Resaca provided an update on the Company's progress in implementing the current capital expenditure program and announced the sale of a non-core property.
Capex Program Progress
Resaca announced a $13 million capital expenditure program in February of 2011. The objective of the program is to increase production to 1,000 barrels of oil equivalent per day ("boepd") before year-end and double operating cash flow. Successful execution of the program should position the Company to embark on a longer term strategy of fully exploiting the Company's 35.7 million barrels of oil equivalent ("mmboe") reserve position. Key elements of the current program include the re-pressurization of multiple reservoirs through waterflood injection, select well refrac projects to immediately boost production and well deepening operations designed to access previously non-producing reservoirs.
To date, Resaca has completed approximately 75% of the program and has experienced encouraging results. Production across the portfolio has increased from an average of 616 net boepd in January to an average of 728 boepd during the first half of July, an increase of almost 20%. Production reached 800 net boepd on several days in the last thirty (30) days. Average daily production rates at the Company's key Cooper Jal Unit have increased by almost 30% between January and July, from 293 net boepd to 372 net boepd.
Cooper Jal Unit ("CJU")
Scheduled projects intended to increase production include fifteen refracs at the Company's CJU property. To date, Resaca has completed eleven of the planned fifteen refracs with positive results. Post refrac initial production rates from the eleven wells have averaged twenty-four (24) boepd, which is four (4) boepd better than expectations. The Company hopes to duplicate this initial success with the remaining four planned refracs.
An integral part of Resaca's strategy at CJU is to increase reservoir pressure through optimization and expansion of the existing waterflood. To that end, the Company has completed seventeen water injection well cleanouts, converted four shut-in wells to water injection wells and installed a new horizontal water injection pump at CJU. As a result of this work, the current injection rate at the field is just over 20,000 barrels of water per day ("bwpd"), up from 17,000 bwpd earlier this year. Management expects to achieve the goal of a 25,000 bwpd injection rate over the next few months, once the remaining field work is completed.
In addition to refracs and water injection projects, Resaca has increased the speed of its pumping units on ten wells at CJU and has seen positive volume increases from these wells as a result of these efforts. The Company continues to evaluate additional well candidates for this process.
Management continues to focus on projects to reach our goal of CJU production of 450 net boepd.
Jordan San Andres Unit ("JSAU")
Resaca's strategy for improving production at the JSAU is twofold: increase pressure through waterflood operations and access non-producing reservoir through select well deepening operations. Efforts on the waterflood project at Jordan include the installation of a high capacity water injection pump at our Tract 79 and the completion of five water well injection cleanouts. The result of these efforts is a doubling of the injection rate at Jordan from 3,500 bwpd to 7,000 bwpd. In addition, these projects have expanded the Jordan waterflood to a much larger percentage of the reservoir.
The company has completed the first of four planned well deepening operations at JSAU into the Lower San Andres interval resulting in a 20 boepd well flow rate. In response to this success, management is currently evaluating a possible horizontal well at Jordan to more effectively access the Lower San Andres interval. Should the operation succeed, management would likely embark upon additional horizontal wells at JSAU. Encouraged by the Lower San Andres opportunity, the Company has acquired 1,375 acres in leases adjacent to the JSAU, which has substantially increased Resaca's footprint in this promising field.
Edwards Grayburg Unit ("EGBU")
The injection facilities upgraded by the Company at EGBU in the spring are fully installed and operational. In addition, the Company has completed four planned water injection well cleanouts at EGBU. As a result, water injection rates at EGBU have doubled from 1,500 bwpd to 3,000 bwpd. The Company has also cleaned out and stimulated eight producing wells at EGBU. The result of these projects is an increase in field production from approximately 40 net boepd to over 60 net boepd. Resaca is encouraged by the results to date and expects continued production improvement at EGBU.
Property Sale and Acquisition Activity
On July 15, 2011, Resaca closed on the sale of the Grand Clearfork Unit ("GCFU"), one of the Company's non-core properties. Average net production from the GCFU was 42 boepd for the month of June, 2011. The GCFU property was sold for approximately $98,000 per boepd of net production and $7.95 per boe of proved reserves. A minor amount of the company's current capital expenditure program was allocated to the GCFU. The property was sold prior to the initiation of these projects.
Resaca used the $4.1 million of sale proceeds to pay down its senior revolving bank facility, providing additional borrowing capacity. The Company currently has approximately $8.6 million of available borrowing capacity remaining under the senior bank facility. Management plans to use these funds for capital expenditures on core properties or strategic acquisitions. Management is currently in active discussions on a variety of attractive, strategic acquisition opportunities that are consistent with Resaca's strategy and current asset base.
Commenting on the operations update and property disposal, J.P. Bryan, Chairman and CEO of Resaca, said, "We are pleased with our progress to date on the Company's capital expenditure program. We look forward to completing the remaining projects and reaching our water injection rate and production rate targets within the year. We feel these short term achievements are crucial steps in Resaca's efforts to fully exploit the Company's 35.7 mmboe in reserves. Further, we believe the capital associated with the Grand Clearfork sale provides Resaca with significant flexibility to pursue a growth oriented acquisition or expend additional resources on our core, high upside-potential properties. "
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