“2.3 TCF: #1 NG Play in the USA?”
The projected valuation of Biloxi Marsh Lands Corp., BLMC, will be most dramatically affected by the results of a 2.3 TCF potential prospect identified by Meridian Resources (TMR). This potential prospect is in the process of being presented to the majors. Drilling would be at the Lower Cretaceous Interval, 25,000 feet in depth.
TMR anticipates a major will want a minimum 50% working interest (expense and revenues), TMR a 25% working interest, and a smaller player(s) the remainder. Wells drilled will approximate $25 Million per well, the first being the most expensive.
BLMC, as a landowner stands to benefit in royalties at 25% of that portion of the 2.3 TCF on its land. BLMC owns 90,000 acres of the Biloxi Marshlands Project's 210,000 acres (42.8%). At this stage, we don’t know what portion of the 2.3 TCF will be derived from BLMC land but a portion of it will be.
In addition, should the 2.3 TCF potential prospect be successful, this will open up opportunity for other deep drilling prospects on BLMC land.
Projections are difficult, but 1 Trillion TCF at $7.18/MMBTU approximates $7.18 Billion. 2.3 TCF is therefore $16.5 Billion. If one assume, hypothetically, that 42.8% of revenues derived from natural gas are on BLMC land, with royalties of 25% and then discount 10% to arrive at Net Present Value, that translates into a potential increase in the value of BLMC potential reserves of $1.59 Billion. Note that BLMC’s current market capitalization only approximates $96 Million.
What makes this more interesting, however, is “Arco drilled 3 deep wells into the Tuscaloosa formation under BML in the late 1970's-early 1980's based on 2D seismic. One of their wells hit over 30' of Tusc. pay but the casing collapsed as they tried to test it. They attempted to twin a new well to get back down to this same formation but after spending around $150mm ended up walking away….The casing collapsed under huge pressures...15000-17000# bottom hole…during completion flow tests. A replacement well could never get back down….”
Please understand this is a wildcat well; TMR has not indicated the probability of success, only that the potential far outweighs the expense.
“This is high risk, high pressure, difficult drilling but you just don't find these kind of domestic onshore opportunities with pay anymore.”
ARCO was unaware of the extent of their find. The majors will be, or are in the process of, evaluating this potential prospect.
Approval may be time consuming since the majors don’t see prospects of this magnitude in the U.S., only internationally. Thus, the expenditure involved has not been budgeted by the majors.
Should this potential prospect become a “discovery”, it will be the largest revenue producing natural gas discovery in the history of the U.S.
Also see my recent post entitled: “Biloxi Marsh Lands (BLMC) Valuation”.
