GeoResources, Inc., (Nasdaq:GEOI), today provided an operations
update. At present, the Company plans to continue its previously
announced capital budget and expects to spend approximately $30-$32
million in 2009. Based on internal projections, hedges and Nymex
prices, management believes the Company will be able to continue
its capital budget out of discretionary cash flow.
AUSTIN CHALK
GeoResources continues its successful exploitation of the Austin
Chalk formation in Giddings Field, Grimes County, Texas. The Hurst
Bay 1-H, which is its fifth dual lateral well, has been drilled and
completed. The well was drilled to a vertical depth of over 14,500
feet, with an initial horizontal leg of 7,692 feet. The second
horizontal leg was kicked off from a point approximately 1,000 feet
into the first lateral and drilled 5,253 feet. The Company
anticipates that the well will be on production by mid-February.
The previously reported Bax 1-H dual lateral well had an initial
production rate in excess of 21 MMCFPD commencing on November 20,
2008, and is currently producing approximately 13 MMCFPD with
cumulative production of 1 BCF in the first 60 days. The Company
has drilled 10 wells to date and achieved a 100% success rate. The
drilling rig has moved to the Hoke Cole 1-H which is also a planned
dual lateral. Even at present drilling costs and commodity prices,
these wells are highly economical. The Company has recently leased
5,683 Federal acres bringing the total acreage in the project to
more than 60,000 net acres for the Company and its affiliated
partnership. The Company presently expects 15 additional drilling
locations and intends to retain the current drilling rig and spud a
new well approximately every 60-75 days. The Company will consider
deploying a second rig as drilling costs decline. The Federal
acreage is on trend with recent successful drilling and adjacent to
numerous private fee tracts under lease by the Company, which
simplifies prospect access. Accordingly, while drilling units will
be subject to state and Federal approval, the Company believes that
development will be able to proceed without inordinate delay.
GeoResources is the operator of all of these wells and holds a
direct 7.2% working interest. In addition, an affiliated
partnership owns an 82.8% working interest. The Company holds a 2%
general partner interest in the partnership, which interest
increases significantly in accordance with economic performance
parameters under the terms of the partnership agreement.
BAKKEN SHALE
The Company holds a 10-15% working interest in approximately
35,000 net acres in Mountrail County, North Dakota, through a joint
venture. To date, 11 joint venture wells have been drilled by the
operator. The joint venture remains active, has continued to
acquire attractive acreage, and continuous drilling is presently
anticipated throughout 2009. However, in the near term and until
costs decline further, wells may include acreage where the joint
venture has lower working interests in order to reduce near term
capital expenditures. In response to current economics, the
operator has curtailed some production and deferred completion of
new wells until the spring. As reported by numerous operators, the
general level of drilling activity in the Bakken Shale play in
North Dakota has slowed due to reductions in commodity prices. The
joint venture completed well costs to date have been approximately
$5.0 million per well. We expect near term joint venture well costs
to be approximately $4.5 million and to average under $4.0 million
in four to six months. The Peacemaker 1-8H (3.9% WI) has been
completed and started producing early October; however, production
has been curtailed to 200 BOPD until prices recover. The Bandit
1-29H (7.4% WI) and the Nightcrawler 1-17H (4.7% WI) have both been
drilled but are waiting on fracture stimulation. The joint venture
has also drilled the Banshee 1-1H well (4.5% WI), which is in the
heart of the play, and it is waiting on completion. The rig is now
moving to the Jericho 1-5H well (2.8% WI), the Wombat 1-25H (WI
TBD) and then the Raptor 1-6H (10% WI). The Company anticipates
that the Raptor will finish in late April to early May.
OTHER NORTH DAKOTA
ACTIVITY
As previously announced, the Company has unitized certain
shallow oil fields in Bottineau County, North Dakota, for secondary
water flood operations and is continuing these activities. A recent
increase in the Starbuck Madison Unit production, which includes
more than 6,000 net acres, is believed to be initial secondary
recovery response. The Company has a 95.88% working interest and an
81.22% net revenue interest in this unit. Phase Two of the
development plan was initiated in the fourth quarter and is
substantially complete; the Company has temporarily postponed the
installation of some flow lines due to extreme weather. Using its
base case, management estimates 1.4 million Bbls recoverable with a
development cost of approximately $4.00-$5.00 per barrel.
