On Monday when I told you about the Kodiak buyout by Whiting Petroleum, I also mentioned the Tuscaloosa Marine Shale (TMS).
Since the play could end up being a key factor in maintaining our domestic oil production, I wanted to go a little more in depth today…
The Tuscaloosa spans across Louisiana and into Mississippi, and has an estimated 7 billion barrels of oil locked away in its shale rock.
Unfortunately for drillers in the play, the shale lies anywhere from 11,000 to 15,000 feet below ground while the Eagle Ford’s shale rock rests only 4,000 feet below ground in most locations.
The difference in depth between these otherwise similar plays has made the Eagle Ford a hot-spot for drilling while the Tuscaloosa has seen little development.
In fact only three companies currently drill in the play…
One of them is Goodrich Petroleum (NYSE: GDP).
They have been a darling for energy investors throughout the year after a brief sell-off in February was followed by a huge surge.
You see, after they entered the Tuscaloosa, traders started buying shares and eventually sent the price close to $30.
But once their latest well results came in, as you can see above, the stock quickly slid to the low twenties.
As we have been saying recently, the key for drillers now is going to be efficiency, especially in a new formation. And Goodrich is no exception to this rule.
Because of the depth of the play, it costs the company about $13 million to drill and complete wells. So as long those wells are gushers, they can still turn a pretty decent profit. Unfortunately two of their wells only saw IP rates of 740 barrels per day and 815 barrels per day.
With such low numbers, Goodrich won’t be able to maintain a steady profit when their well costs are so high.
In response to the bearish news, Investors acted accordingly and their fear caused the recent drop in price.
Now, since the price has fallen, you could easily buy some shares and possibly see some gains too.
Only, Goodrich has yet to show it can turn a profit from these operations, and although they claim to be working on cutting costs no evidence shows us that it has taken effect.
Not to worry though…
With every inefficient driller comes a leaner more profitable machine ready to take over.
Of the other two companies drilling the Tuscaloosa, one of them has a proven track record for efficiency and performance in nascent shale plays.
At it’s helm is a pioneer in U.S. shale, Ellis White. After creating a billion-dollar empire developing the Eagle Ford Shale, Mr. White turned his attention to new plays like the TMS.
And while Goodrich can’t seem to glean decent IP rates out of their wells, White’s most recent well saw its IP rate hit 1,548 barrels per day.
These results aren’t just luck either, White specializes in completion engineering, and has successfully used longer laterals, more pounds of proppant per foot, and less spacing between wells to improve results.
The same formula worked in the Eagle Ford where he helped raise the play from an unheard of tract of land into a oft talked about, oil producing behemoth. He has even said that the TMS is “one of the last remaining large footprint oil shale plays in the U.S.”
Perhaps, then, this next move into the formation will help propel him further to 21st Century oil baron status.
Until Next Time,
Keith Kohl
