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We are hearing bullish rumors about the new Matthews well in the San Miguel formation, drilled by Quadrant LLC -- very substantial production numbers. To earn it's 50% interest, Quadrant was obligated, under a deal announced in April 2014, to establish production by June 15. Apparently, that part is done and STTX is acquiring additional acreage, possibly in collaboration with another public company, Eagleford Energy. The following comes from the STTX website:
"...the Zavala County Lease covers and includes the Surface-San Miguel Interval underlying such lands, which we call the Development Area. At such point in time, Stratex and Eagleford Zavala will each hold a 25% working interest in the Development Area. With respect to seven of the eight Phase I Wells, Stratex has the right to receive 16.66% of the revenues before Payout and 25.0% of the revenues after Payout. Management believes that there are up to 42 horizontal drilling locations in the Eagle Ford formation alone as well as 14 horizontal locations in the Austin Chalk and 32 horizontal locations in the Buda, with significant additional inventory available from the San Miguel formation locations."
Looks positive, from where I sit. STTX sheds a salary, claws back stock. Gaines wasn't adding much: he and Funk both have investment banking backgrounds. Gaines' tenure as Richfield's chair was marred by the abject failure of management to establish a retail following (the idiots went public without an IPO, forheavensake!) The switch also offers the company the chance to make a statement with the appointment of its next chair, who ideally will be an oil man. STTX's UT properties are tragically undervalued, but that should change next month, as Whiting Petroleum posts production numbers for the Moroni 11M well.
The rumor is that Whiting will pump out the 100K+ bbls of drilling fluid leftover from fracking operations at a rate of 3,000 bfpd. In its recent filing, Whiting indicated that one third of the fluid production on March 4 consisted of oil. If that ratio holds up during the jet pump phase, now just getting underway, the world will take notice. Wolverine's Kings Meadow Ranch well had production of less than 1,000 bopd, yet merited a feature in Oil an Gas Journal. Whiting's discovery in Moroni is potentially much more important, because the Tununk shale is a resource play covering hundreds of square miles, whereas the Navajo sandstone in Covenant is basically a one square mile trap.
When it dawns on the industry what Whiting has done (discoveries of this magnitude are exceedingly rare), all eyes are going to be on Whiting's neighbors. STTX isn't going to develop its UT acreage on its own;it will need JV partners with know-how and deep pockets. This is where bringing in an established oil man with extensive industry contacts should help. It's a space we should all be watching.
At the hearing yesterday, Whiting was granted permission to produce the well for 270 days. We learned that the well has been opened back up after being shut in for a couple of weeks. They will have to let the pressure bleed off for a day or two before they can install the jet pump.
Jet pumps can handle huge flows -- up to 20,000 bbls per day -- are capable of moving large quantities of sand and other solids, and are relatively impervious to acid. An added advantage is that, although jet pumps are big energy hogs, they can be powered by well gas -- which is what Whiting appears to be planning here. You can read more about jet pumps at: http://www.flowfastjetpumps.com/documents/Rethink-ArtflLift_whitepaper.pdf
Sidebar discussions with the hearing officers point to some real excitement about the implications of the Moroni discovery.
The 10-k is a portrait of a little company that has made some big bets that had better pay off, and pay off soon. If this makes some investors jittery, well, that is exactly what they should be. Companies with balance sheets like STTX aren't producers, they are high-risk/high-return exploration plays. There are lots of junior-juniors that have production to sustain them from one quarter to the next. Not STTX. Rather, STTX is all in on at least two rank wildcats, in areas with no other producing wells for more than 20 miles in any direction. So the real question is: how are these projects doing? On this, STTX management has been appropriately tight-lipped. But that should change.
