February 17, 2011Texon Petroleum Has Four Wells To Test In...

February 17, 2011

Texon Petroleum Has Four Wells To Test In Coming Weeks To Drive Up Q2 Production Numbers.

www.oilbarrel.com

These are busy times for ASX-quoted Texon Petroleum, which is seeking to prove the commercial potential of its 5,000 acre lease position within the emerging Eagle Ford Shale in Texas. It cannot have escaped the attention of regular readers that the Eagle Ford is one of the hottest plays in the US, because of the oily sweet spots that ensure premium revenue streams for operators at a time when natural gas prices remain depressed - ironically, because of the natural gas supply surge as shale drilling took off around the previously gas-short country.

Texon Petroleum may be an oil junior but it is punching above its weight as a new producer in this shale hot spot, where acreage has been trading at increasingly high premiums as companies, including Statoil, CNOOC and Shell, seek to build exposure to this oily sweet spots in this promising play. Texon has one well producing from the Eagle Ford, the Tyler Ranch EFS-1H well, which came online in December with an initial production rate of 1,267 boepd (1,202 bpd of light sweet crude and 782,000 cubic feet of gas per day), exceeding expectations (the nearest EFS well is Swift Energy's San Miguel-1H, which lies immediately to the south and had an IP of 775 bpd and 1.1 million cf/d).

Analysts at Australian stockbrokers Patersons said the IP of Texon's first EFS well confirmed "the project area is located in a productive area of the volatile gas/oil window of the shale....and that the fraccing was well executed which should have positive implications for longer term production performance".

One of the main attractions here is the premium nature of the production stream: while Henry Hub gas is trading around US$4 per million Btu, Texon is receiving US$6.80 per mcf due to the high heating value of the Eagle Ford gas and the presence of natural gas liquids. On top, there is the revenue from the oil. Texon has a working interest in the well of 82 per cent and a net revenue interest of 61.6 per cent.

Now production data is in for the first two months. The Tyler Ranch well has produced about 632 barrels of oil equivalent per day over the last 60 days, although over the second 30 day period, production was lower, averaging 548 boepd. The ASX-quoted company attributes this decline to a couple of weeks of below freezing temperatures and a five-day shut-down of the gas pipeline inlet compressor. With temperatures up and the compressor now functioning properly, production is reported to be back up to 650 boepd. However, investors will be watching the production performance keenly as steep decline rates would be a red flag.

A second Eagle Ford well will be fracced and tested in the first week of March. A gas pipeline has been lad so the well can go into production immediately. Texon has a 100 per cent working interest and 75 per cent NRI in this well.

Texon isn't just a shale play. The company is also producing from the conventional shallower Olmos reservoir; this gives the company a chance to build up the production numbers without reliance on the expensive and often hard-to-source horizontal drilling and fraccing technologies. These vertical wells are cheap to drill, about US$1 each, and can be very profitable. Texon expects to frac three Olmos wells in the coming weeks. This work, plus the second Eagle Ford well, should add another 600 boepd to the company's production tally in Q2, which in January was running at 1,200 boepd gross or 600 boepd on an NRI basis.