Tuesday, January 25, 2011

Shale Still in Play for Some

Shale drilling takes a particular expertise. Recently we have seen companies with this expertise do very well as shales and their millions of barrels are just waiting to be tapped. At first, horizontal drilling was performed on natural gas wells, and recently this was expanded to oil. If we are to use the Bakken shale as an example, where drillers are getting about 95% oil, companies like Brigham Exploration Company (BEXP) or Continental Resources Inc. (CLR) are making a mint.
Carrizo Oil and Gas Inc (CRZO) has this expertise. Carrizo is in a situation that could be something great. They were founded in 2003 and since then they have been busy. As of December 31st of 2009, they had participated in drilling 786 wells. At that time they had a 73% success rate.

Carrizo has a sizeable position in the North Sea. They also have accumulated several shale acreages:
Fort Worth Barnett 47000 acres
Marcellus Shale 111290 acres
Marfa Basin 58000 acres
Fayetteville Shale 26000 acres
Eagle Ford Shale 20000 acres
Niobrara Shale 61000 acres
Carrizo's plan is strong organic growth. To do this they are drilling for gas in the Barnett and Marcellus. The Eagle Ford and Niobrara will be drilled for oil. They plan to drill the low risk Barnett Shale initially. Estimates have this location's proved reserves at 570 Bcfe with potential for an additional 780 Bcfe. There are 470 potential well sites (500 foot spacing) . They are planning on developing their Marcellus Shale position. They are planning on being much more aggressive with respect to their liquids positions. Due to the better margins, the Niobrara and Eagle Ford Shales are a priority. In 2010, Carrizo drilled 5 wells and frac'd 3 in Eagle Ford. Eagle Ford will have up to 2 rigs running this year. The Niobrara had 3 drilled and 1 frac'd, and are expecting at least one rig running. These two areas could add up to 7000 BOED sometime this year. At today's prices this will increase production by one-third and double revenue. 

No comments: