"Results on the long leg? BOR’s long leg well was placed on
test in December; however, the 786bbl/d pump capacity was
insufficient to handle the wells theoretical inflow fluid capacity
of 1,616bbl/d. By the end of Jan., the well had cum’d 37mbbl
of total fluid, comprised mainly of frac fluid and formation
water – not uncommon during the initial stages of clean-up
among Slave Point producers at Red Earth. In early Feb.,
isolated production testing of the heel, middle and toe of the
well confirmed that the pumps maximum capacity remained
insufficient to optimize fluids flow from any interval of the
lateral; however, a current test at the heel, where porosities
average just 6% (vs. up to 33% in other portions of the well),
yielded 264bbl/d of fluids with a gradually increasing oil cut
from 2% to 10%, implying a peak oil test rate of 26bbl/d.
? What now? While disappointing, we think it’s too early to pass
final judgment on this well. We’re hopeful that by properly
equipping the well with a high volume ESP pump (1,887bbl/d)
within two weeks and by placing the entire lateral on test, a
drawdown in pressure could yield a commensurate increase
in the oil cut from this oil wet reservoir (which preferentially
imbibes/retains oil). If BOR can even maintain a stabilized
10% oil cut at 75% of the new pumps flow capacity, it would
yield a 140bbl/d oil well. In addition, if the oil cut creeps up to
30-40% (like its offsetting short length laterals have) it would
provide further upside to a potential peak oil rate.
? Maintain Outperform; target down to $0.15 (from $0.25)
With $10 mln ($0.03/sh) in cash and by providing no value to
~200boe/d (45% liquids) of current production, the market is
valuing BOR’s 32.5 section land position at Red Earth for
$160/ac, well below precedent land sales in the area. At its
current level, and with a possible joint venture in the works, we
believe the risk/reward potential (40mmbbl of recoverable oil)
is skewed to the positive; however, with limited success to
date and increased risk associated with early indications of
water, we reduced our target to $0.15/sh
(from $0.25/sh) until
we see signs of improving results from its Slave Point play."