Emerald Oil (ticker: EOX) is an independent exploration and production operator that is focused on acquiring acreage and developing wells in the Williston Basin of North Dakota and Montana, targeting the Bakken and Three Forks shale oil formations.
Emerald Oil exited 2013 producing approximately 2,630 BOEPD, according to an operations update on January 23, 2014. The company averaged approximately 2,430 BOEPD in Q4’13 – respective increases of 30% compared to Q3’13 and 103% compared to Q4’12. Both rates exceed initial guidance numbers predicting a 2013 exit rate of 2,400 BOEPD with an average Q4’13 rate of 2,300 BOEPD.
Rig Program Close to Expanding
EOX is currently running two rigs in its Low Rider project area and completed 3.9 net wells since reporting its Q3’13 results in November 2013. The company has an additional 6.9 net wells drilling, completing or waiting on completion. A third rig is expected to be added to its fleet in April 2014. In terms of its current drilling locations, management says the new rig will allow EOX to drill all potential wells approximately six years sooner than drilling under its current program.
EOX successfully completed its first well targeting the Three Forks formation, which produced a 30-day rate of 573 BOEPD (1,113 BOEPD for a 24-hour span). EOX management says it plans on drilling more Three Forks wells in 2014 and will be aided by the addition of the extra rig. Historically, Emerald’s plan of action has been to move its rig program across its acreage and hold its assets by production. The success of its Three Forks well will lead to further exploitation of the formation and potentially extra value of its existing assets. Pro forma for the acquisitions, EOX estimates roughly 435 potential net drilling locations on its acreage (320 operated).
New Rig + New Acreage
EOX purchased approximately 20,800 net acres in the Williston Basin on January 10, 2014, in two separate transactions for a total of $74.6 million in cash. Roughly 19,500 of the net acres are immediately next to its Low Rider assets, representing a bolt-on acquisition. Approximately 62% of the acreage is held by production and currently produces an estimated 350 BOEPD (net) with 19 operated drilling spacing units (17 in Low Rider).
Emerald now holds approximately 84,617 net acres in the Williston Basin and is the operator in roughly 75% (63,237 net acres) of its properties.
Approximately half of the acquisition costs were funded by cash on hand, with the remaining half covered by borrowings from its credit facility. Upon completion of the payment, EOX has $105 million cash on hand and $35 million withdrawn from its credit facility. Its borrowing base is currently $75 million but management is expecting the limit to rise due to its recent acquisition. The base is redetermined on a semi-annual basis, with the next meeting to occur in April 2014.
EOX first established its 2014 guidance during its Q3’13 earnings release on November 5, 2013. With a 2013 exit rate of 2,630 BOEPD, the company has already initial its Q1’14 forecast of 2,600 BOEPD. Production is expected to reach 4,000 BOEPD by year-end 2014, with a yearly average of 3,300 BOEPD. If achieved, production totals for the upcoming year would more than double 2013’s average of 1,590 BOEPD.
EOX’s budget for fiscal 2014 is $258 million, with $182 million intended for production and the remaining $76 reserved for land acquisition. The company anticipates drilling 18.2 net operated wells, a jump of 42% from 2013’s total of 12.8 net wells.
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