5 Wells Now Spudded in AKK’s Aggressive Texan Eagle Ford Drilling Campaign
PUBLISHED: 18-08-2014 09:26 a.m.
17 minute read
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It’s like a scene out of a movie. The oil drilling crew watches the drill bit sink lower and lower into the earth, carefully fostering its progress, making sure it doesn’t snap or bend or snag. Then it happens – the bit strikes oil – and all hell breaks loose!
A fountain of crude oil rushes up through the earth and gushes out of the drill hole, soaking the crew to their skins and painting the rig platform a deep shade of black! Well, this was no movie. It just happened at Austin Exploration (ASX:AKK)’s Niobrara Pathfinder oil and gas play in Colorado, USA. It’s the very first oil well for AKK in Colorado and the company, currently capped at just $35M, is almost beside itself with excitement. This quote from CEO Dr Mark Hart sums it up best:
The good doctor is right – and as long term AKK investors , at The Next Oil Rush we’re grinning from ear to ear. But the Colorado well isn’t the only thing AKK is smiling about! The other big news is over at the company’s Eagle Ford project in Texas where an aggressive drilling campaign has just spudded the fifth well this year. Three wells at Eagle Ford are undergoing completion and fracking operations, and a fifth well is in the drilling stage. This oil play in Texas is really heating up. AKK’s farm in partner, Halcón Resources are widely regarded as the experts in their Texan fields. Halcón Chairman Mr Floyd Wilson is actually the “Godfather” of Eagle Ford shale – after founding Petrohawk Energy, he sold out out BHP in 2012 for US$12 billion . Now Halcón is working with AKK via a farm-in. Halcón’s recent quarterly results demonstrated that this acreage is now de-risked and well performance is repeatable – and the wells so far are coming on line at approximately 1,000 boe per day. The way things are going, AKK may drill another two wells there by year end. All of this spudding and drilling at AKK’s US oil and gas projects has resulted in a significant resource upgrade for its Texan reserves and resources – up 87% for oil and 34% for gas. Add a successful $6M capital raise, first heavy gas production in Colorado, advanced negotiations for a $40M debt facility and some positive market analyst coverage into the mix and you have a company taking giant strides toward a significant market revaluation.
The Next Oil Rush first covered AKK in late May with this in-depth article $20m to $5.6bn: Can He Do It Again? Multiple Catalysts In Weeks. Well, those catalysts we brought to your investing attention are here and they show just how much promise AKK’s oil and gas projects in the USA have. AKK is up 35% since we released our first article:
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance. Whilst we don’t make investment decisions solely on analyst reports, recent coverage by Independent Investment Research was encouraging, giving a fair value estimate for AKK’s share price of 0.19c – that’s a gain of over 1,000% from today’s levels:
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- Since the Next Small Cap article Sirius went from 5c to $5... New Upstart Explorer Has More Land, More Drilling Targets on ASX:SEG, its share price has risen as high as 220%.
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Yee-haw! Texas oil play accelerating
So AKK now has five – yes five – wells spudded at its Texas Birch Eagle Ford shale oil play in Texas. The project is the big gun in AKK’s American energy arsenal covering 5,000 acres in The Eagle Ford Shale basin in Texas – America’s largest unconventional oil and gas producing area. The best way to sum up the Eagle Ford oil play is to say its AKK’s money maker. The oil resources there are huge and to exploit them, AKK brought in the “Godfather” of the Eagle Ford Shale, Halcón Chairman Mr Floyd Wilson as a farm-in partner, so it can aggressively spud, drill and pump as much oil as possible in the shortest space of time. Formerly Wilson was the Chairman of Petrohawk who sold out to BHP in 2012 for US$12 billion :
Five wells have now been drilled this year and AKK reckons it can sink at least two more by the end of the year.
AKK’s holdings in Eagle Ford are called ‘The Birch Project’ and it drilled three exploration wells in the area, Birch 1, Birch 2 and Birch 3. Halcón have just announced that that each horizontal well in the Eagle Ford has an estimated ultimate recovery of 452,000 Barrels of oil (equivalent) per well!
