Reasons Goodrich Petroleum is Confident about the Tuscaloosa Marine Shale

Goodrich Petroleum (ticker: GDP) is an independent oil and gas exploration and production company with operations in the Eagle Ford Shale, Haynesville Shale and Tuscaloosa Marine Shale (TMS). As of late, Goodrich has been a pioneer of an emerging oil play, the TMS,  in Louisiana and Mississippi.

Year to date, GDP shares increased approximately 192% – here are a few observations:

1. The company amassed more than 320,000 net acres in the TMS for approximately $185 per acre over a two year period (see slide 11). Recent acreage transactions have gone for almost $2,000 per acre.
2. GDP’s TMS acreage is now 77% of Goodrich Petroleum’s total 413,000 net acreage position, which includes its South Texas (Eagle Ford) and its legacy East Texas/Northern Louisiana (Haynesville / Cotton Valley) properties.
3. GDP raised approximately $144.2 million in net proceeds from a recent equity offering priced at $25.25 per share. At the time of posting the day after pricing (October 16, 2013), shares were trading at $27.55 – almost 10% higher than the offering price.
4. The company is more than doubling its TMS rig count from two rigs to five rigs by the end of 2014.
5. Goodrich increased its total 2014 CAPEX budget by almost 50% from 2013 levels to $375 million. The TMS will receive $300 million in 2014, or approximately 300% more capital than in 2013.
6. The Eagle Ford Shale, GDP’s previous growth engine, will receive only $30 million in 2014 – down from $100 million in 2013.
7. A recent operated well, the Foster Creek, encountered drilling complications causing only 2,100 feet of the 6,000 foot total lateral to be fraced – but still recorded a 24 hour peak IP rate of 527 Boe/d (95% oil). Wells Fargo reported: “If normalized to a 6,200 foot lateral, test equates to an IP of over 1,500 Boe/d, making it one of the best results thus far in the play (nearby Crosby had an IP of 1,300 Boe/d with 6,700 lateral while further to the east, Anderson 17-2H holds best result to date in TMS, testing at 1,540 Boe/d with a 5,193 foot lateral).”
8. The company is using its operational experience from past plays to enhance drilling efficiencies in the TMS. Robert Turnham, President of Goodrich told Oil & Gas 360®: “The learning curve is much quicker in the TMS mainly because of our experience from all the other plays…whether it was Cotton Valley in East Texas, to learning in the Haynesville in Louisiana and Texas and then our Eagle Ford experience in South Texas. What we’ve been able to do is reach an optimum drilling and completion procedure that appears to be working really well and superior to the other well results.”
9. Goodrich estimates its low case TMS EUR at 400 MBOE, base case EUR at 600 MBOE and high case EUR at 800 MBOE. At today’s oil prices, $102 per barrel, and current well costs, $13 million, the base case well is producing an approximate 30% rate of return (see slide 20). Turnham also told OAG360 the company believes by the time it reaches development mode, well costs could hit $10 million, which essentially doubles the base case well’s rate of return to approximately 60%. In two years, GDP was able to reduce its Eagle Ford well costs by $3.8 million or 32%.
10. GDP has a supportive shareholder base – 25% insider ownership.

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