Samson O&G held a three-day management meeting the week of September 23, 2010, including a field tour of the Company's primary operations, meetings with the Company's outside advisors and a comprehensive strategic review meeting. At the conclusion of the meeting, the Board approved the Company's growth strategy, capital budget, an operational plan and other initiatives described in this announcement. In summary, Samson intends to focus on developing its two oil plays in the Bakken in North Dakota and in the Niobrara play in Wyoming, rationalizing its existing gas producing portfolio and developing a suite of new prospects in the onshore Gulf Coast Basin.
Since closing the sale of 24,066 acres of its Goshen County, Wyoming acreage position with Chesapeake Energy Corporation, which is prospective for the Niobrara oil shale play, Samson has accumulated a cash balance of approximately US $70 million. Samson's Board of Directors, after conducting a comprehensive review of operational, financial, economic and technical data, has developed a sustainable growth plan that calls for the investment of Samson's new capital resources into a conservative and measured exploration and development program focused on developing and extending its existing oil assets and building an inventory of new prospects and other attractive opportunities.
North Stockyard Oil Field, North Dakota
This field contains six 640-acre sections in which Samson has participated in the drilling of five Bakken wells, including the Earl #1-13H, which is currently being drilled, and the recently drilled Rodney #1-14H well, which is waiting on a fracture stimulation. Assuming 640-acre spacing, the sixth well (the Harstad #2-15H) is expected to be spud in late 2010 or in the early part of 2011 and would be the final Bakken well drilled in the company's existing leasehold. The Harstad #2-15H would twin the existing Harstad #1-15H well, which was completed in the Mission Canyon Formation. Because Samson believes that the field will ultimately be approved for development on 320 acres, it is likely that there will be an additional four drilling locations. The timing of these wells, however, depends on significant regulatory and commercial arrangements and is therefore uncertain.
Bakken Extension, North Dakota and Montana
Samson continues to examine projects for extending and expanding the company's exposure to the middle Bakken horizon in both western North Dakota and eastern Montana as a partner or an operator. The Bakken oil shale play is well-established in the region and current acreage values remain attractive, primarily because the play is so extensive it continues to provide an adequate supply of quality acreage.
Hawks Springs, Wyoming
After the sale of 24,066 acres in Goshen County, Samson holds approximately 17,000 net acres in Goshen County, Wyoming that are prospective for the production of oil from the Niobrara Formation. The company's preferred development strategy for the retained leasehold, referred to as the Hawk Springs project, is to farm-down a small part of its retained interest to a strategic partner. Ongoing discussions with prospective strategic partner(s) continue to progress and as a result, Samson is actively advancing its development plan, which comprises three steps:
In addition to the Niobrara formation, there are two additional recognized target horizons in the region, including the J Sand and the Codell. The previously described 3-D seismic survey is designed to assess all three horizons to identify additional commercial potential for the purpose of mitigating total project risk.
Samson's early review of the project area has revealed several very attractive features of the Hawk Springs project:
This initial review therefore has established that, whilst Goshen County, Wyoming has not been a highly active petroleum region in the past, the development of this resource will be eminently feasible and relatively inexpensive.
Samson has noted that the industry activity in the Niobrara has increased sharply with some recent horizontal wells being reported with initial production rates of:
In addition some 86 well permits have been issued on are awaiting approval in the Goshen and Laramie Counties in South East of Wyoming, and industry reports suggest that in excess of 1000 square miles of 3D seismic data has or is in the process of being acquired. All of this activity points to the emergence of an emerging horizontal oil play.
Gulf Coast Basin
Samson intends to utilize its considerable in-house capability to generate quality prospects and selectively pursue the development of a prospect portfolio in the onshore Gulf Coast Basin. The Company's Board of Directors hold the view that existing natural gas producers in the United States have the assets and resources to react quickly enough to meet any short-term increase in demand, making it likely that gas prices will remain low in the short term. Therefore, In light of the current and prospective commodity price, Samson's near term gas drilling will be restricted to the Diamondback well, which is due to spud in November. At current gas prices Diamondback remains an attractive investment but Samson's development focus will remain on its two oil projects.
Notwithstanding its plan to defer drilling gas wells at this time, because existing 3-D seismic data can be acquired for such properties cheaply in the current pricing environment, Samson will be looking for opportunities to develop a quality prospect inventory.
The Board of Directors has approved an initial capital budget of US $11.2 million for fiscal year 2010/2011, which ends on June 30, 2011, for drilling and for seismic data acquisition. This budget assumes that the North Stockyard development is completed as outlined above, the North Platte 3-D seismic is acquired, and the initial two wells in Hawks Springs are fully carried, along with the drilling of Diamondback.
The Board of Directors also reviewed a conditional budget which assumed that the initial appraisal of Hawks Springs was successful and that full-field development was initiated based on a determination that the appraisal well results demonstrate the viability of commercial development. In this event, the capital budget would increase to approximately US $36.7 million, reflecting the additional drilling that would proceed in Hawks Springs. It should be emphasized that this expenditure has not yet been approved by the Board
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