Tuesday, March 29, 2011

GMX and the Oil Rumor

There has been some chatter that GMX Resources figures into the oil rumor in east Texas.  I kind of put it on the back burner until recently.  First, and most obviously, the company's recent investor presentations (here is today's at the Howard Weil conference) discuss "a new potential oil target below the H/B" and the map of east Texas prominently points out the Valence wells Nancy Brewser #8 well (discussed here in earlier posts) and the Jordan #3, two wells that figure quite prominently in the oil rumor.  The company confirmed that it has 40,000 acres leased prospective for the oil formation

GMX discussed the oil target in a recent conference call and says its the Norphlet sand, which is below the Smackover, and its around 11,900 feet deep.  The formation is a traditional resource trap rather than a shale-like formation and will be drilled through vertical wells.  The company is going to start by re-entering some wells drilled in 2006 to save money since there is a risk of dry holes.   

What's not on the map is the Snider "A" #1H (API 203-34842), which is permitted as a Haynesville horizontal (actually Bossier Shale in the North Carthage Field, a common former classification).  Rumor has it that this well, located in east Harrison Co. near the Louisiana state line, is actually an oil producer.  This has not been confirmed and is strictly hearsay, but the story goes that the well has been shut in as GMX secures additional leases in the area.  

This might be unrelated, but last week I saw a new GMX permit in northern Marion Co., TX. The proposed well, the Haynes #1 (API 315-30969), is a Wildcat vertical well (oil or gas) to 10,200 feet.  Not very deep, but it's outside of the company's comfort zone, given that of the 305 permitted GMX wells in the state of Texas, this is the first one not in Harrison Co.  Not saying it's an oil well and it's no secret the company has leases in Marion Co., but it seems out of character with GMX's prior activities.  Just another interesting data point.

This activity seems to confirm the news I have heard from multiple sources of landmen making offers (stingy offers for the most part) especially in the Harrison Co. area.  If you have any thoughts, I'd appreciate the feedback.  You can comment here or email me at haynesvilleplay (at) gmail.com.


Anonymous said...

If a production report lives up to its billing the offers won't be so stingy.

Anonymous said...

So what do you think happens next in this drama? The cat is out of the bag with the GMX announcement.

Robert Hutchinson said...

What's next? Unfortunately I think we may be in for a dry spell of confirmed information. From what I know, the other big players in the east TX oil rumor are either biggies (BP, Devon) or private (Valence) so they have no incentive to make any public announcements (i.e. to drive stock price).

The companies producing the wells that have been mentioned as part of this rumor don't seem to be in a hurry to connect them to pipelines, ostensibly to line up more leases. The rumors point to prodigious potential quantities down there.

There is lots of prospective leasing activity out there, but I hear that it is for more than just the Smackover/Norphlet layer, so it's hard to draw conclusions from the aggregate activity.

So, what's next? The GMX news was a good start. It confirmed a handful of rumors out there. Management suggested a path for the future (accessing existing wells to test the oil layer to save capital), so we will certainly watch these results. We will also watch for completion data on some of the rumored wells from other operators. Unfortunately I'm not in position to comb through new leases filed in the county courthouse, but that would be an interesting set of data points.

The most interesting data is coming from rumors, most of which are supposedly coming from landmen working the area. Obviously, there is a big grain of salt associated with this information, but it seems to be the most productive source.

Ultimately, the question is how big is this formation? Is it just spotty? It doesn't sound like a shale-like formation, which is what got people so excited early on. How much is wishful thinking? How much is that factor driving the rumor mill?

Anonymous said...

It should prove interesting. Valence and BP are two to watch in my opinion. They have a lot of acreage in that part of the county. They can't sit forever. They will need to turn on the faucet and sell what's down there. They will get their ducks in a row first then shoot!

Robert Hutchinson said...

Another potential data point is NFR. While I have not heard the company directly associated with the oil rumors, they do have property in the area in question.

NFR is about half owned by a private equity company, which means that at some point in the next several years it will either go public or be offered for sale. That's just part of the investment cycle for PE investors. To me, that means NFR will be all over this. If they haven't drilled a well to test the oil layer, they will. There is nothing better than oil below their Haynesville properties to boost the company's valuation.

I think NFR bears watching carefully. If they do hit some oil, they likely will not be afraid to let that information slip into the public realm (unless of course they are trying to tie up new leases) around the find.

Just a thought.

Anonymous said...

Any particular permitted wells you are watching?

Robert Hutchinson said...

Nothing on the radar for NFR yet. There are a couple other prospective wells out there that I've heard of as oil targets but they have not been permitted yet.

Anonymous said...

I keep hearing of two wells in Panola county that are producing and the companies involved are going to great lenghts to keep everything quite.I've also heard of siesmograph crews all over Panola.

Anonymous said...

NFR is drilling 2 oil/gas wells righ on GMXR's door step. Here is a link to a map I made. The GMXR acreage locations are a guesstimate.