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Patrick J. Murphy is the owner of Murphy Analytics LLC, a provider of sponsored research coverage on smallcap stocks.
Woodford Shale Emerging as a Leading Domestic Oil and Gas Play
As noted by American Petro-Hunter (OTCBB:AAPH) CEO Robert McIntosh in the Company's January 2011 Corporate Newsletter, production in the Woodford Shale has skyrocketed over the last few years. CEO McIntosh and others have referred to the Woodford as a world class oil and gas target, an assertion that seems justified given that the Woodford Shale now ranks second domestically in gas production and fifth in oil production. Following is data and commentary related to the operations and outlook for some of the Woodford Shale's most active players.
Devon Energy (NYSE: DVN): In a presentation at the Oppenheimer Unconventional Oil and Gas Conference, DVN noted that its Woodford assets benefit from a low cost of entry at approximately $2,200 per acre and a low average royalty burden at approximately 21%. The Company also notes that it recently completed construction of a gas processing plant, and after drilling 87 wells in 2010, DVN plans to drill over 200 wells in the Cana-Woodford Shale in 2011. Discussing the Company's Q4 2010 earnings, CFO and Executive Vice President Jeffrey Agosta commented on DVN's interest in the shale:
"Moving to the Cana-Woodford Shale in Western Oklahoma, we continue to add to our acreage position during the fourth quarter and now have approximately 243,000 net acres. Devon is currently operating 23 out of the 39 rigs running play-wide."
Marathon Oil (NYSE: MRO): At a recent Credit Suisse conference, MRO noted its interest in the Anadarko Woodford Shale play, with 3 rigs operating currently and 8 planned by the end of 2011. The company also observed that returns there are among the highest of domestic resource plays, and while exiting 2010 at approximately 1,500 BOED, MRO estimates that, by 2015, it could reach a peak rate of 30,000 BOED. In the Company's Q4 2010 conference call, Executive Vice President David Roberts noted that MRO plans to more than double its acreage in the area:
"Marathon also holds 86,000 acres in the Anadarko Woodford area, an area where we have operated for decades, and we have line in sight on new opportunity to increase that position to over 100,000 acres shortly. Importantly, we will have eight rigs in the play by 2011 by the end of this year."
Continental Resources (NYSE: CLR): In its October 2010 Investor Day Presentation, CLR noted that the Company is the top leaseholder in Anadarko Woodford, with 252,000 net lease acres. The Company also notes that its first Woodford well was completed in Q1 08, and had increased to over 25 by July of 2010. For 2011, 20% of CLR's $1.4 billion capex budget will be spent in Woodford, which it refers to as one of the plays critical for tripling the Company's production from 2010 to 2014. Commenting on CLR's view of the Woodford during the Q4 earnings call, President and COO Jeffrey Hume said:
"We're very encouraged with what we are seeing in Anadarko Woodford. In early 2010, we stepped out into the Northwest in the Anadarko Woodford in Blaine and Dewey Counties and demonstrated that the Anadarko Woodford was much larger and had more potential than just the core Canadian County part of the play. We were successful and other operators have followed. Activity has ramped up dramatically in the Northwest Cana where there are now 43 rigs drilling."
Cimarex Energy (NYSE: XEC): Noted in the Credit Suisse presentation, XEC has over 100,000 net acres leased in the western Oklahoma Cana-Woodford play, and with eight operating rigs, this is the Company's largest single investment area. In 2010, XEC spent $335 million in capex in Woodford, increasing by 65% over 2009 its net wells drilled in the region, and XEC notes it expects "significant future drilling" in the Woodford. Commenting on the Company's view of the Woodford opportunity in the Q4 earnings call, Executive Vice President of Exploration Thomas Jorden stated:
"There's a lot here we're still trying to figure out, but we are absolutely delighted with this play and what it will contribute to our 2011 and beyond. This is a huge, huge impact to our reserves production and future capital program. We're having very, very good results."
