While America’s biggest oil and gas explorers cut back on drilling activities, one junior company continues to forge ahead successfully in its flagship Piceance Basin play hosting $260 million in Williams Fork reserves—only now, with a cost effective edge.
Colorado’s Piceance Basin is a behemoth 7,100 square miles which hosts over 10,000 wells producing nearly 1 billion cubic feet of gas per day. While it’s a mouth-watering investment in principle, the current market has led some of the country’s largest companies to pull the plug on fracking amid falling natural gas prices.
In early January, Colorado’s largest natural gas developer, Oklahoma-based WPX Energy, Inc. (NYSE: WPX), said it was “hitting the pause button” on 20 of its nearly completed wells in the Basin, blaming low gas prices. This led to scores of layoffs from WPX’s service providers. Respecting the monstrous potential of this region though, WPX is still working three drill rigs to further delineate the premium Mancos/Niobrara formation, which underlies the traditional Williams Fork.
With the big boys taking a breather, some smaller companies have remained steadfast and undeterred by the recent meltdown in natural gas prices and are getting down to business on what is now a much more level playing field with significantly reduced competition in a top producing basin.
There are two projects that are worth special attention here for one small company: Kokopelli and Roan Creek.
Kokopelli is the frontrunner in the portfolio of Canada’s Dejour Energy Inc. (NYSE MKT: DEJ, TSX: DEJ), which has a 25% working interest in the project. Right now, there are four wells in production, and last week, Dejour announced that it and its partners had successfully drilled and cased seven more Kokopelli wells in Williams Fork, and more notably, the first vertical 13600’ high-pressure Mancos/Niobrara well on the eastern flank of the Basin, which could significantly add to Dejour’s overall production and long life reserve profile. To economize on long term operating costs, the partners had also completed the drilling, casing, fracking, and testing of a produced water disposal well now being equipped to handle disposal from all existing and future wells planned for the Jolley Mesa portion at Kokopelli.
What catches the investor eye here is the potential for a multi-zonal resource holding held by a junior company that is positioned to benefit from a highly attractive 12-well US production base with the ability to expand in line with the gas market. Given the Company’s modest market cap, now is the time for investors to take a really close look at this emerging player.
Regarding Williams Fork production alone, we are looking at up to 208 as yet undrilled locations across 2,200 acres. Proved and probable reserves in this one spot are 11.5 million barrels of oil and NGLs along with 250 BCF natural gas having a YE 2014 PV-10 value of $260 million. Well logs indicate that the underlying Mancos/Niobrara shale could at least rival the well known Williams Fork.
Given a successful completion of the new Mancos well, both the volume and the value of this asset would increase materially. This new Mancos producer should be completed, tied in, and producing by the third quarter of this year, creating up to an additional 40 Mancos well sites for future development.
The potential of this junior grows when you consider the addition of the 100% owned Roan Creek prospect, with its estimated 67.5 BCF recoverable. Dejour plans to drill in Roan Creek strategically in an improving market, targeting 6-8 high-pressure horizontal Mancos/Niobrara wells at a lower risk depth of 8500’.
The clincher here, is that Dejour’s Roan Creek property is surrounded on all sides by significant production: Chevron (NYSE: CVX) to the north, Occidental Petroleum Corporation (NYSE: OXY) to the east, Black Hills Corp (NYSE: BKH) to the southwest, and Encana Corporation’s (NYSE: ECA) Niobrara to the west.
Dejour has proven to be a real mover and shaker in an uncertain market. On 11 February, the company released its Year End 2014 Reserve Evaluations, which shows significant value retention over the year for core projects.
Dejour’s plans to complete and tie-in eight new wells at Kokopelli by the middle of this year, targeting production forecasts of 1,200+ BOEPD, a significant bump from the 382 BOEPD average of Q3 2014.
The big picture is this:
26 producing wells including:
4 oil wells and 9 gas wells at Woodrush/Hunter in British Columbia hosting production over 700 BOE/d;
11 liquids-rich WF and one Mancos at Kokopelli to add another 500 BOEPD and validate the case for substantial reserve additions;
1 new wildcat oil discovery in the northern Piceance that tested at over 1000BOEPD soon to be on line, and
A Colorado drilling inventory that could exceed 300 additional wells.
Industry observers note that this year should be a stellar one for NYSE/TSX listed Dejour Energy Inc. (DEJ).
By. James Burgess of Oilprice.com
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