Saratoga Resources Inc. (ticker: SARA) is an oil and gas exploration and production company concentrating on abundant, low-risk drilling opportunities located in the transition zone off the coast of Louisiana. In some places, including the company’s Grand Bay field, approximately 64 stacked pay sands exist with wells that have been producing for over 50 years.
SARA currently owns and operates approximately 10,820 gross/net acres in 10 fields, and has a 100% working interest in virtually all wells. These fields have a combined 40 gross/41 net productive wells. In addition to the producing wells, the company also owns and operates five production platforms and over 100 miles of pipeline infrastructure.
Additional Acreage in the Gulf
On September 12, 2013, Saratoga Resources announced the acquisition of two new leases at the Louisiana state lease sale, held on September 11, 2013 in Baton Rouge, Louisiana. The leases are located on the 552.25 acre Panther Prospect and the 305.71 acre Tiger Toux Prospect, for a combined total of 857.96 acres. The prospects are located in Breton Sound Blocks 18, 19 and 32, contiguous to Saratoga’s existing property holdings in the Breton Sound 18 and Breton Sound 32 fields and close to existing facilities and pipeline infrastructure. Saratoga has a 100% working interest in these three year leases, both of which carry a 21% royalty burden. Water depth at both prospect areas is less than 20 feet and drilling on both prospects, utilizing an inland barge rig, is expected to occur in early 2014. Both prospects are defined by high-quality 3D seismic data and abundant well control.
Test Results on the Zeke Well
The lease purchases follow a September 11, 2013 update on SARA’s Zeke development well in Breton Sound Block 32 field.
The SL 1227-26 “Zeke” well was spud on August 5, 2013 and drilled as a directional hole to a total depth (TD) of 6,430 feet measured depth (MD)/5836.7 feet true vertical depth (TVD). The well is a high angle directional well in the 5800 feet sand in the south-eastern portion of the Breton Sound 32 field. There is also an up-hole 5,750 feet sand recompletion opportunity in the Zeke well, which can be accessed in the future. The Zeke well was completed on September 3, 2013 and has been tied back to SARA’s Breton Sound 32 platform.
The Zeke well tested on September 10, 2013 at a gross rate of approximately 312 BOEPD and 89 Mcf/d on a 38/64” choke with flowing tubing pressure of 480 psi, or net 268 BOEPD.
Horizontal Drilling Program
Thomas Cooke, Chairman, CEO, and Founder of Saratoga, detailed his company’s procedure for the Zeke in SARA’s Q2’13 earnings conference call.
“We won’t be using screens on this well,” said Cooke. “We will be drilling the formation on 81 degrees, which will vastly improve our exposure to the formation. We believe that this will give us better than a 2x over vertical. It’ll also give us the chance to look at a high angle versus a horizontal. And we’ll be able to evaluate it. Like I said, there are people that suggest that the high angle gives you as much bang for your buck as the horizontal. Basically, these 81 degrees actually will qualify as a horizontal well to the state of Louisiana and give us a tax relief.”
SARA spud another horizontal well on July 4, 2013. The SL 1227-25 “Rocky” well, in 13 feet of water depth, was spud with the Parker 77B inland barge rig. A directional pilot well was drilled to a TD of 6,254 feet MD and 5,858 feet TVD, as planned, before plugging back and drilling a 750 feet sidetrack horizontal section to a TD of 7178 feet MD/5790 feet TVD, reached on July 24, 2013. The well was subsequently completed and the rig moved to the Zeke location in the same field. The Rocky well tested on August 20, 2013 at a gross rate of approximately 600 BOPD and 120 MCFPD on a 16/64” choke with FTP of 650 psi, or net 508 BOEPD, and has been tied back to SARA’s Breton Sound 32 platform. The rate continues to improve as the well stabilizes. Final costs on the Rocky well are expected to come in below the pre-drill AFE.
SARA’s market share has climbed 46% after the announcement of its horizontal drilling plan. The stock closed at $2.34 per share on September 12, 2013 in comparison to just $1.60 per share on July 2, 2013.
Other Companies Openly Talking about Horizontal Drilling in the Gulf of Mexico
Energy XXI (ticker: EXXI), the third largest Gulf of Mexico oil player concentrated on the shallow water shelf, recently experienced great success in its horizontal drilling program. The company successfully drilled nine of its first 11 wells, and added 1 MMBOE of incremental proved reserves per location due to higher recoveries of oil-in-place.
The program has been so successful that EXXI has already mapped more than 40 additional horizontal development locations. A second rig and new production platform will be moved to the field in the winter to expedite development.
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