As some of us have been documenting on these pages, at least one of those wildcats -- the joint venture, in which Whiting Petroleum has drilled the Moroni 11M test well -- is showing concrete signs of success. STTX should receive some value for its participation in this 31 sq. mile project. Five percent of 31 is 1.56 sq. miles, suggesting a net of about 3 Moroni style wells, whatever those turn out to be. But news on this front will be slow in coming, because the process of cleaning up the test well has only begun. The recent filing suggests that, even if production is ramped up to 3,000 bfpd, it could take 2 months to pull out the drilling fluids used in fracking. Only then will we know what Moroni 11M is capable of. The recent filing by Whiting is pretty encouraging, but hardly definitive.
Even assuming that the Moroni 11M is a big success, there is a question as to whether any of the STTX 100% working interest acreage (of which the company reportedly controls about 40 sq. mi.) sits above the Tununk shale. If the easternmost edge of the Tununk goes all the way to Fountain Green, then STTX could have dozens of locations locked up. It's not clear from the 2-D seismic that I've seen that it does. The best case is a company that, in three years time, will have a market cap in the hundreds of millions, if not billions, of dollars. The worst case is that time will run out, creditors will take over and lease options will evaporate. The 10-k is that dismal.
Then there is the Texas wildcat that, so far, no one on these pages has gossiped about. My sources say STTX has a 25% carried interest in 6 wells in this play, and that the test well is going into production. We'll know soon enough whether this rumor pans out. Because if it's true, there should be an announcement soon.
@Oilcard - Your guesstimate of 30-40MM bbls recoverable per square mile would indicate STTX is undervalued! Let's see: if STTX has 5% of 20K acres in the Whiting JV, that's about 1.56 square miles net; times,30MM bbls/sq. mi, equals about 46MM bbls recoverable, net; times $58.00/bbl, that's $2.7 billion with a "b". Undiscounted, of course. Can anybody tell me what the present value might be, given normal decline curves and such? Whatever it is, it has to be more than the STTX market cap.
From the 4/8/15 filing to the UT oil & gas authorities:
* On 4/8/15 they shut down the well, in order to build up pressures. In May they plan to pull the tubing, and put in a jet pump, to conduct a rate transient analysis. RTA is designed to calculate reservoir potential and, hence, reserves and spacing. (p. 8)
* During fracking operations, the well took 160,683 bbls of water and about 3,800 bbls of HCL.
* There are 1,276 vertical feet of the Tununk formation (p. 9)
* Samples were taken in a 188 foot interval from a depth 11,370-11,558 feet
* On 3/4/15 they produced 248 bbls of water, 81 bbls of oil, and
142 MCF of gas. The oil is 47 gravity, meaning it is light crude. (p. 10)
* It was flowing naturally, not being pumped, on a 12/64" choke.
* Permeability ran from .0005 to .934 milladarcies (p. 13). The
former value is not unusual for shale; the latter value is very high.
* They have been using a combustor to minimize the flare (p. 17)
The filing pretty confirms most of what I have been saying. The well consumed an unusually large amount of water, reflecting high
permeability. It has thus far been allowed to flow on its own, which is unheard of for a shale well. Nevertheless, getting the drilling water out over the next few months is going to take much higher flows, which will require pumping. That pumping will generate much higher gas flows. We probably won't hear anything for a couple more weeks -- possibly early May.
New Whiting filing points to significant gas flows.
https://fs.ogm.utah.gov/bbooks/2015/02_Feb/Dockets/2015-001_176-05_Whiting/2015-001_20150408_MotionForLeaveToFileHearingExhibitsOutOfTime.pdf
@Sun 7 - The reason Whiting filed for a permit to (greatly) exceed the 500 MCF per day flaring limit is that gas has overtaken the water column. What follows is just conjecture.
Earlier this month, I'm told, fluids flows, consisting of an oil and drilling water mix, were brisk. Even so, the operators had recovered much less than half of the water pumped into the formation during fracking operations. But in recent weeks, the gas flows picked up, requiring that fluid flows be cut back sharply, so as to prevent the well from exceeding the 500 mcfpd regulatory limit. At the current rate, it could take a year and a half -- maybe two -- to clean up the well.
