Don't be too negative about this. As I suggested in an earlier note, the "26' gas/sample show" was always likely to have been an over-estimate. Second if they have 18' of interval from the logs, given that this is a barrier-bar type sand it is likely that the lower portion is more laminated (layered) and not as effective. The good news is that even 8-10' of good "beach sand" at the top will flow quite well and the 200 bopd initial rate could still be achieved. (*don't forget when you start tallying up annual income, there will be a decline associated with perhaps 30-50%/year). With an initial rate of 175 bopd, 30% decline, 75%NRI, $75/bo, that's about $2.5M in 12 months net to the 100%WI. Maybe payout and a little profit on a $2M well (a guess). It is unlikely that a "frac" of this type of reservoir would do any good since the ductile nature of the sands/shales would probably prevent any long term improvement. The poor sample recovery is also not a bad sign as looser material often falls out of the cups as they are pulled out of the borehole wall and dragged 9000' to the surface. They might have phrased it better since they have left open the possible interpretation that though "some SWC samples had oil", we might be left to think others were water wet. I doubt that, and the ones with no oil, probably had no recovery. As Scottport has suggested, it would have been better(my opinion) had the operator continued drilling to the deeper objective. Instead they've spent a lot of money for a modest rate well. Now an offset will be required, which will have a risk of missing the "proven sand" or being down dip from contact, in order to test the remaining potential.
AUJ Price at posting:
19.0¢ Sentiment: Buy Disclosure: Held
