Mexco Energy Corp. and Concho Resources Inc. have struck an agreement to develop the Bone Spring formation with horizontal drilling and multistage hydraulic fracturing (fracking).
The companies will work together on acreage in southwestern Lea County, NM. The first two horizontal wells of 12 prospective wells will target the Avalon Shale portion of the Bone Spring. To date, 67 wells have been completed in the Avalon in this area with other wells in the process of drilling or completion, Mexco said.
Concho will pay 62.5% of the cost to drill and complete the two initial wells in order to earn a 50% working interest (37.5% net revenue interest). The joint venture, of which Mexco is a member, will pay 37.5% of the cost to drill and complete two initial wells and will retain 50% working interest and 50% net revenue interest in the wellbores. Mexco’s working interest in the development is about 0.56% (0.42% net revenue interest).
Mexco is participating in other horizontal well developments on acreage in the Bone Spring. In June, Cimarex Energy Co. announced plans to drill a third well on a 160-acre unit in the formation. Mexco’s working interest in the Cimarex prospect is 0.0469% (0.0352% net revenue interest). In August, Concho began drilling a second well on a 640-acre unit. Mexco’s working interest in this Concho prospect is 0.1875% (0.148% net revenue interest).
About 16 months ago, Concho struck a $1 billion Permian deal, adding about 310,000 gross (200,000 net) acres in the Permian Basin, including large positions in Concho’s core northern Delaware Basin play, the Midland Basin Wolfberry play, and the emerging southern Midland Basin horizontal Wolfcamp and Cline shale plays (see Shale Daily, May 15, 2012).
Last month, Bone Spring player Caza Oil & Gas Inc. said it was making progress on its Caza Ridge horizontal Bone Spring program, with its latest well producing at a peak 24-hour rate of 1,004 bbl and 1.3 MMcf of gas (see Shale Daily, Aug. 13).
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