Overview
We are an independent oil and natural gas company currently focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. This basin, which is one of the major producing basins in the United States, is characterized by an extensive production history, a favorable operating environment, mature infrastructure, long reserve life, multiple producing horizons, enhanced recovery potential and a large number of operators.
We began operations in December 2007 with our acquisition of 4,174 net acres with production at the time of acquisition of approximately 800 BOE/d from 34 gross (16.8 net) wells in the Permian Basin. Subsequently, we acquired approximately 47,429 additional net acres, which brought our total net acreage position in the Permian Basin to 51,603 net acres at December 31, 2012. We are the operator of approximately 99% of this acreage. As of December 31, 2012, we had drilled 193 gross (176 net) wells, and participated in an additional 18 gross (eight net) non-operated wells, in the Permian Basin. Of these 211 gross wells, 191 were completed as producing wells and 20 were in various stages of completion. In the aggregate, as of December 31, 2012, we held interests in 225 gross (201 net) producing wells in the Permian Basin.
Our activities are primarily focused on the Clearfork, Spraberry, Wolfcamp, Cline, Strawn and Atoka formations, which we refer to collectively as the Wolfberry play. The Wolfberry play is characterized by high oil and liquids rich natural gas, multiple vertical and horizontal target horizons, extensive production history, long-lived reserves and high drilling success rates. The Wolfberry play is a modification and extension of the Spraberry play, the majority of which is designated in the Spraberry Trend area field. According to the U.S. Energy Information Administration, the Spraberry trend area ranks as the second largest oilfield in the United States, based on 2009 reserves.
As of December 31, 2012, our estimated proved oil and natural gas reserves were 40,210 MBOE based on a reserve report prepared by Ryder Scott Company L.P., or Ryder Scott, our independent reserve engineers. Of these reserves, approximately 29.5% are classified as proved developed producing, or PDP. Proved undeveloped, or PUD, reserves included in this estimate are from 306 vertical gross well locations on 40-acre spacing and four gross horizontal well locations. As of December 31, 2012, these proved reserves were approximately 65% oil, 21% natural gas liquids and 14% natural gas.
We have 881 identified potential vertical drilling locations on 40-acre spacing based on our evaluation of applicable geologic and engineering data as of December 31, 2012, and we have an additional 1,118 identified potential vertical drilling locations based on 20-acre downspacing. We have also identified 731 potential horizontal drilling locations in multiple horizons on our acreage. We intend to grow our reserves and production through development drilling, exploitation and exploration activities on this multi-year project inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives, targeting oil-weighted reserves. Our estimated ultimate recoveries, or EURs, from future PUD wells on 40-acre spacing, as
estimated by Ryder Scott, range from 102 MBOE per well, consisting of 46 MBbls of oil, 151 MMcf of natural gas and 31 MBbls of natural gas liquids, to 158 MBOE per well, consisting of 112 MBbls of oil, 114 MMcf of natural gas and 27 MBbls of natural gas liquids, with an average EUR per well of 133 MBOE, consisting of 91 MBbls of oil, 101 MMcf of natural gas and 25 MBbls of natural gas liquids. We also intend to continue to refine our drilling pattern and completion techniques in an effort to increase our average EUR per well from vertical wells drilled on 40-acre spacing. We currently anticipate a reduction of approximately 20% in our EURs from vertical wells drilled on 20-acre spacing.
In 2012, we began testing the horizontal well potential of our acreage. Our first horizontal well was the Janey 16H in Upton County with a 3,842 foot lateral in the Wolfcamp B interval. We are the operator of this well with a 100% working interest. It was completed in June 2012 and had a 24-hour initial production rate of 618 BOE/d and a 30-day average initial production rate of 486 BOE/d, of which 86% was oil. Through the end of 2012, the Janey 16H had produced a total of 48 MBbls of oil and 62 MMcf of natural gas. Our second horizontal well was the Kemmer 4209H in Midland County. It is a non-operated well in which we own a 47% working interest. It was completed in September 2012 in the Wolfcamp B with a 3,733 foot lateral. The production as reported to us by the operator was a peak 24 hour rate of 892 BOE/d and peak 30 day rate of 712 BOE/d, of which 85% was oil. Through the end of 2012, the Kemmer 4209H had produced a total of 41 MBbls of oil and 45 MMcf of natural gas. Based on the decline curve analysis of the current production, we anticipate that the EUR for each of these wells will be in the range of 400 to 500 MBOE.
In addition to the Janey and Kemmer wells, as of February 28, 2013 we had three additional horizontal wells in Midland County and four horizontal wells in Upton County in various stages of development. In Midland County, we have drilled the ST25-1H well (83% working interest) with a lateral length of 4,617 feet and are currently drilling the ST25-2H well (83% working interest) with a targeted lateral length of 4,800 feet. We have scheduled a 19 stage hydraulic fracturing operation for each of these wells, with the frac on the ST25-1H well expected to begin in early March 2013 and the frac on the ST25-2H well scheduled immediately after that in mid-March. Also in Midland County, we are participating in the Sarah Ann 3812H, which is a non-operated well in which we have a 42% working interest. It was drilled to a lateral length of 4,461 feet targeting the Wolfcamp B interval and recently completed an 18 stage frac.
In Upton County, we have drilled three additional wells, the Neal 8-1H (100% working interest) with a lateral length of 7,652 feet, the Neal 8-2H (100% working interest) with a lateral length of 6,658 feet and the Janey 3H (100% working interest) with a lateral length of 4,629 feet. We completed a 32 stage frac on the Neal 8-1H well in late January 2013. As of February 26, 2013, flowback operations were underway and for the last seven days the well averaged 806 BOE/d with a peak rate of 871 BOE/d with an 85% oil component. A 28 stage frac is scheduled to begin on the Neal 8-2H well by mid-March 2013. The Janey 3H is currently undergoing a 19 stage frac and is expected to begin flowback in early March. In addition, we are currently drilling the Kendra 1H well in Upton County with a planned 7,550 foot lateral.
The production results from the wells in Midland and Upton Counties, along with geoscience and engineering data that we have gathered and analyzed, give us confidence that our acreage in Midland and Upton Counties is prospective in the Wolfcamp B interval. Based on the data we have, we also believe that a large percentage of our other Midland Basin acreage is prospective for horizontal drilling. This includes not only the Wolfcamp B interval but other intervals ranging from the Clearfork to the Atoka. However, further testing of these areas and other intervals is necessary to determine their economic potential.
Our Business Strategy
Our business strategy is to increase stockholder value through the following: