Goodrich Petroleum’s (NYSE: GDP) first Tuscaloosa Marine Shale well, in participation with Encana (NYSE: ECA) recorded a 72-hour production rate of 1,082 BOEPD (90% oil). The well was drilled with a 7,300 foot lateral with 30 stages. The Anderson 17H-1 well (GDP, 5% WI) is located in Amite County, Mississippi, where GDP’s next two wells with ECA, the Joe Jackson 4H-2 (GDP, 25% WI) and Denkmann 33H-1 (GDP, 75% WI) will be drilled and completed. The Crosby 12H-1 well (GDP, 75% WI) will follow these two wells and will target the Tuscaloosa in Wilkinson County, Mississippi. We note that GDP has expanded its acreage footprint here to approximately 120,000 net acres, at an average price of approximately $225 per acre.
Goodrich Petroleum will present at EnerCom’s London Oil & Gas Conference at 9:50 AM BST on June 13, 2012 (4:50 PM Eastern on June 12, 2012). The webcast can be found by following: http://www.enercomlogc.com/programme2012.html. GDP will also be interviewed by Oil & Gas 360® at the event to later be posted on Oil & Gas 360.com. See the video from 2011 below.Goodrich expects to participate in two to five operated wells and two to four additional non-operated wells in the Tuscaloosa Marine Shale for a CAPEX spending total of between $20 million to $45 million. The company anticipates drilling with three rigs in 2013.According to the Basin Research Institute at Louisiana State University, the marine shale section lies between sands of the upper and lower Tuscaloosa sections and varies in thickness from 500 feet in southwestern Mississippi to more than 800 feet in the southern part of southeastern Louisiana. The report says preliminary evaluations indicate the Tuscaloosa marine shale may contain a potential reserve of about 7 billion barrels of oil.
The Louisiana State University study on the Tuscaloosa Marine Shale estimated that using an average thickness of 93 feet and risking it by 40% due to the potential for low permeability and porosity, a section would still yield an average of 37 feet of pay. The report continues to assign a “conservative” 50 barrels of oil per acre foot as a reserves estimate. If we apply these estimates to GDP’s 120,000 net acres we calculate that there is 222 MMBO of reserve potential. OAG360 notes that GDP’s current corporate presentation shows average thickness across their acreage position to be between 100 and 200 feet. If we look at the reserves potential another way and assign an EUR of 300 MBOE per well and assume 160-acre spacing across GDP’s net acreage position, OAG360 calculates a net reserves potential of 225 MMBOE. We note that the Canaccord note below references 100 acre spacing and EURs as high as 650 MBOE.Below is a map from ECA’s recent investment presentation.
Source: ECA 2012 Presentation
Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Goodrich Petroleum following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
Wells Fargo Securities – May 23, 2012
GDP Confirms 1,000+ Boe/d Tuscaloosa Marine Shale Well. Goodrich Petroleum confirmed what industry sources had previously indicated of a 1,000+ boe/d result. Actual results of EnCana’s Anderson 17H #1 (GDP 5% working interest) well came in at an IP rate of 1,082 boe/d (90% oil) over the first 3 days of production on a 15/64 choke and flowing casing pressure at 2,119 psi. This well was drilled with a lateral length of 7,300′ and was completed with 30 frac stages. While only on production for a limited time, our model indicates this well is tracking slightly ahead of previous 30 day rates reported by ECA of 700-800 boe/d. Result also positive for DVN which has 285,000 gross acres (190,000 net) in the play, with plans for ~10 wells in 2012, and for EOG who is reported to have 80,000-210,000 net acres.
TMS Acreage Increased. GDP also announced that it has added 17,000 net acres in the play bringing its total position to 120,000 net acres. The company paid $225/acre and should fall within the company’s $10MM allocated to leasehold acquisitions in its current $250MM-$275MM budget.
NAV Impact. We currently give the company credit for ~$1.60/share in our $16.31 NAV estimate and with success, could result in over $15/share in upside potential in our view.