Newfield Exploration (NYSE: NFX): As noted in its presentation for the Simmons & Company International Energy Conference, NFX plans to double or triple the number of wells drilled 2011 in the Woodford Shale, where the Company has 172,000 net acres. NFX also plans to continue to assess additional locations in the western area of its acreage, which the Company considers to be "oily drilling" and in the eastern area of its acreage, which NFX characterizes as more gas prone. In the Company's Q4 2010 earnings call, Chairman, CEO and President Lee Boothby address the Company's growing understanding of the Woodford play as well as the commitment to further investment there:
"Last week, we talked about a new play for us in the area: the Oily Woodford. Over the last two years, we've drilled a half a dozen wells to assess the Woodford on the western side of our Arkoma Basin acreage. We see the potential to drill more than 100 wells in this new play area, a great option to have during a period of low gas prices. For those of you that remember our original Woodford maps or toured the Woodford Shale back in 2006, you may recall a line that ran north to south across our acreage, separating the basin centered gas acreage to the east from the wet gas oil prone acreage to the west. Our tremendous learning curve in drilling efficiency gains and learnings relative to oil shales for the last couple of years have helped us crack the code in this new play area…Because of the oil and rich gas, the economics of this play have pushed it toward the top of our investment list. We plan to drill 12 to 18 wells here in 2011."
New production technology and higher overall energy prices have not only made shale gas reserves an important of our domestic energy policy, but also create an appealing investment opportunity for those interested in the major oil and gas producers as well as the juniors, like American Petro-Hunter. While the majors ramp up production much more quickly than is possible for the juniors, the smaller producers do benefit significantly from the knowledge gained by the majors, and are able to incorporate this information into their drilling activity, enabling juniors like AAPH and others to benefit from the significantly larger capex budgets of the majors, and making them an investment opportunity worth investigating.
Patrick Murphy Bio:
Patrick J. Murphy is the owner of Murphy Analytics LLC, a provider of sponsored research coverage on smallcap stocks. Mr. Murphy has over 15 years of capital markets experience providing institutional investment and transaction analysis across a range of asset classes including microcap equities, commercial real estate debt and equity, municipal derivatives and public finance, venture capital, fixed income, CMBS and mortgage REIT's. In addition to his work with Murphy Analytics, Mr. Murphy also serves as a consultant to a municipal derivatives advisory firm. Mr. Murphy is an alumnus of the University of Notre Dame (1991), with an undergraduate degree in Economics, and earned a Masters Degree in Finance from St. Louis University in 1997. Mr. Murphy is a CFA Charterholder and a member of the CFA Society of St. Louis.
Patrick Murphy Disclaimer:
Readers are advised that the above article is solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. The views expressed herein are based upon the author's analysis of the issuer's public disclosures, and assumes both their accuracy and completeness. The opinions and statements included herein are based on sources (including the companies discussed and public sources) believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. The author has not independently verified the information contained herein. This information is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. You should review a complete information package on all companies, which should include, but not be limited to, the Company's annual report, quarterly reports, press releases and all regulatory filings. The foregoing discussion contains statements which are based on current expectations, estimates and projections, and differences from such expectations, estimates and projections can be expected.
The author, Patrick Murphy, was compensated $350 for writing this article by InvestorIdeas.com. Mr. Murphy does not own shares of any of the companies mentioned in this article. Mr. Murphy expects his research firm, Murphy Analytics, to be engaged for the provision of a research report on AAPH in March 2011.
More info: American Petro-Hunter, Inc. (OTCBB: AAPH)
The Company is a goal-oriented exploration and production (E&P) Company aiming to become an intermediate level oil and gas producer within 12 months. The Company is in production at the Poston Project in Trego County Kansas with new drilling activity and production underway at the North Oklahoma Oil Project. With the achievable target of becoming a 1000 BOE producer as our goal, American Petro-Hunter is actively on the hunt for domestic petroleum assets. www.americanpetrohunter.com
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