Energy disputed Endeavour's decision and vowed to file suit (see Shale Daily, Dec. 19, 2011; Dec. 15, 2011).

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