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Goodrich 'Gaining Valuable Knowledge' in TMS

Goodrich Petroleum Corp.'s Tuscaloosa Marine Shale (TMS) development is continuing, and the company has high hopes for the play. Meanwhile, it has returned to completing wells in the Haynesville Shale in anticipation of higher natural gas prices.

Four TMS wells are in the completion phase and a second operated well (Smith 5-29H-1) is drilling, the company said this week. Improving drilling cycle times were experienced on recent wells, and these are lowering costs. The Goodrich PetroleumCrosby 12H-1 well continued to outperform the company's 800,000 boe type curve, with about 75,000 boe (91% oil) produced in three months, with current production of about 700 boe/d.

"While currently representing only 25% of our full year capex [capital expenditure] budget of $200 million, the TMS is certainly a focal point for us as we continue to move toward larger-scale development mode," said CEO Walter G. Goodrich during an earnings conference call. "We continue to be very encouraged by the results we have seen thus far and believe we are gaining valuable knowledge as we move along this path.

"Our enhanced knowledge is both in terms of improved drilling procedures, which has led to recently improved drilling cycle times and optimized completion techniques, including the types and amounts of fluids used, as well as the amount of profit per stage. We are confident these learning curves already have and will continue to lead to improved drilling times, reduced well costs and more repeatable well performance."

Goodrich is participating as a nonoperator in the completion of the Ash 31H-1 (12% WI) and Ash 31H-2 (12% WI) wells in Amite County, MS. The Ash 31H-1, which is a 7,000-foot lateral with 22 hydraulically fractured (fracked) stages, is still in completion phase, and the Ash 31H-2 well, which is a 5,300-foot lateral with 18 frack stages, has been flowing back for about two weeks and is still cleaning up due to the large frack job of one million pounds of proppant and 29,000 barrels of fluid per stage, the company said. The 24-hour peak rate is about 730 boe/d (92% oil), with 4% of the frack fluid recovered. The Ash wells were stimulated with slickwater fracks with 60-100% more frack fluid and proppant per stage than any of the prior wells drilled to date.

Goodrich also is participating as a nonoperator in two TMS development wells, Encana Corp.'s Anderson 17H-2 (7% WI) and Anderson 17H-3 (7% WI), both of which are in completion phase and were drilled with very little downtime, the company said (see Shale Daily, Jan. 10). Both are expected to be completed within 45 days.

"...[W]e continue to be optimistic about the potential of the TMS as cumulative production from the top three wells in the field continues to compare well with the Bakken and Eagle Ford, and costs are trending down as expected," said COO Robert C. Turham.

In the Eagle Ford Shale, Goodrich conducted drilling operations on five gross (3.3 net) wells in the quarter and expects to drill 24 gross (16 net) wells in 2013. Three gross (two net) wells were completed, and the company expects to complete 25 gross (16.8 net) wells for the year. Goodrich said it has reduced its drill time on recent wells by 57% from the initial wells drilled in the field, to 10 days for an average 6,000-foot lateral, which along with a reduction in frack costs, has "substantially decreased" the well costs and increased the well count for the year.

"In the Eagle Ford Shale, our drilling team continues to turn in record performance with spud to total depth averaging approximately 10 days per well, a reduction of approximately 57% compared to our initial wells drilled in the play," CEO Goodrich said. "The improved drill time performance is allowing us to not only increase the number of wells drilled per rig, but also to reduce overall completed well costs, and build on our inventory of wells drilled and ready for completion."

Goodrich expects to complete 13 gross (5.7 net) previously drilled Haynesville Shale wells this year, made up of 12 gross (4.7 net) nonoperated wells in North Louisiana and one gross (one net) operated well in the Angelina River trend. In the first quarter, four gross (1.5 net) wells were completed.

"We expect our recently initiated plan of completing previously drilled Haynesville Shale wells will result in a turnaround in natural gas production and see us grow net gas production in the second half of this year," the CEO said. "And with natural gas prices now over $4.00/Mcf, it should have a meaningful impact on operational performance."

Company-wide production for the quarter was 6 Bcfe, or an average of 66,600 Mcfe/d, versus 8.8 Bcfe, or an average of 96,300 Mcfe/d, in the prior-year period. Oil production for the quarter totaled 308,000 bbl, or an average of 3,423 b/d, versus 217,000 bbl, or 2,400 b/d, in 1Q2012. Natural gas production was 4.1 Bcf, or 46,000 Mcf/d.

Oil and gas production was cut by about 300 b/d of oil and 4,000 Mcf/d of gas due to completion delays and the need to shut in wells while fracking pad-drilled and/or offset wells in both the Eagle Ford and Haynesville areas. Despite the shut-ins for the quarter, Goodrich reaffirmed full-year guidance of annual oil production volume growth of 40-60% and natural gas production volume growth of 10% from fourth quarter of 2012 to fourth quarter of 2013, as completions are expected to accelerate at a faster pace than in the first quarter.

During the first quarter, Goodrich allocated 54% of its capex of $48.3 million to the Eagle Ford Shale, 19% to the TMS, and 27% to the completion of previously drilled Haynesville wells that are to be brought online during the second quarter.

Goodrich reported a net loss of $30 million (minus 82 cents/share), versus a net loss of $19.2 million (minus 53 cents/share) in the prior-year period. The adjusted net loss, taking into effect an unrealized loss on derivatives not designated as hedges of $2.1 million and nonrecurring exploration expense of $0.2 million, was $27.7 million.

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