December, 2010 Corporate Presentation
Feature Article In Oil And Gas Investor, August 2, 2014
Doubling Down On Divide County: SM Energy Bets on More Aces in Bakken Frontier
SM Energy Co.’s buyout of Baytex Energy Corp. in North Dakota further demonstrates Bakken and Three Forks producers’ confidence in what had been considered the play’s frontier—Divide County.
A neighbor to SM’s and Baytex’s leasehold in SM’s “Gooseneck” play area in central Divide County is Denver-based American Eagle Energy Corp. “The perception of Divide County had been that it is not as good a performer,” Tom Lantz, American Eagle chief operating officer, said in Oil and Gas Investor’s April 2014 cover story, “The Williston Basin.” “The reason is that the reservoir in our area is normally pressured, while it is over-pressured in the deeper part of the basin. That pressure is what drives those spectacular initial rates you are used to seeing there.”
But the Bakken and Three Forks are at a shallower depth—about 8,000 feet—in Divide County, rather than at about 11,000 feet in the center of the Williston Basin in McKenzie County to the south, so the cost of drilling is less, Lantz said.
Also, because it is shallower and under less weight, less-expensive sand appears to work fine as proppant, rather than ceramic. Ultimate recovery is some 450,000 barrels of oil equivalent (BOE) per well landed in Three Forks and 350,000 BOE from wells landed in Bakken in American Eagle’s leasehold—less than the more than 600,000 BOE proved by wells in the basin’s center. But, Lantz said, American Eagle’s Divide County wells cost some $6 million rather than $9 million. “The economics are very good.”
Houston-based SM’s $330.5-million offer for Baytex’s North Dakota position involves 89, producing, operated wells, all in Divide County except for five in Williams County. SM will gain 61,000 net acres in the two counties, primarily in Divide and 70% held by production. Four additional Baytex wells are in confidential status and an additional five are being drilled, according to state records. Baytex has permits for five more wells not yet spud.
Calgary-based Baytex began drilling in North Dakota in October 2009. The deal will bring SM’s Bakken and Three Forks production from 16,500 barrels of oil equivalent a day to 19,700, 91% oil. The deal is to close in this quarter. SM will gain proved and probable reserves of 53.5 million BOE.
In the Gooseneck area, Baytex’s leasehold is in the middle and east of the SM position and is to bring SM’s exposure to this Three Forks play—with potential upside from successful completions in the overlying Bakken as well—to 97,000 net acres.
SM has been testing completions in Gooseneck with more sand per foot of horizontal wellbore. For example, on a roughly 10,000-foot lateral, SM had used some 192 pounds of sand per foot, the company reports; the new completion uses 265 pounds per foot. For the same length of lateral and when factoring in SM’s savings from a program toward reducing drilling days, the old well cost about $7 million; the new well, $6.2 million, it reports. Peak production from the new well is about 440 BOE a day; the old well, about 330. In short, the company reports, sand per foot has grown 38% and peak production has grown 33%.
January 7, 2015: SM Energy announces it will exit mid-Continent (Oklahoma); close Tulsa office; concentrate on core assets in the Bakken and the Eagle Ford.
May 12, 2014: mentions that it has sold non-core Bakken assets; may be down to 159,000 net acres in the Bakken.
April 5, 2012: update on SM wells in Poe oil field.
March 12, 2012: update on SM and Stark County.
February 1, 2011: SeekingAlpha on SM: well-positioned.
January 31, 2011: SM raised $350 million through senior notes; originally was to be $250 million.
January 25, 2011: Preliminary production and proved reserve estimates for 2010
- Increased Bakken/TFS by 40% on sequential basis (4Q over 3Q)
- Replaced nearly 350% of its production through drilling
December 23, 2011: SeekingAlpha/Zack's rating on SM.
Strong earnings report for 1Q10
Net income for first quarter, 2010, was $126 million ($1.96/share) vs a net loss of $88 million ($1.41/share) for the same period one year ago.
St Mary's average realized sale price for oil/gas was $72.73/$6.15 this past quarter vs $34.40/$4.00 one year ago.
Daily production of oil actually decreased seven (7) percent, from 18 million bopd to 17 million bopd, year over year.
Yesterday I noted the "marketing expense" associated with EOG and its five-fold increase year-over-year. So, what did St Mary report for marketing? On the revenue side, marketing revenue almost doubled from $14 million to $23 million. Interestingly enough, that was offset by an equal amount in marketing expense: $13 million same period one year ago, and $22 million first quarter this year.
However, much of St Mary's gain came from selling non-core assets for a one-time gain of $121 million. Without that $121 million gain, this year's first quarter income would have been $239 million, but again, better than last year's revenue of $199 million.
With regard to NDIC hearing dockets, St Mary is more active than usual this month (May) compared to past several months. St Mary had nothing before the commission in March and April, but did have some cases in February.