Tall City Exploration LLC is hoping for a hot streak.
Fresh off Tall City’s Nov. 24 sale of 14,000 net acres of leasehold in Reagan County, Texas, the company and Element Petroleum Operating II LLC are offering the largest contiguous acreage position to come to market in the northern Wolfcamp Play.
However, with WTI trading at about $67, some analysts believe a slowdown in acquisitions and divestitures (A&D) is coming.
Mike Oestmann, Tall City CEO and co-founder, told A-DCenter the company was willing to take a less than ideal offer when it sold to Aubrey McClendon’s American Energy - Permian Basin LLC (AEPB) for $440 million in cash and notes.
“We made a concession of sorts because of the current environment that we might have made at a $100 environment,” Oestmann said. But he said that accepting notes from AEPB was acceptable because the company believes in the properties.
However, Oestmann said the company isn’t close to a fire sale mode, either.
“Certainly we’d rather be selling into a $100 oil environment than a $70 oil environment,” he said. “But a lot of these companies are buying these reserves for the long term.”
The Midland Basin acreage Tall City is selling has 50 years worth of production per well and 25 year’s worth of drilling, he said.
The Tall-Element package includes about 25,000 net contiguous acres in Howard County—an active and prolific area of the northern Midland Basin Wolfcamp Oil Play. The contiguous acreage position is optimally positioned for the use of long laterals.
It’s too soon to tell what market dynamics will do to the price, Oestmann said.
“It’s hard to say. We’re going to get a real good gauge on it when we see the bids come in on our properties,” he said.
Bidding for the Midland properties closes Dec. 8, Oestmann said. The companies have retained RBC Richardson Barr as their executive adviser to assist with the transaction.
Element and Tall City have proven three benches across the acreage including the Wolfcamp A, B and Lower Spraberry Shale.
The properties have a strong proved developed producing base and an active development program offering robust low-risk, near-term growth.
Oestmann noted that the industry has weathered oil declines in 2008 and 2009 that were short lived. But even persistently low oil prices, after a lag, eventually drag down the cost of services.
When that happens, the economics adjust to levels that are similar to $100 oil, he said.
“It’s a matter of costs. What’s the break even cost of commodity costs all depends on what it costs to drill a well,” he said.
Net production rate is about 2,720 barrels of oil equivalent per day (boe/d), about 87% oil, from 11 horizontal and 13 vertical producing wells. Recent wells had 30-day IP rates of more than 1,000 boe/d. Element and Tall City operate 100% of the properties.
The companies are currently operating a three-rig development program. Three wells are currently being drilled with two additional wells waiting on frack.
High-impact horizontal upside exits from multiple de-risked zones.
In addition to established Wolfcamp A, B and Lower Spraberry production, further potential exists in additional Spraberry benches, Mississippi Lime and Wolfcamp D (Cline).
Offset operators, including Athlon Energy Inc., Energen Corp. (NYSE; EGN), Occidental Petroleum Corp. (NYSE: OXY) and Apache Corp. (NYSE: APA), are assisting in the delineation of the play and also demonstrating impressive results.
Athlon's first three horizontal Wolfcamp A wells in Howard County averaged 30-day IP rates of about 1,300 boe/d.
The properties have significant running room ready for a large scale development program. The offering includes development inventory of more than 900 future horizontal drilling locations targeting the Wolfcamp A, B and Lower Spraberry.
Element and Tall City said they have had excellent drill well economics with IRRs ranging from 50%-100%. Also, efficiencies from pad drilling will significantly reduce future capex.
The entire acreage position can be held with the current three-rig program. Established infrastructure is in place.
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