Those drill results turned a lot of heads and AKK has brought in two top tier oil explorers to drill and exploit new wells at Eagle Ford in a farm-out programme worth more than $40M. Let’s have a quick look at the terms: AKK will be free carried for four wells with a 30% working interest then participate in any additional wells to be spudded. Three free-carried 10,000ft horizontal wells (with 17,500 – 18,500 ft total depth) have now been spudded by the $2.9BN oil and gas behemoth Halcón Resources and one 10,000ft horizontal well will be taken care of by PetroMax later this year. Halcón has paid AKK a $1.95M upfront payment for an exclusivity option over the block and is taking a 70% interest in the free-carried wells. Each of Halcón’s three wells are estimated to cost between $8M and $9M for a total spend of between $24M and $27M – so AKK got up to a $27M free ride in return for giving up a 70% working interest. The Petromax deal is very similar with AKK being free carried for a single well and taking a 30% interest while Petromax takes 70%. The well is estimated to cost between $8M and $10M and any additional wells drilled by Petromax will be split 70/30 with AKK. Ok, now let’s look at the work that’s underway: Halcón tapped the first farm-out well at Eagle Ford earlier this year called Stifflemire #1H and it produced 25,890BOE in its first 30 days of operation with an oil cut of 86% and gas at 14%. Now Halcón has drilled three more wells – two of the remaining free carried wells and the very first participation well for AKK called Red Bud 1H.
The horizontal well at Red Bud H1 has been successfully drilled to a Total Measured Depth (TMD) of 17,465ft and completion operations are underway. AKK has a 20.2119% interest in Red Bud 1H as well as a small proportion of a horizontal leg that lies outside the Birch property where the well is located. That leg will be drilled to an estimated length of 8,000 feet. We expect to know more very soon about the well’s progress, flow rate and technical make up after analysis is completed. But this is a big step for AKK – the approximate $40M free carry well programme has been enormously successful and the participation well programme looks set to repeat that success. The final two free carry wells from Halcón’s farm-in deal with AKK are called Nemo 1H and Kaiser 2H. Both have now been drilled to their target depths and completion operations for both are set to begin soon.
Nemo 1H was drilled to a TMD of 16,735 ft while Kaiser 2H was drilled to a TMD of 18,057ft. Just like Red Bud 1H, we’re waiting for more specific details. In the meantime, AKK says completion fracking operations are underway. Initial production rates should be released as soon as they come to hand. These highly productive deep wells take time to unload the 9,000,000 gallons of frac fluid from out of the well bore. Phew! That’s a lot of work – but AKK is just getting warmed up. Now a fifth well has just been spudded at Eagle Ford – the Curington “A” #1H well.
AKK says the Curington well will be an Eagle Ford horizontal and will be drilled to a proposed measured depth of 18,700 feet. The Curington “A” #1H well is being operated by Comstock Resources Inc (a billion dollar energy company listed on the NYSE) through the inclusion of AKK’s acreage in the farm-out program with Halcón. AKK is fully funded to meet its share of the costs for this well. Great results for AKK – and its farm-out partner Halcón is showing the way ahead...
Halc ó n drilling results auger well for AKK
In its latest quarterly results , Halcón announced that its Eagle Ford oil project – El Halcon – has been entirely de-risked with nine wells spudded and eight wells put online during the three months ending June 30, 2014. AKK’s 5000 acres makes up a part of the El Halcon project so the good results there – especially from its main farm out partner – reflect very well. Halcón says the average initial production rate for the wells put online so far in the third quarter is 1,091 BOEpd (93% oil) and that, overall, it produced an average of 9,111 BOEpd during the period. That’s an increase of 453% year-over-year and 30% quarter-over-quarter for Halcón. This result entirely de-risks the El Halcon project, with wells consistently coming online flowing at above 1,000 BOEpd. If Halcón can prove up their ground right next door to AKK in this manner, then there’s no reason why AKK and Halcón can’t do the same on AKK’s acreage.
Significant resource upgrade for AKK
All of this aggressive drilling activity is aimed at developing AKK’s vast Eagle Ford holdings into a first-rate oil field. It looks like the hard work is starting to pay off:
The independent consultant Gustavson and Associates has given AKK’s reserves and resources out in Texas a massive upgrade – up 87% for oil and 37% for gas. This is big news for AKK because its strategic plan is to develop the Texas assets with farm-out partners to get cash flow, then develop the Colorado oil and gas assets on its own. To do that, it needs financial firepower and it’s gunning right now for a $40M credit facility to fund that ambition.
