Wednesday, January 26, 2011

GMX Looking for JV Partner

GMX Resources released its year-end reserves and operations update yesterday. The big news was that the company increased its 2010 year-end reserves to 234.1 Bcfe from 25.9 Bcfe at year-end 2009.  That's an 800+% increase.  There were also a few changes in posture I noticed:

  • At the end of the press release:  "The Company has also begun to actively explore opportunities to joint venture with third parties in the future development of its Haynesville/Bossier and, separately, its Cotton Valley Sands undeveloped acreage."  I've had my concerns about the company's ability to finance a Haynesville drilling program, especially at low commodity prices.  They may have to give up some upside, but a partner could help fund a program to drill the company's 61,528 gross (44,032 net) acres.  With the company juicing its reserves at year end, the deal might look more attractive to a third party.
  • The company has acquired some acreage in the Bakken/Sanish-Three Forks shale play from a private entity for cash and stock.  Seems smart to be diversified since they have such a strong Haynesville concentration a (I read on a GMX message board that someone was offended that I once referred to GMX as a "suicide player" in the Haynesville Shale.)  This action now makes the company only dangerously exposed to the Haynesville (but as a believer, I don't necessarily think that's a bad thing).  I'm no expert on the Bakken Play, but I hope GMX got a good price since they seem to be coming in kind of late to the  party.
  • GMX is now emphasizing its exposure to the Cotton Valley Sands above the Haynesville Shale.  See comment above.  Not exactly diversification, especially at these prices, but at least something else to talk about.

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