potential game changer

Devon Energy just released their Q2 results and were very positive about the Woodford Shale which is also found in our Snake River Project directly below the Mississippi lime formation.

Here is an extract from Devon's quarterly conference call presentation:

"As John mentioned, we’re today unveiling an exciting new opportunity on our Mississippian trend acreage. We have completed 29 wells to date in the Woodford oil shale with very positive results. Second quarter Woodford results were highlighted by 10 wells with initial production averaging 840 BOE per day and 30-day IPs of more than 500 BOE per day.

We are excited about our Woodford potential for several reasons. First, unlike the Mississippi Lime, the Woodford is a shale formation with resource play characteristics. It sits just below the Miss Lime, and can be up to 150 feet thick across portions of our acreage. It is the source rock for much of our Miss production. The Woodford is less geologically complex, and therefore should have a much higher drillability factor and deliver more consistent results than conventional formations.

Second, the type curve emerging from the Woodford oil shale looks very similar to our original type curve in the Miss Lime, with 30-day IPs of about 300 BOE per day and [EURs] of about 350,000 BOE. Furthermore, on a program basis, the drill and complete costs for these wells should run about $3 million each.

Third, initial production is about 80% oil on these Woodford shales. While the EUR is expected to be about one-third gas and about one-third NGLs, this high initial oil content greatly enhances the economics in today’s commodity price environment.

And finally, since Woodford’s geographic footprint overlaps our Miss Lime acreage, the sharing of 3D seismic surface facilities and power and gathering infrastructure will significantly enhance the economics of both plays. On our acreage in the Mississippi and Woodford trend, we have placed about 100 miles of pipeline in service to date, and expect an additional 400 miles in service by year-end.

This critical midstream infrastructure will reduce our operating costs and well backlog, allowing the ramp up in our production. The evaluation of our Woodford potential has also included a successful four-well pilot on 160 spacing. These four wells achieved average 30-day IP rates of roughly 400 BOE per day.

The Woodford’s ease of drilling also allowed us to drill and complete our first 10,000-foot ladder on the trend. The McNeil 6/7H was brought online in the second quarter with an average 30-day IP rate of nearly 700 BOE per day.

Based on our positive results to date, we have recently added 60,000 net acres with Woodford potential to our lease hold position in the area. To date, we have derisked about 100,000 out of roughly 400,000 net acres prospective for Woodford oil shale development. This 100,000 net acres represents about 1,000 risked, undrilled locations.

Combining our Woodford oil shale and Miss Lime results, the second quarter production across the trend averaged 5,000 BOE per day, a 73% increase from the first quarter this year. While we have spud over 200 wells to date, infrastructure limitations, [flaring] restrictions, and wells awaiting completion have limited our production history to 89 operated wells, of which 60 are completed in the Miss Lime.

Our results in the Miss Lime continue to vary, depending on geographic location, reservoir quality, landing zones, and completion techniques, with our best wells far exceeding our type curve. The seismic we have acquired thus far has allowed us to avoid structural geohazards such as faults and [unintelligible] and has allowed us to improve well orientation within the reservoir.

Additional analysis is ongoing to identify correlations between production and the various seismic attributes that can be related back to the geology. As we further refine our [unintelligible] models with the integration of 3D seismic log data and well results, we’re confident we can improve our overall consistency.

Inside our joint venture area, we saw an 80% increase in Woodford 30-day IP rates from our wells drilled with the benefit of seismic. To date, we have acquired 3D seismic over roughly 50% of our acreage inside the joint venture area, and plan to have the remainder of our seismic in this area shot by early next year.

On our acreage to the north, we have a minor amount of seismic already in house, and our acquisition of additional seismic in this area will continue through 2014.

For the remainder of the year, we expect to run 14 operated rigs on our joint venture acreage, where we have the benefit of 3D seismic and one operated rig testing our lease hold to the north. This rig count will keep us on pace to participate in approximately 350 wells for the year.

Given the strength of our Woodford oil shale results, and the fact that Woodford wells secure acreage from the Miss Lime formation as well, we will focus our second half activity on drilling Woodford wells.

This level of activity, combined with the progress we’ve made in building out infrastructure, will allow our net production to approach 15,000 BOE per day by the end of 2013 for the Miss Lime and Woodford oil shale combined.

So, in summary, we are excited about the progress we’re making in the Mississippian Woodford trend, and believe these plays will provide the next leg of large-scale, highly economic oil growth for Devon."

Exciting stuff as the Woodford shale has not been factored into AOK's valuations to date and as a result, is not reflected in the share price yet.