AKK has appointed one of Japan’s biggest and most trusted banks, Mizuho Securities, to spearhead the effort and once the $40M credit facility is secured, it plans to use the money to pay for a massive expansion in exploration, drilling and production. The crucial part of securing this line of credit is to prove that the assets in the ground are worth backing. Well, all of the drilling and spudding and exploration activity AKK has been doing in the past few months has paid off big time. AKK is now independently estimated to have 22.41M barrels of oil and 67.02bcf of gas (both are P 50 gross estimates) at the Birch Project with an estimated net value of $64.7M . Now, these proven reserves are based on the 27 wells AKK has included in its present budget and two of the existing four wells – the Krueger 1 well and the Stifflemire #1H well. AKK says that leaves significant scope for further upgrades as it expands its exploration programme and, fingers crossed, finds more oil and gas targets. Here is a summary of AKK’s reserves:
The sheer size of the oil and gas reserves proven at the Birch project will allow AKK to accelerate its push to acquire a big credit funding facility for large scale development across its core portfolio of energy projects in Texas and Colorado. Armed with massively upgraded resources, a gushing oil well in Colorado and five spudded wells in Texas, we could be seeing some signatures on dotted lines very soon for the $40M credit facility AKK is pursuing. In fact, the gushing exploration oil well in Colorado is surely getting AKK noticed:
Thar she blows! AKK’s ‘spewing’ oil well in Colorado
So this just happened at AKK’s Niobrara Pathfinder oil and gas play in Fremont County, Colorado:
Just in case that video didn’t play, here’s a colourful description of what happened from AKK’s CEO Dr. Mark Hart:
Whilst we are known for our positivity here at The Next Oil Rush , we had nothing to do with this creative line – we swear! Yes, oil from the C-18#1 well in Colorado spewed oil sky high and soaked the drill rig and the crew operating it! The above footage was taken just after the initial oil surge and the oil soaked crew had to scramble back onto the platform to capture the moment. In the oil business this is the sort of thing you pray for and when it happens you want to tell everyone. Imagine how much fun this ASX release would’ve been to write:
That ASX release from AKK was one of the most colourful we’ve ever read! The management team is clearly excited by this first big discovery of oil at Niobrara Pathfinder and their enthusiasm is infectious. AKK should be proud. The C-18#1 well is in the notoriously difficult Pierre shale formation in Fremont County, Colorado. The rocks below the surface there are very, very fractured so drilling a high impact well in the area requires the dexterity of a surgeon and the patience of a saint. The potential rewards here are huge – the Pierre shale formation is right next door to the historic Florence oil field that’s pumped out over 15M barrels of oil from over 1,000 successful wells. This 15M barrels of oil was produced literally next door to AKK’s Pathfinder property. AKK is betting there is more on their acreage – previously held by mining companies not interested in oil and gas, the land is virgin territory for energy companies. AKK may be ascending to the throne with this successful well. Let’s drill down into the details.
AKK has 100% control of an 11,560 acre holding in the Colorado section of the Niobrara formation, a geological formation spanning across four US states. AKK’s holding is highly prospective for both oil and gas contained in fractured shale formations and it calls this dual resource play Niobrara Pathfinder. AKK reckons there’s room for at least 200 wells within its tenement boundaries and with independent reserve estimates of between 200,000 to 500,000 barrels of oil per horizontal well. C-18#1 is an exploratory well – the tip of the spear, the first roll of the dice from which all other wells will follow on. Now, most of the oil and gas held in the Pierre formation’s rocks is close to the surface so no fracking is required. This cuts costs to the bone. Generally, it costs less than $1M to get a well into production at Pierre:
The target depth for wells at Pierre is between 3,000 and 4,000ft. Lucky thing AKK went a bit deeper... The discovery at C-18#1 was made at approximately 4,500ft when the drill bit intersected an oil reservoir. Then came the geyser that soaked the drill rig and the crews in beautiful black oil! The drill rig crew stabilised the well and crude is now flowing naturally to the surface. Management and engineering teams are currently on location keeping a close eye on the well’s progress. AKK says the oil is coming from the transition zone between the Pierre and Niobrara formations. Now, because the Pierre formation is considered to be highly stressed, AKK management decided to go slow, drilling down inch by careful inch so its engineers could focus on future well design efficiency as well as striking oil. The significance of this discovery could be huge. AKK says the gushing oil well proves that the Pierre shale formation is an oily area and that it is connected to the Niobrara. AKK is the first company to make this discovery and this connection – this result alone must add a lot of value to the property. Striking oil is a huge thing for an oil company – it’s very reason for existing – and at The Next Oil Rush we’re happy as Larry that we are long term investors with AKK. This quote from Hart bears repeating.
Amen to that.
Oil flow to gas flow: AKK unlocking Niobrara’s gas potential
Now, the other thing that’s in the ground out at Niobrara Pathfinder is natural gas – lots of it. The company’s reserve and resource report indicates that Pathfinder’s 11,560 acres potentially holds 24.520 bcf of gas (P50). First production here just started, giving a very important short term boost to AKK’s cash flow:
Back in the old days (and even today) companies used to just burn the gas off. But natural gas is a massive industry now, especially in the USA where demand for it has sky-rocketed to almost unimaginable levels. Shale gas is helping the USA to flirt with the real possibility that it will become energy independent and new techniques like fracking have opened up reserves of gas (and oil) that were once thought untouchable.
