CLR And TMS? -- A Reader Suggests -- August 5, 2021

From a reader, previously posted:

Continental's COO - Jack Stark - said in his introductory comments st the 2Q21 Conference Call the other day that 'exploratory opportunities' were underway that could greatly increase CLR's size. 

Could possibly be the forgotten Tuscaloosa Marine Shale. 

A tiny Australian company has drilled 6 wells there with moderate success.

The reader was referencing this from CLR's 2Q21 conference call, part of the long statement by Jack Stark:

In the fourth quarter, 2021, we are projecting a December exit rate of approximately 165,000 barrels of oil per day. 

We currently have eight rigs drilling in the Bakken, two in the Powder and five in Oklahoma, and are considering adding up to one rig in the Bakken and two in Oklahoma by year end. 

In closing, I'll mention that our exploration teams at Continental continue to generate new opportunities within and outside of our core operating areas. 

Later this year, we plan to do some exploratory drilling to test a couple of these new opportunities. Details must remain confidential, but I can tell you that with success, each of these opportunities could add significantly to our deep inventory.

Parsing that paragraph:

• my first hunch, based on the context, Stark was talking about "new opportunities" with the Bakken;
• however, he says "exploratory drilling." There is really no "exploratory drilling in the Bakken as "exploratory drilling" is currently defined. One could argue much more "exploratory drilling needs to be done in the third and four benches of the Three Forks, but one could also argue, that with the extensive seismic data and geologic data and the few wells that have been drilled in those formations, guys like Harold Hamm have a pretty good idea of what they already have, and don't need more exploratory drilling;
• it would be unlikely CLR would do "exploring drilling" on someone else's acreage, so I assume if CLR doesn't hold mineral rights in the Tuscaloosa Marine Shale they would not drill there except perhaps as a joint venture
• Jack Stark's comments may be nothing more than simply "exploring" some "tier 2, 3, or 4" sites in the Bakken. 

Note: see first comment -- there are other opportunities for CLR, as well --

Within means new benches or Madison or new benches in Scoop or the like. Realize they also have PRB and Red River acreage. And even some Michigan acreage. They also drilled a NM well a couple years ago. Further north than the Permian sweet spot. Bad well.

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TMS

But, and this is huge. This gave me a chance to go back and look at the Tuscaloosa Marine Shale (which I track at the sidebar at the right but not updated in a long, long time).

It was "fun" to read a Hart Energy post from January 3, 2012.

Likewise, the Australis Oil & Gas investor presentation dated October 29, 2018, regarding the TMS was excellent. 

But the reader may be very, very correct with regard to TMS and CLR. A google search led me to two very, very interesting and recent articles.

First, from March 8, 2021:

Specifically, Australis will recommence leasing of the Tuscaloosa Marine Shale (TMS) Core Area mineral rights, in which the company operates 38 producing wells across 107,500 net acres.

Second, from February 25, 2021:

The oil and gas explorer owns the majority of the Tuscaloosa Marine Shale (TMS), which is one of the last emerging onshore oil shale basins in the U.S.

Ever the wildcatter, this is exactly something that might interest Harold Hamm. 

As the reader said: very, very interesting. 

By the way, the CLR transcript linked above will be archived. Something tells me we may want to go back to that transcript five years from now.

Other articles on TMS:

• Goodrich Petroleum Corporation, SeekingAlpha, May 18, 2021. Link here. In the TMS:

Goodrich still has 33,000 net acres in the Tuscaloosa Marine Shale [TMS] that is mostly held by production. It also has 1.7 net DUCs there. Goodrich's TMS acreage may eventually prove to be a source of value, but I don't expect further development there for a while.

In 2017, Goodrich mentioned that it believed that the TMS could work for new development with $65 to $70 oil. Spot prices for oil are at the low end of that range currently, but forward strip is still a few dollars lower.

As well, Goodrich is able to deliver consistently excellent returns from its Haynesville Shale assets, so it is hard to envision Goodrich taking a chance on TMS development again unless oil prices got considerably stronger compared to natural gas prices.

Australis Oil & Gas has a 107,500 net acres position in the TMS (including 37,700 net acres held by production) along with net production of approximately 1,200 BOEPD and it has a market cap of under $50 million USD currently (along with a modest amount of net debt). Thus the market isn't attributing much value to undeveloped TMS land at the moment. The TMS may gain some value if new development proves it out some more, but at this point the development pace looks likely to be quite slow. Australis is the company most likely to invest in new development, but it is currently limited by having a modest amount of liquidity.