Venoco, Inc. announced guidance for 2012 and provided an update on its onshore Monterey Shale program in the Sevier field.
The company's 2012 exploration, exploitation and development capital expenditures are forecast to be $255 million. Approximately $100 million, or 39% of the capital budget, will be deployed in the company's onshore Monterey Shale play, $110 million or 43% in legacy oil fields in Southern California, and $45 million or 18% in the Sacramento Basin.
The company plans to drill 15-20 onshore Monterey Shale wells, and drill approximately 20 wells, perform 180 recompletions and 15 fracs in the Sacramento Basin during 2012. The company's 2012 activity in its legacy Southern California properties is expected to include drilling 11 wells.
The company's guidance for 2012 is as follows:
Production 17,750 - 18,250 BOE per day
Capital Expenditures $255 million
"We expect to see revenue grow considerably in 2012, even on the modest production growth we are forecasting," said Tim Marquez, Chairman and CEO. "That revenue growth will result from a higher percentage of oil versus natural gas in our production mix in 2012 and a new crude oil sales contract based on California postings, which we expect will allow us to realize company-wide oil prices of $10 per barrel higher than NYMEX/WTI prices. While we are including modest production from our Sevier discovery area in our production guidance, we continue to risk it more heavily than production from our legacy fields, so we believe there will be an opportunity to outperform," Mr. Marquez continued.
The 2012 production guidance of 17,750 - 18,250 BOE/day represents a 1-4% increase over estimated 2011 production of 17,500 BOE/day. "While we anticipate lower natural gas volumes in 2012 as a result of reduced activity in the Sacramento Basin, activity in our Southern California fields in 2012 should result in growth in oil volumes of 15 to 20% compared to 2011," said Mr. Marquez.
Monterey Shale Update
The company is in the early stages of proving both the viability of, as well as the overall size of the structure in the Sevier field located in western Kern County. As such, there is still a significant amount of geologic risk associated with drilling in the field. The second delineation well, which had a peak 24-hour production rate of 221 BOE per day, and a stabilized 7-day production rate of about 190 BOE per day, has averaged 134 BOE per day over the last three weeks, from a single zone in the well (the Devilwater formation). More recently, production has declined, averaging 93 BOE per day over the last 3 days. The third delineation well, which was completed and first began testing in early November, tested oil in a zone below the Monterey, but deliverability from that non-Monterey zone was low. The company has moved up hole and is currently testing the lowest Monterey zone (the Gould formation). Initial production had a peak 24-hour rate of 25 barrels of oil and no natural gas and a low of 10 barrels of oil and no gas. Testing will continue on this zone before moving up hole to test the Devilwater formation. The fourth delineation well reached "total depth" in November and is currently testing the lowest Monterey zone (Gould formation) in the well. There are two or more additional zones in each of these delineation wells that the company plans to test. The company's first delineation well has been shut-in while the fourth delineation well was drilled on the same pad. The company has worked-over the first delineation well and will be testing additional zones in the next month. However, during its last 30-days on production it averaged 43 BOE per day. A fifth delineation well was recently drilled and completed with testing expected to begin later in December.
Based on results from the original discovery well in 1986, Venoco's follow-up well in 2010 and the test results to date from the first three delineation wells, the company plans to drill several additional delineation wells in Sevier in 2012.
"We're excited to continue to delineate and test the Sevier field in 2012," said Mr. Marquez. "The logs and tests we have to date from these various step-out wells give us greater confidence that the structure in this field is at least as large as we initially projected. In the Salinas Valley, we also look forward to begin drilling once we complete a 3-D seismic shoot over that acreage. The seismic data will help us map the complex faulting in the area as well as help us determine the areal extent of the deeper Vaqueros formation," continued Mr. Marquez.
Ellwood Pipeline Status
The company has completed all of the weather-related critical path activities in the construction of its new oil pipeline for the South Ellwood field, including several stream borings. Approximately 50% of the 8.5 mile pipeline has been welded and installed, and the tie-in to the All American Pipeline is nearly finished. The company expects to complete the pipeline and put it into service by late January 2012.
Crude Oil Sales Contract
On December 9, 2011 the company entered into a new crude oil sales contract with Tesoro Refining and Marketing Company effective April 1, 2012 covering approximately 50% of the company's crude oil sales. This oil, which is currently sold under a NYMEX-based contract, will be priced under the new contract based on California - Buena Vista postings. The balance of the company's crude oil production will continue to be sold on California postings. The company-wide price realization for 2012 -- including the effect of the new pipeline at South Ellwood and the new sales contract -- is expected to average $10 per barrel above NYMEX/WTI.
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