2012 Plans. Going forward, GDP is to begin drilling its first of two operated wells by June 1st with the Denkmann 33H-1 (75% WI) followed by the Crosby 12H-1 (75% WI). GDP is also participating (25% WI) in the Joe Jackson 4H-2 well operated by Encana that is currently drilling. With success, the company would consider ramping program to 2013 to potentially a 3 rig program. We believe the company would look first to a JV to fund the capex ramp.
Pritchard Capital Partners – May 23, 2012
GDP – Solid TMS Well Result – In a press release out this morning, GDP confirmed market chatter from earlier in the week of a solid TMS well result. The Anderson 17H-1, operated by Encana (ECA, $20.49-NR), had a 72-hour production rate of 1,082 Boe/d (90% oil) on a 15/64 choke with 2,119 psi flowing casing pressure. This is the highest rate announced in the play to date. GDP has a 4.5% WI in the well, which is located in Amite County, MS. The company added another 17K net TMS acres, bringing its position in the play to ~120K net acres, acquired at an avg. price of ~$225/acre. GDP has a 25% WI in the ECA-operated Joe Jackson 4H-2 well, which is currently drilling in Amite County, and plans to spud its first operated TMS well, the Denkmann 33H-1 (75% WI), also in Amite, on June 1. The Crosby 12H-1 (75% WI) in Wilkinson County, MS, is scheduled to follow. We like GDP for its leverage to liquids-rich plays: the Eagle Ford (EF)/Buda Lime, horizontal Cotton Valley, and the emerging TMS. No one is more levered to the TMS relative to its size than GDP. The company is well hedged, with over 80% of its remaining expected gas production for 2012 hedged at well over $5 and over 70% of oil hedged at over $101. At 4.1x 2012 CFPS, we continue to see solid value in GDP common, and reiterate our ‘Buy’ rating and Top Pick Status.
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Raymond James Equity Research – May 23, 2012
Goodrich (GDP/$16.31/Outperform) confirms more than 1,000 Boe/d TMS well, adds 17,000 net acres in the play. Confirming rumors from earlier this week, Goodrich announced the Encana (ECA/$20.49) operated Anderson 17H-1 (5% WI) flowed at 1,082 Boe/d (90% oil) for 72 hours in Amite County, Mississippi-the best well in the play to date. Goodrich also announced it acquired another 17,000 net acres, growing its total position in the play to 120,000 net acres for an average cost of $225/acre. The company will continue to participate with Encana (currently drilling another well in Amite County) before beginning initial operated activities on June 1st. Bottom Line: GDP shares have already climbed more than 20% this week on rumors of the Anderson well, but we expect another pop today as the confirmed well result and growing TMS position (for an extremely cheap price) should excite the market. While Goodrich is the most levered to the TMS, other operators in the play include Devon (DVN/$61.62/Outperform), Encana, and EOG (EOG/$101.33/Market Perform).
Johnson Rice & Co. – May 23, 2012
Goodrich released the results of its first non-operated TMS well, which came online at a rate of 1,082 boe/d (90% oil). The Company is on track to spud its first of two operated wells in the coming weeks as it continues to participate in wells with Encana. With an additional 17,000 net acres added in the TMS over the past two weeks, Goodrich remains the most levered name to the play and the recent early encouraging results provide meaningful upside to its current stock price.
Goodrich announced its first non-operated well with Encana (ECA), the Anderson 17H (5% w.i.), in the Tuscaloosa Marine shale averaged 1,082 boe/d (975 bo/d and 425 mcf/d) over the first three days. The well, located in Amite County MS, was drilled with a 7,300 foot lateral and completed utilizing a 30-stage frac. The well is being flowed back on a restrictive 15/64 inch choke with flowing pressure of 2,119 psi.
Goodrich plans to participate in at least an additional four gross (three net) wells in 2012. Goodrich remains on track to spud its first operated well, the Denkmann 33H (75% w.i.), in Amite County by early June. Its second operated well, the Crosby 12H (75% w.i.), will be drilled in Wilkinson County following the Denkmann well. In addition, the Company is participating with a 25% w.i. in two non-operated wells with Encana, the first of which, the Joe Jackson 4H-2, is currently drilling.
