St. Mary Land & Exploration Company has provided an update of the Company’s significant operational activities and financial guidance for the remainder of 2008.
Tony Best, President and CEO, commented, "St. Mary will grow production 10% on retained properties in 2008 with a program that is near expected cash flow. We have continued to broaden and strengthen our inventory of drilling opportunities as we execute our strategic shift to focus on resource plays. You can expect to see us entering emerging resource plays much earlier and in a more compelling way that will result in improved economics and multi-year drilling programs with the scope and scale to provide significant future growth. Our entry into the Maverick Basin during the past year is a perfect example, which now provides us with tremendous exposure to the emerging Eagleford and Pearsall shale plays. I am very pleased with the expansion and improvement of our portfolio and see new opportunities for growth in front of us."
The Company is encouraged by recent positive developments in the greater Maverick Basin. St. Mary entered the basin in the second half of 2007 with two acquisitions that primarily focused on the Olmos shallow gas play. At that time, the Company was aware of several other horizons of interest in the basin, including the Eagleford and Pearsall shales. Since that time, the Company has increased its acreage position through leasing efforts and a joint venture with TXCO Resources and Anadarko Petroleum.
The joint venture allows St. Mary to earn up to approximately 75,000 net acres in Webb and Dimmit Counties as certain conditions are met. In the joint venture acreage, four horizontal wells have been drilled and are at various stages of testing.
Two of these wells were horizontal re-entry wells targeting the Eagleford shale, while the Pearsall interval was tested with one horizontal re-entry well and one horizontal grass roots well. A recent announcement of a successful horizontal well by a competitor has drawn increased attention to the Eagleford shale.
The competitor well is located in La Salle County, just east of Webb and Dimmit Counties where the Company's joint venture acreage is located. Additionally, a successful well in northern Dimmit County targeting the Pearsall shale has been reported by TXCO Resources on acreage that is not part of the joint venture.
Assuming the Company earns all of the acreage associated with the aforementioned joint venture, St. Mary will have captured over 210,000 net acres and 160,000 net acres in the Eagleford and Pearsall shales, respectively. The Company will begin testing on its acreage outside the joint venture in the next few quarters.
St. Mary is currently drilling its first horizontal Haynesville shale well, which is located in De Soto Parish, Louisiana at the Spider Field. The rig is currently taking core samples in the Bossier and Haynesville sections and is expected to kick off the horizontal lateral within the next two weeks. The well design calls for an approximately 4,500 foot horizontal lateral. The well is expected to be completed in early January 2009.
Results from the operated horizontal Woodford shale program continue to improve. To date, the Company has drilled and completed 24 wells that have meaningful production histories. The average estimated ultimate recovery (EUR) for the last 14 wells is 3.4 BCFE. The four most recent wells have preliminary EURs which are at or above that per well average.
The Company has previously guided to a range of 2.7 to 3.0 BCFE for a typical horizontal Woodford well. Completed well costs on the past 14 wells have come down over time and the estimated completed well cost for a typical well is now expected to be in the range of $4.0 to $5.5 million per well, depending on depth and the number of completion stages. As development moves east in the play, the formation is deeper and costs for those wells will be on the high end of the cost guidance. Currently, St. Mary is operating three rigs in the play.
In the Williston Basin, St. Mary recently drilled and completed its initial three horizontal Bakken test wells in the Company’s Powers Lake and Stillwater prospects on the Mountrail and Burke county line. While the wells have shown modest production rates, the Company does not believe that the area will be commercial for the Bakken in the current commodity price and cost environment. Log data from the first of these wells confirmed the presence of the Three Forks formation under the Bakken, and information from offset operators suggests that this interval could be prospective on our acreage.
In eastern McKenzie County, St. Mary has a rig scheduled to arrive in November in our Bear Den prospect to drill several horizontal Bakken and Three Forks wells. A recent St. Mary operated re-entry well targeting the Bakken was successful in this prospect, and the Company is encouraged by offset operator activity. The Bakken formation in the Bear Den acreage appears to have higher pressure compared to the Company's acreage at Powers Lake and Stillwater.
As previously announced, St. Mary recently acquired 6,200 net acres in the Bear Den area which brings the Company’s total acreage in the area to roughly 10,000 net acres. The Company has approximately 74,000 net acres in non-legacy areas in North Dakota. Declining oil prices combined with widening differentials and restricted pipeline takeaway capacity are potential limiting factors for future development in the Williston Basin.
During the year, the Company began testing the viability of 40-acre increased density Wolfberry oil wells at Sweetie Peck in the Permian Basin. The program included 15 wells in three pilot areas. Early results from testing have been positive. Performance of these infill wells has been similar to the wells drilled on 80-acre spacing.
At the time of the acquisition of the Sweetie Peck assets in late 2006, the EURs and estimated initial production rates for the 40-acre locations were significantly discounted to reflect the unknown potential of 40-acre development. Further drilling on 40-acre spacing is expected at Sweetie Peck.
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