gene revisited

Hi All

With time to kill while waiting for the all-important Defender flow rates, I spent some time this arvo re-reading the SSN forum posts in the week prior to what I consider to be one of the watershed announcements in SSN's history - the Gene 1-22H flow rate announcement of 19/4/2010. Makes for some interesting reading because in my view the tone of the discussion that week mirrors the tone of the discussion seen here recently - a polar discussion between those who held steadfast with the view that Gene would deliver, and those who seemed increasingly anxious that it wouldn't. Not helped I might say by the announcement prior to that one (dated 14/4/2010) which reported a flow rate of "only" 1027 BOEPD (many were speculating of flow rates in the 2000-3000 BOEPD range at the time).

Interestingly for me, the nature of SSN's announcements all the way through the Gene drilling campaign were pretty much as they have been for Defender and SOA (although Terry ventured slightly into "hyperbole" by mentioning oil shows on shakers and such - I didnt even know what a shaker was at that stage and havent seen mention of a shaker in any O&G drilling announcement since!) - the company had been reporting regularly and by April 19th there were many clues to have been gained from the company's announcements as to whether Gen would produce or not - even with TB's minimalist reporting style.

Fast-forward to today and I see a similar level of anticipation and trepidation in the discussion re Defender. What I detect in the discussion (and thanks to Hartley's for contributing) is a tone of almost acceptance that Defender is high risk, that Hawk Springs is high risk (or moderate to high risk as Hartley's say in their latest report - not in previous reports), and that the real play is Fort Peck. How on earth have some people (and Hartley's) arrived at that conclusion?!?

This leads me to question the context of the "moderate to high risk" label for Defender if not for the entire Hawk Springs project as well. I think the correct context in which terminology like this should be read is that:

1. it is moderate to high risk because it is SSN's first well in the play
2. the actions of CHK in pulling out of Niobrara after their lack of success has added to the uncertainty surrounding SSN's 1st well at Hawk Springs.

But does the above mean that Defender and Hawk Springs should still be considered moderate to high risk? I think no, for the following reasons, which are factors that have DE-RISKED Defender a great deal in the last couple of months:

1. CHK have taken the wrong (I would call it a slap-dash) approach to their Niobrara play and the results do not reflect the recoverable oil that is probably still within their acreage.

2. Supporting point 1 is the results of other players such as Noble and Brigham. For every one of CHK's poor results there are several good results produced by others.

3. TB kept the best part of Hawk Springs for SSN when he sold the acreage to CHK, characterised by the higher resistivity readings of our acreage and the local knowledge of our project partner.

4. TB has invested in the best possible due diligence by spending months getting the 3D seismic data, which CHK didnt bother to do.

5. He has selected Defender as the best of the best location within the Hawk Springs acreage.

6. He has brought HAL in with a farm-in deal, and would have showed them the 3D data to get them interested. HAL are THE leaders in fraccing technology.

7. During drilling Defender they have:
a. Confirmed the structure of the target Niobrara zone as highly brittle
b. Used the 3D and core results to determine the direction of the lateral
c. Confirmed the lateral is almost entirely within the target Niobrara zone
d. Confirmed the resistivity along the lateral at > 100 Ohms, AND oil saturated.

8. From the CHK sale SSN has the cash backing to invest in "getting it right" as they progress the development of both Hawk Springs and Fort Peck - it is not live or die on each well.

I think much of the above has DE-RISKED Defender in particular a great deal - I do not believe today it is "moderate to high risk" - it may be the 1st well in the play, but as with Gene in North Stockyard, TB has given us plenty of clues to work out that Defender has been de-risked by a significant amount (not 100% of course) - there is oil there - all along the lateral that has been drilled - the question is at what rate will it flow.

I said months ago when some were speculating of IP rates > 1000 BOPD or BOEPD that anything in the 500-1000 range would be a great result, and I still believe that's the right target range. Anything on top is a bonus, anything below will be a disappointment.

Anyway, history will be the judge and it will be interesting to re-read the current discussions in a year's time, but I think Defender is less than "moderate to high risk" due to the above context, and Hawk Springs will be the company maker and Fort Peck the cream on top.

Cheers, Sharks.