Development-stage oil and gas E&P, Falcon Crest Energy, successfully bought up the last of the Rocky Ford Oil Field (Crook County) working interest in Wyoming’s Powder River Basin (PRB) last month and thereby achieved a 100% WI in the 584.78-acre oil patch on the eastern edge of the PRB. Crook County is right up there when it comes to oil production in the state, with 102k bbls in November 2014 according to DrillingEdge, alongside counties like Fremont County, where some of the state’s top producing wells are and where over 312k bbls of oil were pumped out in the same month last year. Several of the state’s top oil producers, like Anadarko (NYSE: APC) 709k bbls in November, EOG Resources (NYSE: EOG) 587k bbls and Marathon Oil (NYSE: MRO) 590k bbls, continue to be bullish about their ability to unlock the vast oil and gas reserves within the PRB, despite WTI hovering somewhere under the $48 mark as of late March 2015.
Despite declining rig counts due to the slump in oil prices, the PRB continues to be one of the most attractive domestic plays and saw 78k bbls/day production numbers last year (EIA), having produced 19% more oil for the year than in 2013, with some 75 million barrels in all. Roughly the same amount of gas (around 2 trillion cubic feet) was produced last year in the state as in 2013 and exit data for the month of November 2014 showed roughly 6.4 million bbls of oil and 161 million MCF of gas were produced from over 32.3k currently-producing wells during the month. The underexploited acreage FCEN is exploring to the east of Moorcroft, on the eastern edge of the PRB, is particularly attractive compared to some of the other targets in the state, due primarily to the shallow target depths of under 1k feet. CEO of FCEN, Patrick Johnson, went on record in February this year, even after January’s lows of around $47/bbl, saying that Falcon Crest could “do very well, even at $50 oil.”
The exceptional project economics at Rocky Ford, where the all-in costs for exploration and development are very low, are exactly the kind of projects the industry is hungry for amid falling spot prices. Johnson is confident that such conventional, non-shale, non-fracking opportunities as the ones available at Rocky Ford present the kind of premium metrics contemporary oil investors are looking for. Regional development has been immense as well, creating a nice logistical backdrop for the company and with daily production in the state having risen by as much as half over the past five years (EIA), all that high-velocity development muscle and capital has to increasingly go somewhere other than the more costly projects with deeper targets.
Falcon Crest is in a good position here to attract larger sector players who are looking to shore up their production budgets during the price downturn cycle and the company could even pull in attention from over-developed plays like the Bakken in North Dakota. There are a small handful of underdeveloped conventional target formations left in the PRB and much of the more recent activity has been focused squarely on the costly tight formations. Stack this reality up against factors like the move by major sector player (and the second largest natural gas producer in the country) late last year, Chesapeake Energy (NYSE: CHK), where they swapped for some key oil production acreage (net acquisition of 66k acres from private E&P company RKI) in the PRB and paid a $450 million bonus on top to seal the deal, and you have a clear testament to the underlying dynamics at play in the PRB. Moreover, CEO of CHK, Doug Lawler made it clear that Chesapeake was bullish about the PRB’s oil potential and sees the basin as a “major oil growth engine for the company.”
The Chesapeake deal didn’t look too hot to some analysts, especially considering the big chunk of cash CHK handed over, but savvy investors will understand what Chesapeake already knows, especially after the company put in a 9.6k foot horizontal well in the Niobrara prior to the RKI deal, expending only 32 days of development time, for a super cheap cost of only $5 million. Namely, drilling costs in the PRB can be extremely attractive and have fallen considerably. This kind of external activity within the state has Falcon Crest excited about their shallow targets and the potential to do conventional oil production from them at low cost.
Investors will want to take a closer look at the company by visiting: www.FalconCrestEnergy.com.
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