Goodrich Petroleum (GDP) will be increasing oil production mostly through its Eagle Ford acreage. Currently they have 55,000 gross or 40,000 net acres in the oil window. Goodrich is an oil and gas exploration and production company focused on Texas and Louisiana. Over the past five years, this company has grown reserves and production. It has a five-year CAGR of 23% with respect to reserves and a five-year CAGR of 21% with respect to production volumes. Goodrich's total core gross acreage is 279,000 (157,000 net). Goodrich has stated its intent is to grow oil production volumes based on improving margins. It has stated that its cash flow will improve significantly this year. Its 2011 budget has 70% of its cap ex going to oil, with 62% going to the Eagle Ford. Goodrich currently has a 50 year inventory of reserves. The five Eagle Ford wells drilled averaged 675 Boe/d and two Buda Lime wells averaged 520 Boe/d after completion. Goodrich has two rigs running in this area, which will drill 16-20 net wells this year. Goodrich estimates this area with 6,000 foot laterals and 100 acre spacing will produce 400 net locations. Goodrich has 45% of its natural gas production hedged at $6. This helps to produce attractive margins this year. It is realizing lower costs especially in the Haynesville shale. Most importantly higher margins and increased production should significantly grow cash flow.
I wrote an article about Approach Resources (AREX) earlier this year."Approach Resources Inc. Increases Potential Through Liquids" gave several reasons to be bullish this company. Over the past three months, this company is up almost 10% and is up over 200% over a one year period. If there is any reason to be bullish on an oil producer, one word is all that needs to be said and that is: Permian. Approach has 133000 net acres here. This company also has 4400 net acres in the East Texas Basin. It has 57.3 MMBoe of total proved reserves. Of the proved reserves, 52% are liquids. 52% are proved developed. Currently Approach believes it has up to 2780 potential drilling and recompletion locations. In its oil and natural gas liquids plays, it is 100% operated. Approach has drilled more then 525 wells since 2004 and has more than a 93% success rate. Since 2004, Approach has a CAGR of 31% with respect to reserve growth and 46% in production growth.
Growth potential through number of locations is:
- 1070 Potential Wolffork Locations
- 1230 Horizontals at Wolfcamp
- 480 potential recompletions at Wolffork
It should be noted that Wolffork has three stacked pay zones. It has possible reserves of 38.7 MMBoe. Year over year Approach has seen a large increase in oil and natural gas liquids. Year end of 2009, oil and natural gas liquids were 23% of reserves. By year end of 2010 that number increased to 51%. At the end of 2010, oil and natural gas liquids were 31% of production. It is estimated by Approach production of liquids will increase to 55%. Approach should continue to do well. I would continue to watch this company, as its future looks promising.
Vanguard Natural Resources (VNR) has increased the size and liquids resources of the company through acquisitions. If you are an investor for income, this company has a 6.9% dividend. This company IPO'd in October of 2007. Since then they have made six acquisitions. Vanguard has a diverse holding of mature long lasting oil and gas properties. They are also well hedged, which helps to support distributions. It has 69.3 MMBoe of total proved resource. Of this, 55% is oil with another 8% coming from natural gas liquids. Since Vanguard's IPO, the company's reserves have grown 519%. Also, this company was 100% gas in 2007, which has shifted to liquids through purchases. The largest and most important acquisition was done recently. Encore Energy Partners (ENP) was not only an increase in crude reserves, but also was strategic with respect to where those resources are. Encore added to Vanguard's current Permian acreage, but also granted access to the Williston Basin. Although this strategy is different from royalty trusts, c-corps., and MLPs, it has proved it works. This is an ideal investment for one looking for dividend income, plus it provides a growth platform through acquisitions.
Resolute Energy Corp. (REN) is a company I have highlighted several times this year. The best way to describe this stock is unloved. In "Resolute: Stable Production and a Bakken Upside," I covered the reasons this stock should be considered. The reasons Resolute interests me:
- 90% of reserves are liquids
- December 31st of 2010 SEC case proved reserves of 65 MMBoe
- 33000 net acres in the Williston Basin with multiple rig program
Although its Bakken holdings are important, the majority of this company's production is coming from Aneth field. This field is 94% liquids. This was a legacy asset that has already produced 422 million barrels of oil. Currently Resolute is using a CO2 flood obtained from Kinder Morgan on a nine year contract. Resolute owns the pipeline for the CO2 flood. Resolute maintains Aneth will increase production by 84% over the next five years. Resolute also has 45,000 acres in the Mowry oil shale. It plans four recompletions this year. The Niobrara oil play is also productive here near the southwest portion of Highlight. Its Bakken holdings are more exciting. This company has 23,528 net acres in Williams County, and 9848 net acres in McKenzie County. Resolute plans 20 wells in 2011. Resolute is currently working with GeoResources (GEOI) and Marathon (MRO) in its Bakken acres. In summary, this company has three good oil and natural gas liquids plays. Some 94% of its revenue comes from oil and natural gas liquids. Resolute has very good long term possibilities.
