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.
On December 16, 2013, Saratoga Resources announced reserve estimates on two of its four shallow Gulf of Mexico leases. An independent third party revealed combined proved undeveloped (PUD) reserves for both the Moneypenny Prospect (Ship Shoal Block 78) and the Thunderball Prospect (Vermilion Block 153) equal 2.74 MMBOE (46% oil), with a total PV-10 of $37.2 million.
The stated blocks, in addition to SARA’s leases in Ship Shoal Block 110 and Vermilion Block 152, cover 19,814 gross acres in the area, of which the company has a 100% working interest. The properties were acquired for $880,000 as part of the Central Gulf of Mexico Lease Sale on March 20, 2013, and subsequently approved by the Bureau of Ocean Energy Management on July 8, 2013. The lease will last for five years and includes a royalty rate of 18.75%.
SARA’s initial company estimates on the four-block reserves consisted of a gross total of 51.3 MMBOE, of which 5.4 MMBOE would be qualified as PUD reserves. The third party estimates of 2.74 MMBOE on SARA’s first two blocks are in line with previous reserve predictions.
In a conference call following its Q3’13 results, SARA said it is in the process of finding a development partner for the blocks. Management said there is “substantial” interest but is being deliberate with its selection process. Plans for 2014 include moving into a directional drilling program after much of Q4’13 was spent on field studies.
In Depth: Reserve Estimates Review
The Moneypenny Prospect in Ship Shoal Block 78 has PUD reserves of 1,069 MBOE (79% oil) in two Upper Miocene sands with a PV-10 of $23.4 million. The area holds incremental reserves of 251 MBOE with a PV-10 of $5.8 million. A prospect at a depth of less than 16,000 feet can be reached from the same wellbore and is expected to hold an additional 6 MMBO. The company plans to test an updip on a nearby well that was first completed in 1983. At the time, one sand tested at roughly 200 BOEPD (97% oil) and another produced approximately 315 BOEPD (84% oil).
The Thunderball Prospect in Vermilion Block 153 has PUD reserves of 1,668 MBOE (25% oil) in Miocene sands with a PV-10 of $13.8 million. Incremental reserves are 414 MBOE with a PV-10 of $4.7 million. SARA plans to updip a well drilled in 1989 that tested at 1,737 BOEPD (23% oil). A well by Contango Oil & Gas (ticker: MCF) in the neighboring Vermilion Block 170 has the same sands and seismic amplitudes as the Thunderball. The MCF well had an initial production rate of roughly 4,060 BOEPD (15% oil) on December 7, 2011, and has cumulative production of roughly 2.04 MMBOE (14% oil).
SARA’s remaining two blocks consist of the Goldfinger Prospect (Vermilion Block 152) and the Solitaire Prospect (Ship Shoal Block 110). The Goldfinger is nearby a shallow gas prospect, discovered by Contango, which holds approximately 3.3 Bcfe. The Solitaire is believed to hold potential in the Pliocene. The company has not provided plans on when or if they plan to test the remaining blocks.
The Future For Saratoga
SARA’s future plans include low-risk completions and enhancement programs from its undeveloped and shut-in opportunities. An increased emphasis on field studies is a focal point of Q4’13, with hopes of expanding its horizontal program in early 2014. As mentioned, SARA is seeking a development partner in its newly-acquired deeper opportunities in the GOM. Its 100% working interest provides the company flexibility and SARA believes adding partners can deleverage its position.
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