Monday, March 15, 2010

GMX Resources: Update

GMX Resources reported its first quarter earnings last week.  Because the company's acreage is highly concentrated on the Texas side of the Haynesville Shale, I look at GMX as a "suicide player" in the Haynesville.  The company, which is a relatively small player, doesn't have a terribly strong balance sheet and was forced to cut back from seven operating rigs to one when commodity prices were crushed and the financial markets were still locked.  GMX added a second rig in October 2009 and added a third in January 2010, but its operations are still somewhat scaled back and increasingly concentrated in the Haynesville Play.

GMX completed 11 Haynesville wells in 2009.  The average 30 day production was 5.136 MMcf/day, but the company reported that it has been operating its wells on restricted chokes "to avoid excessive closure pressure during early flow time."

The company also reported that it has started using a larger diameter wellbore, moving from 4 1/2" to 5 1/2".  As GMX says:
"The larger 5 1/2" casing facilitates a reduction in perforation cluster spacing which will improve the capability of stimulating the entire lateral length, all the while keeping the total number of frac stages at current levels. Data suggests that improved well performance is related to the reduction in perforation cluster spacing and with the larger casing, improved well performance is anticipated without an increase in stimulation cost."
The wider diameter wells take longer to drill at this point (44 days vs. low 30's/high 20's for narrower hole), but GMX expects to lower the drilling time to around 35 days.  The company began this program on December 28, 2009 and the first wells, Verhalen "D" #3H and Bosh 19H, should show results in April 2010.  Blocker Heirs #20H, Verhalen "E" #6H and Blocker Ware #8H are currently drilling using this new technique.

GMX's capital budget for 2010 is $175 million, the bulk of which will be spent drilling Haynesville wells.  The company expects to drill 20 Haynesville wells and two Cotton Valley wells.  GMX is actively looking at potential transactions to lower the capex spend, including participation agreements, farm-ins and acreage exchanges.

GMX uses an interesting term to further delineate the Haynesville Shale acreage, "capital core."  The first map below shows the "capital core" with an overlay of the current rig locations as of 3/8/10 and GMX's leasehold.  The second map is presented to show GMX's belief in the strength of the western side of the "capital core."  Since all of the company's Haynesville property is here, let's hope they believe in it.

GMX reported one well that I have previously not noted:
  • Verhalen "E" #1H: 8.3 MMcf/day IP (24 hour peak) on 18/64" choke at 3,870 psi; North Carthage Field (Bossier Shale), Harrison Co.

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