The good news is that the fluid is rumored to have a high oil content. The bad news is that less water is coming out as a result. Even at 1,000 bfpd, we're talking about several months to see what Moroni 11M can really do. Because water is heavier than oil, it retards flows. Cleaning it up is an essential first step in realizing a well's production potential.
In the late-1990s, the Moroni 1A well, drilled by Cimarron Energy, had exceptional flows, but failed due to technical problems. Based on this record plus conversations with knowledgeable geologists, my guess is that, when the Moroni 11M is finally produced at optimum capacity, we'll be looking at 2,000 bopd or more, plus gas (they'll need to build a gas pipeline up the valley, past Fountain Green and west to the trunk line at Nephi -- about 12 miles).
But Moroni 11M may not be the optimal configuration. That's because the Tununk is not behaving according the standard model for shale. There is no way the formation should have absorbed as much water as it did. It is apparently highly permeable -- pre-fracked, if you will. This suggests two things. First, it might be optimal in the future to complete into this zone with much shorter horizontals, or perhaps just vertical well bores. Intensive fracking, as was done this time, might not be needed. This would mean tighter well spacing, and quicker completions, than currently envisioned. Second, high permeability should translate to a lower decline rate than seen in, say, the Eagle Ford or Bakken shales. Instead of one well per square mile producing 2,000 bopd, you might get eight wells producing, I dunno, 300-400 bopd. We'll see.
The Oil and Gas Commission very likely will not want this completion dragging on for many, many months. Expect gas flares that are visible from the International Space Station!
"Since March 17,20l5,the V/ell is averaging between 400-500 MCFD per day," says a Request for Agency Action filed last Friday with the UT Oil and Gas Commission on Friday (see link, below). The gas is coming so hard and fast that Whiting is having to choke back the production of fluids. Rumors I am hearing say considerable drilling fluids remain to be recovered, and yet half of flows are oil. If so, this is pretty unusual, and would comport with earlier rumors that the well is significantly over-pressured (a good thing).
According to the filing, there isn't another productive well for 22 miles in any direction. This is a new discovery. STTX only owns a 3% WI on the test well and 5% of the remaining locations on the 20K acre joint venture. Nevertheless, they control 100% WI interest on another 30+ square miles abutting the Whiting acreage to the west.
https://fs.ogm.utah.gov/bbooks/2015/02_Feb/Dockets/2015-001_176-05_Whiting/2015-001_20150403.2_AmendedRequestForAgencyAction.pdf
This link is to a pic showing heat signature at the Moroni 11M well site (left side of photo).
https://dl.dropboxusercontent.com/u/14558109/Whiting%20Sanpete%20locations.ppt
Oil-investor, I am not concerned at the lack of announcements... yet, anyway. The UT Oil & Gas Commission hearing to discuss gas flaring was postponed until April 23. We should hear more then. Meanwhile, I am hearing that the Moroni 11M is way out of the ordinary for a shale well. No shale well has ever flowed back drilling fluids like this. A narrative passed around in 2013 by Skyline, the company that sold Whiting its original 160,000 acre stake, predicted -- based on logs from a side-track drilled by Cimarron Energy, an Oklahoma outfit, in the mid-1990s -- that the formation is highly fractured (hence, not "tight") and over-pressured (perhaps an understatement). They predicted a 2,000 bopd IP per well. If this was a plain-old Bakken or Eagle Ford well, we would not be seeing production for a while yet. It's worth noting, however, that Cimarron, and before that Hansen and True Oil (who partnered on the original Moroni #1AXZH wildcat way back in 1976) had great oil shows, but experienced mechanical problems -- which is why folks are only now circling back to it. I'm all for victory dances in the end zone. But another month of production won't hurt. For now, you can buy a decent sized stake for lunch money.