As you can see in the above image, Niobrara (represented by the purple patches) is one of the major gas basins fuelling this American energy revolution. Marcellus (orange) and Haynesville (pink) are the leaders with 13.5 and 6.5BN cubic feet of gas per day of production so far. Niobrara produces around 4.5bcf per day and is considered an up and coming gas field with lots of room for growth. AKK is determined that its resources there will play their part (and earn their keep). To that end, AKK has enlisted the help of Gas Processing of America , a major US gas player, to bring on stream a fistful of gas processing facilities that will take the natural gas streaming from its Niobrara oil and natural gas wells and make it into commercial products. The gas processing agreement GPA allows for the processing and selling of heavy liquid gases (propane, hexane, ethane, and butane) allowing the methane to be sold as pipeline quality gas. AKK supplies the raw materials while GPA provides the capital to install a processing plant, compression plant and the associated infrastructure and act as owner/operator. As we mentioned earlier, production started a few days ago – soon AKK will start collecting cash from this production:
This is great news for AKK; the same time it strikes its first big oil resource at Niobrara, the Pathfinder gas play is coming on stream ahead of schedule. The processing facilities for the first gas processing plant at Niobrara Pathfinder are now installed:
Discussions are progressing on the installation of the main north-south gas pipeline to connect the Pathfinder field to the Colorado Interstate Gas pipeline (CIG), a 4,200 mile long pipeline that sends gas directly to markets in Colorado and Wyoming and indirectly to the Midwest, Southwest, California and Pacific Northwest.
AKK says this will allow for maximum profitability for the field with more than 200 potential drilling locations across the project. AKK should soon have a spider’s web of oil and gas wells, pumping out black stuff and natural gas into pipelines that take it to market. An energy project that uses every resource it has, leaving no stone unturned in the search for profits. The shale oil and gas revolution is transforming America and the fortunes of the companies prescient enough to get involved. AKK’s Niobrara Pathfinder project is advancing by leaps and bounds and these positive catalysts – first oil struck in Colorado and gas processing ahead of schedule – justify the faith The Next Oil Rush is showing in AKK. Yet the company is still undervalued. But with the sort of success AKK is having we think that simply cannot last. AKK’s investors are certainly taking notice of the company’s potential as it accelerates the drilling programmes across its US oil and gas plays...
AKK Raises $6M
AKK has just successfully completed a $6M capital raising through its recently completed Share Purchase Plan.
There was some shortfall from the SPP to existing shareholders, AKK held it out – and it was snapped up by institutional investors – a great sign of confidence in the company’s future direction and present success. The outstanding placement of 171,790,241 fully paid ordinary shares at $0.01c each raised over $1.7M. Existing shareholders bought over $4.3M worth of shares in the SPP. That gives a grand total of just over $6M in the bank for AKK, more than enough to keep the lights on! But the funding everyone is waiting for is that $40M debt facility. AKK is still in negotiations and the due diligence process continues. Based on everything we’ve just shown you we’re hoping some positive news isn’t too far away. Stay tuned.
First the drilling, then the results
It’s been a busy couple of months for AKK and the rest of 2014 is shaping up to be even busier with catalysts galore on the horizon. AKK has just spudded a gushing oil well out in Colorado, spudded a fifth well in Texas and received a massive upgrade for its resources and reserves. These events will be the main forces driving the company’s agenda. In the short term we’re expecting drill results from the Colorado oil well and the five new oil wells out in Texas. When those results are in, we could see another re-rating of AKK’s resources and reserves. Plus, the construction of the gas processing plant at Niobrara Pathfinder should be coming along nicely too. In the medium term we’re on the lookout for any announcements of AKK’s $40M debt facility. Once that money is in the bank then AKK can massively accelerate its drilling programmes at its two main energy plays in the USA – Eagle Ford Birch in Texas and Niobrara Pathfinder in Colorado. Both projects are now proven to have massive oil and gas resources. Having a big whack of money on hand to develop them could be the drop of blood in the water that sparks a feeding frenzy for AKK shares. In the long term , once that big debt facility is locked away, we expect to see massive drilling programmes across AKK’s tier one projects in the USA and probably a long overdue market revaluation of this company. Right now AKK is proving to investors that it has the goods and putting plans into place for its stated aim of becoming the next billion dollar energy company. As early, long term AKK investors, that would really be something... At The Next Oil Rush we’re watching AKK’s progress closely. Just as it’s a thrill when an oil company strikes oil, it’s an even bigger thrill when you see its share price burst upwards...hopefully this can happen for AKK. We’re are hoping that the coming months will see AKK rise up to the level its assets deserve.