Re: Texon & GBP JV - 4 new Olmos drill Q2 and EFS drill spudding...

Re: Texon & GBP JV - 4 new Olmos drill Q2 and EFS drill spudding mid-May.

We already know some of this, but good read.

For some time now Texon Petroleum has been hailing the commercial potential of its 5,000 acre lease position within the emerging Eagle Ford Shale in Texas. Oily sweet spots have made this shale one of the hottest plays in the booming US shale market, with the bonanza of light crude making it one of the more lucrative investments in a sector that has struggled with a protracted period of low gas prices (although even they are starting to recover now).
Now ASX-quoted Texon has started to deliver some real evidence that its patch of the Eagle Ford Shale includes some of the sweet stuff; until now, it had only been the proximity of prolific wells by nearby operator Swift Energy that had highlighted the productive potential of these tight rocks.

Texon has now drilled two horizontal EFS wells. The first, Tyler Ranch EFS-1H, drilled in December 2010 and delivered initial production of 1,202 bpd of light sweet crude and 782,000 cf/d of gas, exceeding expectations. (Texon has a working interest of 82 per cent and a net revenue interest of 61.6 per cent, giving it 403 boepd). Production thereafter declined, with average production over the first 120 days coming in at 524 boepd, although Texon says the result was skewed by a couple of weeks of below freezing temperatures and a five-day shut-down of the gas pipeline inlet compressor. Production is reported to be back up at 650 boepd.

The second well, the recently completed Teal EFS-1H, delivered initial production of 1,105 bopd of light oil and 736,000 cf/d of gas. Texon has a 100 per cent WI and NRI of 75 per cent, giving it some 921 boepd of the production. It is too early yet to see what the decline curve on this well will be.

Scott Simpson, analyst with Patersons Securities in Australia, which ranks the stock a BUY with an upgraded price target of A$1.20/sh, cheered the result from the first two wells, saying they ?confirm that TXN is positioned in a highly productive area of the oil window?. The analyst said the early results compare favourably with other results across the play and that decline data from the first well tied-in closely with the analysts? own assumed production profile.

Texon has been swift to tie these wells into production facilities, enabling it to take immediate advantage of high oil prices and a premium gas price for its high value gas. These two wells, plus the company?s 14 shallow Olmos reservoir wells, have helped lift Texon?s group production tally to 1,200 boepd, putting the company on track to meet its Q2 average net production target of 920 boepd. This is starting to add up to a healthy revenue stream given that oil is north of US$100 a barrel and Texon gets a premium gas price for its high calorific gas of around US$6.30 per mcf (compared to US$4.20 for typical gas contracts).

There?s more to come, with the company now securing a rig for two more EFS wells on its Leighton and Rockingham leases. The third well, Tyler Ranch EFS-2H, will be drilled immediately north of the first EFS well and should spud in mid-May. Texon has an 82 per cent working interest and 61.5 per cent NRI in this well. The fourth well, Hoskins EFS-1H, will be drilled 3.5 km south of the second Eagle Ford well in an area where the shale is some 140 feet thick with good oil and gas shows in nearby vertical wells. Texon has a 95 per cent WI and 71.25 per cent NRI in the well. Both wells will be fracced and tested in August.

Further drilling on the low risk Olmos reservoir is also planned, with four Olmos wells planned for Q2 2011. The company is also planning to appraise the Wilcox horizon across some of its existing acreage, where oil shows have been observed during the drilling of Olmos wells, and to drill the Coolangatta and the large Scarborough prospect in Q2 and Q3 prospectively. This should provide further catalysts to share price momentum that at A$0.82 is already higher than the A$0.55 before the first EFS well result. Given its potential exposure to fast-rising revenue streams from the Eagle Ford Shale and Olmos developments, it is little wonder Scott Simpson at Patersons calls the stock ?fully funded and cheap at these levels?.

Regards
PR