I'm hearing the same thing, oilcard. Sources report oil trucks coming and going on the Moroni 11M well site. Flaring gas is being concealed through a chimney of sorts, but heat signatures are visible to the naked eye. We’ll see if we can’t rustle up some infrared images. Whiting was set to have had a hearing on this flaring in Salt Lake last Wednesday, but on March 19 filed for a continuance (see link, below). The matter is now set to be taken up on April 25 -- not in Salt Lake, where such meetings are usually held, but in far-away Moab, removed from prying local eyes.
https://fs.ogm.utah.gov/bbooks/2015/02_Feb/Dockets/2015-001_176-05_Whiting/2015-001_20150319_ThirdMotionToContinue.pdf
This intrigue suggests that Whiting is still in the land acquisition phase. The original acquisition consisted of 160,000 acres. Maps indicate that the STTX and Whiting acreage run cheek and jowl for 12 miles up the valley, and in some sections, are intermingled.
Below I have pasted a link to slides showing (1) a photo of the Moroni 11M well site -- replete with large holding tanks, (2) Whiting permit records from the UT Oil & Gas Commission and (3) a satellite map pinpointing the locations of the Moroni 11M well (now producing) and next two permitted wells. The new locations are called “step-outs,” because they are designed to prove out all the acreage in between them and the discovery well. The red marker in the map approximates the southeastern boundary of the STTX 100% WI acreage, which runs up the valley a few miles north of Fountain Green. STTX also has a working interest in at least one -- possibly both -- of the step out wells.
Of particular interest is the Fountain 35M well (the blue marker closest to the STTX position), which was permitted only last month. If this well is successful it should have a beneficial effect on STTX acreage values. STTX has its acreage tied down by 10 year leases, most of which are very new. Fountain 35M is only a couple of miles from the STTX acreage, but it could go even closer if Whiting's planned horizontal (about a mile long) aims west.
Right now there are two theories on the STTX acreage. Either the Tununk shale peters out about where the Moroni 11M well is, or it continues over to the mountains on the left hand side of the satellite image. In the latter event (more probable, given multiple geological indicators), the shale is likely to be thoroughly ground up and, hence, very permeable. Whiting may have found evidence of such fracturing in Moroni 11M.
https://dl.dropboxusercontent.com/u/14558109/Whiting%20Sanpete%20locations.ppt
Yesterday's bump in trading activity, though welcome in one respect (nobody follows this godforsaken stock!), actually was a little disconcerting, because the company is not disclosing what is obviously a material event to its investors. Somebody knows more than you do (or did), and is acting on it. Could it be that the "money people" they were briefing in NY yesterday were getting an unfair jump on the market? (Pity the goofball who dumped at 4 cents yesterday.) The answer isn't for everyone to clam up and tell the money guys to bugger off; rather, it is time for some press releases. If the rumors I am hearing are correct, events at the well site are unprecedented.
Whiting has a major discovery. They are flaring gas, a lot of it. They have installed very large holding tanks -- it looks like about 10K bbls worth. They have applied for a permit for a processing facility. The rumor is that this well could set records. STTX owns a 3% interest in the discovery well and 5% interest in the surrounding 150 or so locations (the JV is 20K acres). STTX also has (or will have, when it exercises its lease options) a 100% WI in about 20K acres to the north and west of the JV acreage. According to STTX management, they have about $6MM in cash, which should be more than enough to participate in the next couple wells in the Whiting JV. Whiting has permitted one such well about 2 mi. north of the first (that much closer to the STTX acreage). What it means is that STTX's proved reserves are about to take a big bump upward, by several times its current market cap. And because this is a shale play (basically, a big slab rather than isolated traps), it's very likely that many of the other STTX locations -- more than 100 in all -- are going to be productive. News is going to come out in the next few days and weeks that radically changes the market's view not just of STTX but Whiting itself. Developments at the well site have been kept under wraps while the JV partners quietly gobbled up acreage. Now they're done. Whiting could have as many as 350 square miles under lease. Now that Whiting has committed to raising $2B in a public offering, expect the cat to come racing out of the bag in a big way.
