GossipHey Hula, liked your last post. I talked to a geologist friend of mine (a different one than I normally run to) who was very senior at one of the trusts/soon to be ex trusts, about this topic. He thought that was true also (though didn't specify a one meter thick pay interval) but that it did thin out. Though remember that Second Wave just hit 4 m of Swan Hills Pay quite a bit to the south. However it could thin out to the southeast... regardless, my friend thought that waterflooding would be tough in some parts of this platform because it is so tight. So that could limit some areas for full development potential as well.
But, as a counterpoint, ARN themselves only claim that the middle swath of their lands will be drillable. 220 locations they quote come from roughly 70 sections at 3 wells per. So ARN themselves don't see potential on a lot of their lands. Unless oil hits $100 again then who knows? ARN is also very confident in the effects of waterflooding from their experience in the field, which is why they built the 4,000 b/d treating facility. That was farsighted and showed great confidence in the play (even outside the unit) before the HZMSF mania started.
One other bit of gossip - the geologist I mentioned above said that regardless, as soon as ARN can drill a few distant wells that show the oil exists in those regions, "someone will take them out for $10/share." and I don't want to name names but this guy was involved in more acquisitions than I ever will be (and I've been in a few). Actually he brought up Arcan when I asked him about Second Wave; he said well if you like Second Wave you should first consider Arcan..." and I just said oh really, tell me more...
Last bit of gossip - ARN spudded two wells last weekend (Oct 8 & 9) at 4-2-68-9 and 13-30-68-8 - both outside the unit and quite distant from each other. These should prove up many sections if they work. Also, I keep a land map showing where Penn West, Pengrowth, and (a bit of) Apache's drilling activity in the area. There is getting to be swarms of them around Arcan's land on 3 sides.THere are a ton of wells being drilled within a section or two of ARN's land all over the place. I'll also be really curious to see who drills up the land that went in the summer land sale just on the SE side of ARN's land block. If they drill something there and it works, that validates most of the ARN land and would be a fantastic development. I'll also be watching PWT and PGF to see how their wells pan out to the West, SW, and South of the ARN block.
To those that weren't a fan of the equity issue, I hear you, but it is not a bad safety move. I was a big Rider Res shareholder/fan, and they got too greedy - didn't issue equity, only went debt - and they got murdered when gas prices went down and some of their wells didn't work out as hoped. That cost me a bundle, and I'd rather see a bit of dilution and avoid that fate. Plus, assuming they do have 200+ locations, imagine this scenario - what if they raised $200 mm (issuing ~40 mm shares) and promptly drilled 50 wells with the cash that could average 200 b/d for the first year? Assume they could pay for waterflooding out of existing cash flow,which would maintain 200 b/d for a few years. They would then be producing 13,000 b/d (incl 3,000 b/d of current), cash flowing over $165mm /yr at $35 netbacks (would be higher at $80 oil), which would be about $1.25/sh annual cash flow (assuming 120mm shares). At an 8x cash flow multiple that would be $10/share,with very little debt. I'd be happy with that! Of course they logistically couldn't pound out 50 wells that quickly, but this is just to show that, if the lands are as prospective as we hope, dilution isn't necessarily bad.
Other than that it might be a quiet fall, with just updated production numbers along with Q3 results. They numbers could be on the low side for stuff away from the centre of the unit, because as ARN says they all need waterflooding eventually and the southernmost HZ well certainly won't have any water support. So expect to see some big declines on those wells, which is not necessarily a bad omen. The market may take it like that though.
OPG210