Wednesday, July 8, 2009

Unit Corporation: Watch and Wait

Unit Corporation is better known as a contract driller, but they also have a gas production company (Unit Petroleum Company) and a pipeline business (Superior Pipeline). From a production perspective, Unit focuses on the Anadarko Basin in Oklahoma, the Arkoma Basin in Arkansas/Oklahoma, and the Gulf Coast Basin, although the company has picked up acreage in the Marcellus, Bakken and Haynesville Shales.

In the Haynesville Play, Unit has 30,300 gross acres (15,500 net). All of the acreage is in Texas, mostly in Harrison and Shelby Counties. The company's strategy is to drill vertical wells to hold leases by production before spending a lot of money on horizontal wells.

So far, Unit has drilled five vertical wells in Shelby County and at last report was drilling one horizontal well in Q2 2009. Unit hasn't released results from the horizontal well but it might shed some light on it during the company's early August earnings call. Because takeaway infrastructure in Shelby Co. is lacking, only two of the wells were hooked to a pipeline, but management reports that the results have been "somewhat disappointing," as each well is producing about 100 Mcf/day and experiencing some water loading problems.

Unit's 2009 drilling plan is for 9 vertical wells and one horizontal well in Shelby Co. (about $25 million of capex) and 3 vertical wells in Harrison Co. (about $6.5 million of capex).

For now, Unit seems content to spend enough money to hold the land, but it will watch and wait before spending a lot on horizontal wells.


Anonymous said...

Always be skeptical of what you see out there on the internet, especially activity maps. For example, in Shelby Co. on that map, The SW energy well is a James Lime well, not Haynesville. The Devon well is most likely a CV lime well, possibly comingled with Travis Peak. The two Chesapeake wells are for real though. I’m not trying to tear apart Unit Corp here. It’s just an example. I agree that their ‘wait and see before spending a ton of money’ plan is definitely the way to go right now.

Robert Hutchinson said...

Agreed. I think their position translates into, "We don't think we're sitting on great Haynesville acreage." It's probably not economical to drill for much else on that land while the prices are so low.

Anonymous said...

I take back my statement on the best plan. The 'find some company to buy your stuff for way too much money' plan is ideal.

Robert Hutchinson said...

Ah, the Greater Fool. He's taking a break after his buying spree across all sectors of the economy from 2005 to 2007. Once the debt markets come back, he'll be well rested and ready to buy.