Goodrich’s 2012 TMS drilling budget is targeting a range of $20-$45 million. The drilling program outlined above (2 operated and 2 non-operated wells) would get Goodrich to the bottom end of is range; however, drilling success would likely result in the Company keeping its operated rig active and bias the TMS budget to the high end of the range.
The Company is continuing to lease in the TMS with an additional 17,000 net acres acquired, bringing its total position to 120,000 net acres in the play. Given the average cost of its total acreage position is now $225/acre, we estimate the Company paid ~$400/acre for its most recent acreage addition.
Baird Energy Dirt – May 23, 2012
Goodrich announces non-op Tuscaloosa Marine Shale result, additional acreage. Goodrich officially announced results from its non-op interest (5% WI) in the EnCana operated Anderson 17H-1 in Amite County, Mississippi after this week’s strong rally on speculation of a positive result. The well was completed with 30 stages, yielded a 72-hour IP of 1,082 boe/d (91% oil), and was the first long lateral well drilled in the TMS. Additionally, Goodrich has added 17,000 net acres to the position at $225/acre bringing its total position to ~120,000 net acres, a significant liquids lever if the play proves out. As highlighted in our Baird Growth Stock Conference and DUO recap notes, TMS data points have been encouraging to date. Looking at Goodrich’s leverage to the play, if acreage values can be driven up to $5,000-$10,000/acre in a success case, that puts GDP’s 120,000 net acres at ~$600-$1,200MM. Additional data points are on the way with the EnCana operated Joe Jackson 4H-2 well (GDP-25% WI) currently drilling in Amite County and operated activity slated to commence early June.
Howard Weil – May 23, 2012
Quick Take: Goodrich participated in another good TMS well with EnCana, as Amite County, MS seems to be emerging as the play’s initial center of attention. The ECA drilled Anderson 17H #1 flowed 1,082 Boepd (90% oil) over 72 hours. GDP’s first operated well in Amite County should spud June 1 and is just south of ECA’s most recent success. In addition, GDP continues to add acreage in the play, now up to 120,000 net acres at a current leasing rate of $225/acre. While we think there is certainly more delineation necessary before we have a solid handle on the breadth and economics of the play, for reference, a 400 MBoe well for $12MM would yield ~20% on our current commodity deck, and we think the wells in the eventual core could look much better based on early results and expect well costs to come in with further drilling/optimization. A good start indeed and we continue to be very encouraged, as this could be a Company maker for GDP.
Global Hunter Securities – May 23, 2012
Summary: We had been advocating buying (more like begging) in front of these results. This well had a 7,300 ft lateral (almost 50% longer than previous ECA wells), and almost double the number of frac stages (30-stage frac), so we were expecting strong results. Our Buy thesis on GDP has been twofold: first, the ramp to oil is inevitable (we see Q1’s 15% oil production heading to 52% by the end of 2013); and second, the potential upside associated with GDP’s now 120,000 acres in the TMS simply cannot be ignored. A $5,000/acre valuation on the TMS pegs a value of $16.50/share on GDP’s position; $10,000/acre= $33/share. Not bad for a stock with sizable Eagle Ford and Haynesville positions that current trades at $16.31.
Capital One Southcoast – May 23, 2012
This morning GDP officially announced that the Encana – Anderson 17H-1 well (GDP owns 5%) achieved a 72-hour production rate of 1,082 barrels of oil equivalent per day (975 bopd, 425 Mcf/d) on a 15/64 choke with 2,119 psi flowing casing pressure. This confirms rumors and blog postings that the well was producing 1000+ bopd. Importantly, GDP’s press release adds the additional details that the well has strong pressure and a restricted choke. A second well with ECA (GDP 25% working interest) is currently drilling and, as expected, GDP plans to spud its first well by June 1. GDP announced that it has acquired an additional 17K acres in the play, bringing its acreage position to 120K acres at the attractive average price of $225/acre. We currently give GDP $1.75K/acre or $5 per share in value for the Tuscaloosa Marine Shale in our $22 NAV. If the play is ultimately de-risked with economics similar to the Eagle Ford, then our valuation for GDP could be headed much higher. At $10K/acre (similar to average Eagle Ford values), the Tuscaloosa could be worth $30 per share net to GDP. This will take several more wells to assess and it is likely that not all of GDP’s acreage would be successful, but we show this back of the envelope math to give a sense of the leverage and upside potential the company has in the play.
Canaccord Genuity – May 21, 2012
Recent Tuscaloosa test suggests the play is likely commercial
Our research indicates the Anderson 17H-1 (GDP 5% WI) flowed at 1,000 Bopd over three days. Encana (ECA : NYSE : US$19.63 HOLD) operates the Anderson 17H-1. This is the highest early production rate to date in the play.
Economics comparable to Goodrich’s Eagle Ford activity
In our view, this early rate suggests a recovery of ~550 Mboe for a drill/complete cost of $12+ million (7,300’ lateral, 30 frac stages). We base this estimate on a full review of extended production history for several horizontal Tuscaloosa wells.
We believe this well should generate economics similar to an average Goodrich Eagle Ford well. The Tuscaloosa’s lower royalty rate (~20% versus ~25%) and superior oil pricing (estimated $5 uplift) should offset a ~10% higher F&D cost (~$22.50 versus ~$20).
Tuscaloosa potential far beyond current capitalization
In our view, Goodrich would run a three rig program and drill ~20 wells per year in a development scenario. This implies ~$175 million in incremental annual spending, versus ’12E capital spending of ~$275 million. Thus we believe the Tuscaloosa play is too large for Goodrich to develop alone given its current capitalization. In our view, a larger entity could buy Goodrich in its entirety or the company could enter into a joint venture and issue equity to fund Tuscaloosa development.
Appropriate funding under a development scenario suggests ~200% upside to the current stock price
Goodrich closed Friday with a market capitalization of ~$500 million. With follow-on drilling success, we believe Goodrich should be able to sell a 25% interest in its ~103,000 net acre Tuscaloosa leasehold for $5,000 per acre, or ~$125 million. Additionally, Goodrich would likely raise $100-150 million in equity to fund the ~$175 million increase in capital spending. Under this scenario, our target price would likely increase ~50% to ~$40/share.
Our current target price of $27 is based on a five-year discounted cash flow analysis, which applies a 15% discount rate and assumes $92.50/$5 long-term crude oil/natural gas prices.
The Anderson 17H-1 should recover ~550 Mboe
The decline curve used to estimate this recovery represents a smoothed average of three early horizontal Tuscaloosa tests with extended production history, as described below. Based on the initial rate and the extended production history of the three early tests, we estimate the Anderson 17H-1 should recover ~550 Mboe.
The Anderson well has an estimated PV10 of $6+ million
We believe the Anderson 17H-1 should generate a 25% return, which is comparable to an average Goodrich Eagle Ford well. The PV10 of $6+ million implies a value of over $60,000/acre on 100-acre spacing.
Early horizontal tests suggest a 15+ Mboe recovery per frac stage
We analyzed the production data from three horizontal Tuscaloosa Marine Shale wells drilled/completed in late ’07 through late ’08. We believe these three wells – the Joe Jackson 4-13H, the Richland Plantation 1-H and the Weyerhaeuser 1H – represent the entire data set of horizontal Tuscaloosa wells drilled from ’07 through ’10 in the Mississippi counties and Louisiana parishes in which Goodrich has prospective Tuscaloosa leasehold.
In our view, these early horizontal tests (1,650-4,100’ laterals, three frac stages) should recover ~50 Mboe (~15 Mboe/frac stage) on average. We estimate the best two should recover ~65 Mboe (20+ Mboe/stage) on average.
Based on these results alone, one could estimate a Tuscaloosa well drilled today with 15 frac stages should recover 225-325 Mboe, while a Tuscaloosa well with 30 frac stages could correspondingly recover 550-650 Mboe.
Our ~550 Mboe estimate for the Anderson 17H-1 is at the low end of the recovery range suggested by these early Tuscaloosa tests.