The Exploration Company Updates Maverick Basin Operations

Maverick Basin
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The Exploration Company has provided an operations update on its 554,000-acre lease block in the Maverick Basin of Southwest Texas. TXCO's estimated, third-quarter net production rose to 1.297 billion cubic feet equivalent (Bcfe), up 5.4% from 1.23 Bcfe in the prior-year quarter. Gas output increased 69.8% from third-quarter 2003, more than offsetting an oil production decline of 35.1%. For the first nine months of 2004, cumulative net production was 3.6 Bcfe, essentially equivalent to production in the prior-year period. Increased gas output offset lower oil production. Quarterly and year-to-date production was negatively impacted by severe weather, a key operating partner's drilling curtailment and limited rig availability.

                  TXCO Cumulative Production Volumes
                        3Q      3Q      %      9 Mos.  9 Mos.    %
                       2004    2003   Change     2004    2003  Change
Natural gas/MMcf         807     475   +69.8%   2,228   1,522   +46.4%
Oil/Bbls              81,602 125,778   -35.1% 228,751 347,951   -34.3%

Natural Gas
 Equivalent/MMcfe      1,297   1,230    +5.4%   3,601   3,610    -0.3%
Barrels Oil
 Equivalent/BOE      216,085 205,000    +5.4% 600,163 601,693    -0.3%

The Company exited third-quarter 2004 producing 1,296 barrels of oil per day (BOPD) and 9.6 million cubic feet per day (MMcfd), a combined 17.4 million cubic feet equivalent per day (MMcfed), 25 percent above its Sept. 30, 2003, exit rate of 13.9 MMcfed and 15 percent over its June 30, 2004, exit rate of 15.1 MMcfed. At Oct. 31, TXCO's net daily production had increased an additional 14.4 percent since Sept. 30 to 19.9 MMcfed as wells completed in the third quarter were placed on production.

Through late October, TXCO had spudded 56 new wells plus seven re-entries this year in the Maverick Basin -- its second-largest annual drilling program ever.

"We're pleased that TXCO's production is now right at the 20 million cubic feet equivalent per day we projected, the positive result of our drilling program in the third quarter," said President and CEO James E. Sigmon. "The quarter would have been even stronger had it not been for record rains and continuing pipeline hookup delays that kept us from realizing the full benefit of that drilling sooner. We continue to expect higher production levels and record reserves by year end." The annual hunting season drilling moratorium on certain leases begins this week and extends into January 2005.

Current drilling and operating highlights include:

Glen Rose

For 2004, TXCO has spudded 18 of 28 planned wells, plus three re-entries, targeting multiple Glen Rose plays. Net Glen Rose production at Oct. 31 stood at 629 BOPD and 6.0 MMcfd.

In the Glen Rose porosity oil play, the Comanche 2-14H (50 percent working interest) went on production in late October, flowing approximately 500 BOPD and no water on a 10/64-inch choke with 705 pounds per square inch (psi) flowing tubing pressure. Meanwhile, the Comanche 2-39H (50% WI) continued to flow 370 BOPD in late October and has produced water-free oil since it began production in August. Both wells were drilled using a new technique in which the horizontal wellbore parallels fractures within the formation, minimizing water intrusion from a separate, lower zone.

In the Glen Rose reef play, TXCO placed the Burr C 1-56 (100% WI) on production in late October flowing 1.2 MMcfd. Weather and pipeline construction delays postponed the start of production since the well's completion in the third quarter. Meanwhile, three wells originally targeting Glen Rose reefs, which proved wet, have been successfully completed as horizontal Georgetown wells.


For 2004, TXCO has spudded 23 of 28 planned new Georgetown wells in addition to the three Georgetown completions originally targeting Glen Rose reefs. Net Georgetown production at Oct. 31 stood at 5.1 MMcfd and 254 BOPD.

Fifteen Georgetown wells were drilled on the southern portion of TXCO's acreage block in 2004 year to date, including five spud in the third quarter. Of these, nine have been placed on production, five are in progress or awaiting completion while one had a mechanical failure. The Comanche W 1-2H (50% WI) flow tested from the Georgetown formation at rates as high as 1.4 MMcfd and 15 BOPD on a 12/64-inch choke with 1,840 psi flowing tubing pressure. The well went on production in late October at 1.0 MMcfd.

On the northern portion of the Company's acreage block, eight Georgetown wells were drilled year to date, including one spud in the third quarter and three in October. Of these, one is producing, two await completion, one is drilling while four are shut in pending further evaluation.

As to the three former Glen Rose reef wells, the Burr C 1-231.5H (100% WI) was placed on production in October flowing 860 thousand cubic feet per day (Mcfd). The Burr C 1-53H, (100% WI) went on production in early October pumping 157 BOPD. The Burr C 1-60 (100% WI) was placed on production in early November pumping 161 BOPD. In the Glen Rose shoal play, the Chittim 1-131H, (52% WI) went on production in late October at 825 Mcfd.

Other Plays

The Company has drilled 13 San Miguel oil wells this year, including 10 wells budgeted for its Pena Creek project. TXCO spudded three wells on its Comanche lease to test a new area in the San Miguel formation. Both wells were fracture stimulated and placed on pump as testing continues. Separately, the Farias 1-108 flow tested gas at rates as high as 237 Mcfd from the San Miguel following a workover.

The Taylor 132-1 well (97.5% WI) is flowing to sales through a temporary connection from Pearsall perforations following fracture stimulation. The well has been producing 200 Mcfd while it continues to flow back fracture treatment fluids. Further testing continues.

In the Olmos/coalbed methane (CBM) play (100% WI), mechanical difficulties delayed horizontal re-completion attempts in two CBM dewatering wells using multiple short-radius lateral (MSRL) technology. Design engineers are working to refine the MSRL tool design. The horizontal drilling technique could significantly increase dewatering volumes and associated CBM gas production. At the end of October, TXCO was producing 145 Mcfd from 36 CBM dewatering wells.

Earnings Announcement

TXCO plans to release its third-quarter and year-to-date earnings statement on or before Nov. 8, 2004, and expects to release selected 2005 guidance in December.

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