Texon Petroleum Set To Target Leighton Look-A-Likes To Grow Business
The current economic and financial climate has forced many a company to rethink its business plan, with credit-starved companies now chasing revenue-generating opportunities and trimming high risk wells from their budgets. Texon Petroleum is no exception, although regardless of the macro-economic situation, it may well have changed tack anyway following lessons learnt since its 2007 IPO. Those lessons include prospect picking, something the ASX-listed company has learnt quickly racking up an 80 per cent strike rate on its Texas Gulf coast leases, and the need to high grade the portfolio to target larger prospects with the scale and longevity to deliver longer term growth. Although its shallow drilling projects, targeting the low risk Frio formation, have delivered a seven-out-of-seven drilling record, these prospects are something of a treadmill. These single well projects, some targeting prospects as small as 0.3 billion cubic feet, take up to two weeks to drill and discoveries can be brought onstream within three months to generate near term cash flows. But these wells also deplete rapidly, creating the need to constantly drill new targets to offset natural declines. Texon is now keen to get off this treadmill.
Instead, it intends to focus on larger prospects with the potential for multiple-well follow-up. This is a lesson well learned from the success of its promising Leighton prospect, where the first two wells have proved heartily successful and have opened the door to a much larger, company-changing development. The first Leighton well, Peeler-1, was drilled in October 2008 and put onstream the following month, since when it has been producing around 26 bpd and 150,000 cf/d net to Texon which has a 70 per cent working interest and 52.5 per cent net revenue interest in the project. The second well, Tyler Ranch-1, was drilled earlier this year and delivered a healthy 420 barrels of oil equivalent per day, comprising 260 barrels of oil and 950,000 cubic feet of gas per day.
The Leighton prospect is shaping up to be a material project for Texon, providing the kind of volumes and long-life production that should underpin the company’s growth for some years to come. Leighton is a deeper reservoir and should have a productive life of 10 to 15 years. And the reserves are high quality, with the gas commanding a premium price about one-third above the benchmark Texas gas price. What’s more, there’s the possibility for a 30 well development that could unlock a 2 million boe reserve.
This development will be undertaken in tranches, with Tranche 1 involving eight wells to be drilled between September 2009 and March 2010. This will be debt funded and the ASX company, which is currently producing 310 barrels of oil equivalent per day to generate revenues of A$500,000 a month, hopes to finalise discussions with a lender in the next three months. Tranche 2 would involve ten wells between May 2010 and January 2011 and would be funded through a combination of debt, cash flow and a farm-down of equity. Tranche 3 would depend on the success of Tranche 2.
The company is also planning to debt fund two wells in 2010 on the Leighton look-alikes in the portfolio (Mosman, Rockingham and Canal Rocks). And depending on the gas price, the company will investigate pursuing its high upside gas prospects, including the possible 200 bcf Maroubra gas prospect and 100 bcf Scarborough prospects. For now, however, investors will be keen to hear news that the debt financing talks have reached a successful conclusion so the company can chase down the reserves potential at Leighton and ramp up production.
Only the clever criminals got the free ticket.
TXN Price at posting:
23.0¢ Sentiment: None Disclosure: Not Held
