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No Such Thing as TMI From the TMS

Too much information (TMI) from the Tuscaloosa Marine Shale (TMS)? Not a chance. Activity in the Louisiana-Mississippi play continues to gather pace, and analysts can't wait to hear more about well results from producers there, Goodrich Petroleum Corp., for instance, which these days is pretty much all about the TMS.

Goodrich (GDP) has an "outperform" rating from BMO Capital Markets, whose analysts said in a note this week that the TMS "defines the GDP story, like it or not.

"We like it," they said, "appreciating where the stock sits on the risk curve today. We've observed how that risk profile can change with well results, and we expect that pace of change to accelerate in 2H14 as more results from more operators are made known."

Goodrich is currently fracturing (fracking) its C.H. Lewis 30-19H-1 (81.4% WI) well in Amite County, MS, which was drilled in 36 days and will have an approximate 6,600-foot lateral with 26 planned frack stages. The company plans to use its enhanced completion design of reduced frack intervals and additional proppant per stage.

The company recently moved into completion operations on its Nunnery 12-1H #1 (94.1% WI) well in Amite County and its Beech Grove 94H #1 (66.7% WI) well in East Feliciana Parish, LA. On the Nunnery 12-1H #1, Goodrich drilled an approximate 6,000-foot lateral and plans to begin fracking immediately after the C.H. Lewis 30-19H-1 well. The company's Beech Grove 94H #1 well, which was drilled with an approximate 6,000-foot lateral, is scheduled to be fracked at the end of May.    

The company's SLC Inc. 81H-1 (66.7% WI) well in West Feliciana Parish, LA, is currently being drilled. And drilling on its Bates 25-24H #1 (97.6% WI) and Denkmann 33-28H #2 (75% WI) wells is expected to begin shortly. Goodrich has three rigs running in the field with plans to add two more by the end of the year pending continued success.

Results from the company's latest TMS wells "should be more impactful" to Goodrich's share price than quarterly results, Wells Fargo Securities said in a note. Wells Fargo has an "outperform" rating on the company.

Goodrich recently reported production results from both the CMR 8-5H-1 (100% WI) and Blades 33H-1 (66.7% WI) wells completed in Amite County and Tangipahoa Parish, respectively (see Shale DailyApril 14March 25). "...[T]he level of activity in the TMS is an all-time high, with six to seven rigs running currently and more to come," said COO Robert Turnham during an earnings conference call this week.

"We feel that our recent Blades well result in Tangipahoa Parish, LA, at 1,250 boe/d was an inflection point for the play, in that the well was drilled in record time without issues and we saw very consistent result to the best well in the field, which is our Crosby well, approximately 50 miles away.

"...[W]e tweaked our completion methodology on the Blades, which was a 5,000-foot lateral, by reducing the frack interval and slightly increasing the proppant amount per stage, which yielded a higher production rate per linear foot of lateral. The Blades well also opened up an area that previously had not had a well drilled, which expands our core position."

Turnham told analysts that well costs in the TMS continue to decline as the company shaves days from drilling times and gets more competitive pricing from service companies, which are putting more resources in the field due to increased drilling activity.

"Depending on lateral length and number of [frack] stages, we see a path to a potential $11.5 million completed well cost by the end of the year and further reductions next year towards our target of $10 million in development mode," Turnham said. "Also, with the added activity from other very capable operators in the play, we will each benefit from each other's activities as we're sharing information with a common goal of best practices as soon as possible. To that end, you will see other operators with very good drill times on recent wells, and we expect that to continue."

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

On Wednesday another pioneer in the TMS, Halcon Resources Corp. with about 316,000 net acres, said it plans to spud 10-12 operated wells, running an average of two rigs this year. Halcon said it would also participate in 15-20 nonoperated TMS wells. Halcon said it plans to cut the number of drilling days in the TMS by 15-20% by year-end. Meanwhile, it continues to evaluate joint venture/financing options for its entire TMS position.

In the Eagle Ford Shale during the first quarter, Goodrich began drilling operations in February and has begun completion operations on its Burns Ranch A 56H, 70H and 71H (66.7% WI) wells in LaSalle County, TX. All three wells were drilled off the same pad and have an average of 8,750-foot laterals with 33 planned frack stages per well. All three wells are scheduled to be fracked by the end of May.  The company began drilling operations on its Gemini 4H and 5H (estimated 66.7% WI) wells from a single pad. Both wells have a scheduled frack date in early June. 

Production was 6.5 Bcfe during the first quarter, or an average of 72,000 Mcfe/d, versus 6.0 Bcfe, or an average of 66,600 Mcfe/d in the prior-year period. Production was reduced by downtime in the Eagle Ford, completion delays and previously disclosed mechanical issues with the Huff 18-7H-1 (97% WI) and Weyerhaeuser 51H-1 (66.7% WI) wells in the TMS. Natural gas production totaled 4.4 Bcf in the quarter, or an average of 49,230 Mcf/d, versus 4.1 Bcf, or an average of 46,000 Mcf/d, in the prior-year period.

Goodrich plans to produce between 4,200-4,500 b/d of oil and 43,000-46,000 Mcf/d of natural gas during the second quarter, with an expected further acceleration in the rate of growth in oil volumes beginning in the third quarter due to an increase in capital expenditures and well completions in the TMS and Eagle Ford Shale from the second quarter through the end of the year.

For the first quarter the company posted a net loss of $29.9 million (minus 68 cents/share) versus a net loss of $30 million (minus 82 cents) in the year-ago period. The adjusted net loss for the first quarter was $24.1 million (minus 54 cents/share), which excludes the impact of unrealized losses on derivatives not designated as hedges of $5.8 million.

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