Although I have been focusing on United States oil plays, TransGlobe Energy Corp.(TGA) is a company producing in Egypt and Yemen. TransGlobe currently has 7 international blocks focusing on 5 million acres. The prospect size has somewhere between 5 and 50 million barrels. It is planning to drill 61 wells in 2011. TransGlobe not only explores and develops oil and gas properties, but it is also involved in EOR projects. Average daily production for 2010 was 9960 Boe/d. The 2011 target is 13,000 to 13,500 Boe/d, which is up significantly from 2005 when TransGlobe produced 5093 Boe/d. TransGlobe has been able to keep costs low as in 2010 it had finding and development costs of $11.06/barrel. Its three year average in F&D is $8.07. Funds flow from operations should improve significantly this year attributable to the increased price of oil. In 2010 TransGlobe had $75 million which is estimated to increase to $137 million in funds flow this year. It has a capital budget of $90 million this year. Of that 85% will be spent in Egypt with 13% being spent in Yemen. TransGlobe looks to be a good investment based on a very large acreage with a long list of inventory to drill. Due to this company's low cost of production, I would think this name has continued upside. Before investing in TransGlobe, I would suggest looking over the contract considerations with the Egyptian government.
Although I have not been covering many of the MLP's, it is hard to discount the run these names have had, all while paying large dividends.Pioneer Southwest Energy Partners (PSE) is one of those names. This company was formed by Pioneer Natural Resources Company (PXD) and now has non-operated interests in over 1100 wells in the Spraberry field. These assets are located in the coveted Permian Basin of west Texas. As of the end of 2010, Pioneer Southwest had approximately 52 MMBoe, which is up 8 MMBoe from 2009. Some 85% of these resources are liquids. Average daily production for 2010 was 6507 Boe. This year, Pioneer Southwest plans to drill 40-45 wells on a two rig program. Well costs are estimated at $1.4 million. Pioneer Southwest is estimating production growth of over 5%. Investing in MLP's does pose many questions going forward. Although tax implications make MLP's favorable investments, they are also heavily hedged to support the large dividend. If an investor believes that oil prices will continue to make new highs for some time, and is looking for much larger possibilities for growth, this may not be the investment for you. But if an investor is looking for income, or would like protection to the downside with his/her investments, it may be the way to go. Either way, MLP's will continue to benefit from higher prices, and will be shielded by large dips in pricing to the downside.
Kodiak Oil and Gas (KOG) is a company I have followed for some time. Kodiak has 70,000 net acres in the Bakken/Three Forks area. Potentially 320 locations are possible here. Kodiak has done a very good job of increasing production. In the first quarter of 2010, Kodiak produced 1000 Boe/d. Estimated 2011 production will fall somewhere between 5,500-6,500 Boe/d. Its 2010 proved reserves were 11.5 MMBoe, with 87% of this being oil. Four total rigs will be running here, with one being non-operated. Its $200 million in cap ex will be spent this year, compared to $75 million last year. Some $190 million will go to drilling and completion. The other $10 million will be spent on pipeline infrastructure to decrease costs. It has 23.4 net wells budgeted for this year. Advances in technology with respect to drilling Bakken wells have increased significantly. In Dunn County, the average long lateral well will cost between $8 and $9 million. The estimated ultimate recovery is between 750 and 850 MMBoe. Long laterals have continued to show marked improvements in IP rates:
- 2009 30 Day Short Lateral-420 Boe/d
- 2010 30 Day Short Lateral-716 Boe/d
- 2009 30 Day Long Lateral-669 Boe/d
- 2010 30 Day Long Lateral-1170 Boe/d
The economics west of the Nesson are not quite as good. EUR's are between 500 and 700 MBoe. Overall Kodiak is increasing production quickly. It has six operated wells waiting on completion. Two wells are projected to be completed in the second quarter of this year. Four operated wells are on active drilling pads. Two non-operated wells are waiting on completion. Some 10.9 net wells were drilled in 2010, and 23.4 net wells are projected to be drilled in 2011. For more info on Kodiak, check out "Kodiak Oil and Gas: Exponential Production Growth."
In summary, all of these names look good going forward. As long as this trend holds, we will continue to see very good margins in the oil drillers, with natural gas lagging. Even with news from Goldman Sachs stating short term oil prices have more downside, there are very few analysts stating long term oil prices will not increase.
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