Another STTX joint venture is nearing culmination about 20 miles northeast of the Moroni test drill. Investors should take note because, although the well carries demonstrated technical risk, positive results could prove out significant reserves.
Richfield, which STTX merged with earlier this month, has been in and out the so-called Liberty #1 well, in Nephi, UT, at least four times since 2010. The operators now are in the process of drilling their third entry into the Twin Creek. Despite some promising signs, the earlier efforts came to naught due to the chemistry of the rock. Yet analyses of core samples indicate something extraordinary: Not only is the pay zone highly hydrocarbon saturated, it is unusually fractured. Permeability is an unheard of 36%. So why, then, is Liberty #1 not producing several thousand bopd, as one might expect? One answer is that the reservoir is “water wet” (Google it), meaning, simply, it reacts to water-based drilling mud by swelling up and closing down. Most recently, in a procedure conducted earlier this year, the fracture system became clogged with paraffin. In the current procedure, the operators are treating the drilling mud with chemicals specially designed to prevent such interaction. (More on such treatments can be found on the website of ARC Fluid Technologies.) A related technical challenge may arise from the fact that the pay zone is relatively shallow; hence, reservoir pressures may not be enough to overcome any clogging.
With a WI of about 10%, STTX has only a limited upside in this test well. And the total acreage in hand is relatively small – less than 500 acres. Nevertheless, sources say that analyses performed by Halliburton and others indicate that potential reserves, even on this tiny footprint, might total 100MM+ bbls, and that the company owns options to acquire significant adjacent acreage in the event the fifth time is the charm.
STTX needs to make an announcement regarding material developments in Moroni, UT. By virtue of its recent merger with Richfield Oil and Gas, STTX is a minority JV partner with fracking giant Whiting Petroleum in a series of 13K' deep wells on the westernmost portion of the Mancos Shale, abutting the Gunnison Thrust. Their joint acreage encompasses 20K acres. STTX, I believe, has only about a 5% WI in this AOI. But both companies have been quietly enhancing their positions in and around Moroni, and STTX net acreage now totals about 20K acres. Whiting came into the deal late last year, when it acquired 162K acres from Halcon Resources. In September, they spudded a test well. They reached total depth in late November, and in December drilled a 1 mi. long horizontal. Word of mouth is that Whiting has a monster on its hands. The Mancos in this section is said to be 2,500’ thick and is essentially pre-fracked by the same geological forces that created the Overthrust. As Whiting neared TD, it reportedly needed a gasbuster to deal with constant oil flows. If the rumors are correct, and the test well is indeed equivalent to the best of the Bakken, STTX needs to announce something soon, lest investors like Wally Balls hit the panic button prematurely.
Word from the well site is that permeability in the zone they perforated is crazy high. We know from analyses made public last year that the formation they are in has very high hydrocarbon content with a pure Mississippian era signature. The early presence of condensate amid the filtrate confirms that they have hit the oil leg. These indicators point to a good, maybe even spectacular, well. Another positive sign: they have, at considerable expense, installed the equipment needed to handle high condensate flows. The well is reportedly in a clean-up phase, but Halliburton is on site this weekend doing procedures. It all looks very serious.
Let's say that they have a good well, as now seems possible. It will be the only producer for 80 miles. In fact, it is the only well on the western-most Paxton Thrust of the Central Utah Hingeline. The implications are huge.
USGS estimates that the carboniferous deposits in Nevada and western UT generated up to 3 trillion bbls, much of which would have migrated eastward. In the 1970s majors led the hunt, before going elephant-hunting overseas. Using old Standard Oil data, Wolverine found vestiges along the Gunnison Thrust in 2004 and 2008. It appears, however, that Richfield has found the fabled migration path. If so, all of the traps directly to the west, including Richfield's main Gunnison Thrust acreage around Fountain Green, are likely to be saturated with light, Mississippian era crude. This would be a game changer not just for a little company with a (perhaps temporarily) minuscule market cap, but for the UT energy sector.
