Samson Oil & Gas in Stockyard Creek; SSN = Operator; 160-Acre Spacing

Updates 

January 21, 2013: Teegue, over at the Bakken Shale Discussion Group, has sorted this one out.  The NDIC GIS map still shows 160-acre spacing in Avoca oil field. I misread that in the post below. It's been corrected. Apparently SSN will keep 1280-acre spacing and drill wells to 160-acre spacing. I'm glad this was corrected in a timely manner. For further details on this one, I would simply go to the link above and ignore this post. The original post will not be corrected/edited/changed except to correct the 160-acre spacing unit in Avoca field. Although, that begs the question....

Original Post

Note: this is a long post (but much of it, at the bottom) is a press release. But, it's possible this will be seen as one of the more important posts in 2013.  If one goes to the NDIC GIS map server, and sets it up to find Bakken spacing at 160 acres, one will find only a handful of such spacing. One such spacing unit is in Stockyard Creek Avoca (that's what this post is all about) and SSN has permits to place four wells on this 160-acre spacing unit. This is all new to me and I have it wrong, but a) there is a purple 160-acre spacing unit as described; and, b) SSN has permits for four wells in this this little spacing unit.

Again, I could be way wrong on this: that's why I have all the links and the full press release.

Original Post

In the daily activity report posted today, there were four permits for Samson Oil & Gas. These are the first permits for SSN in North Dakota according to the NDIC website. The four permits are for wells in Stockyard Creek.

It appears the last time I posted anything about SSN was back in December, 2011. Wow, that seems like an eternity. If you follow the links back far enough, you will find one regarding Everett 1-15H

• 20510, 705, Zavanna, Everett 1-15H, Stockyard Creek, t1/12; cum 76K 11/12; 

[And this is why I "cut and paste" as much as I do; that AP/Yahoo link has now been broken/removed; fortunately there is enough in the "cut and paste" to provide some explanation; in this case, SSN referred to the Everett 1-15H as their sixth well, but Zavanna was the operator.]

So, now back to the permits issued today.

First, this SSN advisory posted December 30, 2012 (this is an important advisory, and because the link/story could be lost, here it is in its entirety (at a later date, I may summarize it into shorter data points) but note the most data points:

• SSN is now an operator in Stockyard Creek
• SSN will place wells with a density of 160 acres (at one point in the press release, it is said to be 160-acre spacing, and at first I thought this was in error -- that it would be 640-acre spacing, but with an effective density of 160 acres. However, according to the NDIC GIS map server, a very small area in section 13-154-99, Stockyard Creek, is now spaced at 160 acres. SSN now has permits for four wells in this 160-acre spacing: two targeting the middle Bakken and two targeting the first bench of the Three Forks. 

Here is the press release in its entirety (except some company info at the very end):

Samson has owned an equity position in the North Stockyard Oilfield for several years and has participated in the drilling of six Bakken Formation wells along with a Mission Canyon Formation well. The six Section area, (three Sections are designated as the Northern Tier, and three Sections the Southern Tier) has been developed with a 640 acre spacing utilizing 5,000 foot laterals. Standard industry practice has evolved and the norm is to develop the Middle Bakken and the First bench of the Three Forks Formation at 160 acre spacing. Samson has been keen to develop the North Stockyard field to this drilling density; however, several of the other working interest owners in the field, including the Operator, do not wish to accelerate the development of this field at the optimal acreage spacing.
As a consequence, Samson and the Operator group have negotiated an acreage swap for the Middle Bakken/First Bench of the Three Forks (MB/TF), whereby Samson will acquire these parties’ undeveloped acres in the Northern Tier and will divest undeveloped acres in the Southern Tier. After the swap, Samson will own 64% and 57%, respectively, in the two overlapping 1,280 acre spacing units located in the Northern Tier. Samson will become Operator for the entire Northern Tier. Samson will retain its existing equity in the seven producing wells and the deeper benches of the Three Forks in both the Northern Tier and the Southern Tier. The formal agreement documenting the swap has been completed and was executed by Samson and the Operator today.
Samson has appeared in front of the North Dakota Industrial Commission (NDIC) and requested a 160 acre spacing order in the Northern Tier. Samson expects that this request, which was unopposed, will be approved and that the NDIC will consent to the drilling permits that have already been lodged. This administrative step will then allow Samson to drill an additional 14 wells in the Northern Tier to develop the MB/TF to a 160 acre spacing.

Proved Developed Producing Reserves (PDP)

The PDP reserve of the North Stockyard Oilfield have been assessed by Ryder Scott as at June 30 2012, at a gross EUR of 1.8 MMSTB valued at $7.5 million net to Samson using the NYMEX forward curve as at June 30^th. Representing $86 per barrel for the second half of 2012, $88 for 2013, $87 for 2014 and 2015, $86 for 2016, and thereafter.

Probable Reserves

Samson has completed an internal estimate that suggests the MB/TF in the Northern Tier will recover a gross EUR of 7.1 MMSTB (net 3.4 MMSTB) valued at $42.4 million net to Samson.

Given the administrative status of these wells, these reserves are currently classed as Probable. At such time as the NDIC approves the requested spacing order the designation of these reserves is expected to move from Probable to Proved Undeveloped.

Samson has also completed an estimate of the Probable Reserves of the deeper Three Fork Benches (TF) and has estimated that these Probable Reserves, at a gross EUR of 24.5 MMSTB (net 6.1 MMSTB), valued at a $49.8 million net to Samson.

These estimates are set out in the following table:

									Gross EUR MMSTB				Net EUR MMSTB				Net NPV#
					MB/TF Northern Tier				7.1				3.4				$42.4
					TF Both Tiers				24.5				6.1				$49.8
					Total				31.6				9.5				$92.2

NPV is calculated at a 10% discount rate, using $80 per barrel for Bakken crude.

Development Plan

Samson is planning to mobilize the Frontier Rig 24 to the North Stockyard Field early in 2013 to drill an initial 6 development wells. These wells will be drilled from two pads utilizing the skiddable platform available on Frontier 24. As previously advised, Samson contracted for the use of this new build rig for an 18 month period at a contract cost of $14.2 million, although the drilling rig contract, as amended, caps the liability for cancellation during the term at $5 million. The development wells are designed as 5,000 horizontals in either the Middle Bakken or the First Bench of the Three Forks. The wells will be “batched” drilled which are expected to result in considerable cost savings.

Samson has the majority equity in a recently completed Salt Water Disposal well in the Northern Tier, as well as a water disposal pipeline system, that will be utilized to dispose of the water produced from the development wells in an economic manner. Existing gas gathering infrastructure is also already in place. Samson therefore expects that a relatively high net return will be extracted from the development of the Northern Tier. Samson’s ability to complete the development plan is contingent on its completion of a planned debt financing or another capital raising program.

South Prairie 3-D Project, Williston Basin, North Dakota (SSN 25% WI)
Acquisition of the South Prairie 3-D seismic survey has been completed as planned and the initial processed seismic data was received on schedule in early December. That seismic data is currently in the process of being mapped and evaluated.
Samson has a 25% working interest in 23,879 net acres within the South Prairie 3-D survey. Potential reservoirs include the Mississippian Mission Canyon Formation and the Devonian Nisku Formation. After the 3-D data has been evaluated, the first well is planned for the 1^st quarter of 2013.
As previously disclosed, the leads identified on the existing 2-D seismic data appear to be similar to the oil field immediately adjacent to the north of the project area. Wells in this other field have demonstrated recoveries of between 260,000 and 450,000 barrels of oil for wells drilled at the crest of the structure. Additional Mission Canyon fields along trend have demonstrated that some wells can recover as much as 900,000 barrels of oil per well when located on the crest of the structure. The 3-D seismic is expected to deliver excellent structural control, such that the wells can similarly be located at the crest of any structures. Given that the wells are presently expected to be drilled for approximately $1.1 million, Samson believes that the return on its investment will be attractive.

***********************

 

Added, January 21, 2013, after it was pointed out the mistake I made regarding the 160-acre spacing: see disclaimer, part of which states: This is a blog, short for "web log," or diary.  It [the blog] was started for my use only since HTML provided a great way to track the Bakken boom. I decided to open it to the public for various reasons which I discuss below. I will make mistakes, and I have made some doozies. Most of the mistakes could have been avoided had I posted more slowly, and had the posts reviewed by an expert in the oil and gas industry. If something looks wrong, it probably is. If a mistake is brought to my attention, I will address it immediately. If I ever get the feeling that my posts on the Bakken are doing more harm than good, I will bring down the site. It is not my intention to mislead anyone on the Bakken. Again, this is a "web log," often being posted on the run, open to others for reasons discussed elsewhere.  

This was a confusing press release for me; it still it. That's why I included the entire press release.