We are seeing the fruits of a bad market strategy, not bad company fundamentals. The fundamentals, actually, would be pretty interesting were it not for the market mismanagement. Floyd Moulton, the dean of Central Utah geologists, once wrote that ROIL's Fountain Green property potentially holds a billion barrels. And that was before much was known about the vast Mancos shale deposits on the eastern edge of this acreage.
But a falling stock price, the result of tepid demand, has raised ROIL's cost of capital, effectively locking it out of the equity markets. The stock has fallen 90 percent from its original trading values of last March. This has created a "Catch 22", in which the funding the company must raise to realize the value in its Utah properties vastly exceeds its market cap. The cost of drilling a single well in Utah, where most of ROIL's upside lies, averages about $10 million. ROIL's market cap presently is just $12 million.
Richfield recklessly went public without an IPO -- meaning without a following among broker dealer networks. The daily trading volume for companies with Richfield's shares outstanding average about 130,000 shares a day. On the rare day when Richfield does see such buying, the stock price strengthens considerably. On most days, however, the volume is well below 20,000 shares. It is little wonder, then, that even modest selling pressure overwhelms buyers, thereby creating a self-fulfilling cycle of wariness. It has not helped, either, that ROIL has been doling out shares to pay debts and compensate board members and consultants. Even ROIL's board members have been selling into this weak market.
This raises the governance question of whether ROIL executives and board members ought to be compensating themselves so richly. According to Yahoo, ROIL's CEO, Doug Hewitt, who is also the company's largest shareholder, makes $760,000:
http://finance.yahoo.com/q/pr?s=ROIL
The company's main hope these days is to secure one or more joint venture partners who can demonstrate the enormous potential of Utah -- and then, possibly, to secure a non-dilutive loan that will enable it to participate in these ventures (which raises the question as to what ROIL might put up as collateral). Until there is a successful exploratory drill, ROIL is basically a real estate holding company with very modest operations in Kansas.
A final dynamic that has yet to be played out stems from the fact that the company was heavily promoted prior to going public. Many current shareholders invested in ROIL's predecessor companies, Hewitt Petroleum and Freedom Energy (which ROIL has since acquired), at prices ranging from $2.50-$10.00 per share. This "friends and family" shareholder base has a right to be angry at the results of ROIL's catastrophic market missteps. Shareholder democracy is supposed to hold boards and executives accountable for such failures. Let's hope that, at a minimum, Mr. Hewitt's rich compensation package comes up for debate at the next annual shareholder meeting.
Good things come in threes. Think: Monster well.
Baker Hughes thinks their Liberty well near Nephi UT is a "monster." They have established that the field is hyrdocarbon saturated, a mixture of oil and gas. Production is tricky, but they are trying to prove out 50MM bbls.
The Mancos shale play is about to pop. They put together a large land play and sold 95% of one 20K acre block to a deep pocketed independent that specializes in shale. They kept the best acreage for themselves. Again, this play is saturated. The fist step is to reenter a well (to 11K ft.) that was drilled back in the early 1990s and then abandoned when the wellbore partly collapsed. The IP in the original drill, if I recall, was about 700 bopd. That's what they're expecting. The company will have about 150 locations when drilling commmences later this summer. The Mancos in this region is comparable to the Bakken.
Sources say they have had great luck with their mature fields in WY and KS. Overall, I'm guessing, current production is 100-200 bopd. They have a lot of locations with probables and proven non-producing. The value of their production alone would sell for four times their market cap. Time to be discovered.
Read more at http://www.stockhouse.com/bullboards/messagedetail.aspx?s=ROIL&t=LIST&m=32676261&l=0&pd=0&r=0&msg=3#7EcBEGmMrwfbQVzc.99