Recoverable reserve estimates range from 1.0 million Bbls to 2.4
million Bbls. At Southwest Starbuck, we have completed Phase One of
the water flood plan which included drilling one injection well and
installing a water plant and flow lines. Initial water injection
commenced mid January. The plant and flow lines will also serve the
south end of the Starbuck Madison Unit. The initial flood design
includes 560 gross acres with a 97.52% working interest and 75.42%
net revenue interest. Management estimates that an incremental
170,000 Bbls are recoverable, net to the Company�s interest.
Additionally, the Company has drilled and cored an evaluation well
at its Northeast Landa Field to support its unitization plan. The
Company�s present working interest is 92%. Pending unitization,
Phase One flood installation is expected to begin in the third
quarter. Even at reduced commodity prices, management believes that
the economics of these secondary recovery projects remain
attractive.
OKLAHOMA
The previously announced Oklahoma acquisition added numerous
proved and potential drilling locations. The Company believes it
can exploit exploration and development opportunities associated
with the acreage and in acres close by. While lower gas prices have
negatively impacted drilling economics, the Company is high-grading
drilling locations and has scheduled drilling the first five wells.
Additional drilling is expected to be scheduled, particularly as
drilling costs decline. The Olson 1-21, a development well, is
currently drilling in Roger Mills County to an estimated total
depth of 13,800 feet, where the Company has a 26.67% working
interest.
GULF COAST
DRILLING
The Company is presently drilling or participating in the
following wells in the Gulf Coast:
- Romero #1, Vermillion Parish,
Louisiana, 10.42% working interest, estimated total depth of 16,200
feet. This is a development well with exploratory objectives.
- Conner Heirs #1, Jefferson Davis
Parish, Louisiana, 12% working interest, estimated total depth of
15,750 feet. The well is a low risk exploratory test well with
multiple objectives and offset production in an adjacent fault
block.
- Moore #1, LaFourche Parish,
Louisiana, 6% working interest, estimated total depth of 11,200
feet. The well is an exploratory test with multiple objectives. A
second shallow gas well, the Moore #2 with a total depth of 3,200
feet will spud immediately after drilling the initial well. The
Company�s working interest in the shallow gas well is 17%. The
Company expects to have a 17% working interest in all additional
development wells, if any.
WEATHER RELATED
ISSUES
Approximately 350-400 Bopd, net to the Company, was shut in as a
result of hurricanes in the late summer. Production started to be
phased back in late October, but has not reached prior levels and
is still under the second quarter, 2008 by about 100 Bopd. Due to
the low commodity prices, additional work will likely be further
deferred in anticipation of declining construction and workover
costs. The Company has incurred incremental operating and capital
expenses as a result of the hurricanes. Estimated expenditures in
the third and fourth quarters have totaled approximately $1.5
million and we believe a significant portion will be covered by
insurance. Amounts cannot be determined with certainty at this
time. In addition, due to the extreme cold temperatures and large
amounts of snow in the Williston Basin, the Company has elected to
defer repairing certain wells and facilities and have shut-in
approximately 50 Bopd.
COMMENTS
Frank A. Lodzinski, Chief Executive Officer of GeoResources,
said, �We are pleased that our drilling and development programs
continue to deliver positive results and that we have been able to
acquire additional acreage at attractive prices. In spite of the
rapid and steep decline in commodity prices, we have not yet
reduced our planned capital budget and believe, predicated on the
current Nymex strip and our hedge positions, that with reasonable
success we can continue with our 2009 planned budget totaling
approximately $30�$32 million. We expect to continue to develop our
assets and selectively expand our acreage and prospect inventory,
both for our direct interests and our partnership interests. A
large portion of our inventory is �held by production� and
accordingly, certain projects which are impacted adversely by local
markets can be deferred in favor of other projects with more
favorable near term economics. We believe we can remain cash flow
positive and fulfill all known obligations.�
Mr. Lodzinski further stated, �Our approach and business
strategy allows us to meet the challenges of the financial markets
and price volatility. While we have continued our capital spending,
we anxiously await reduced drilling and service costs. We believe
our business strategy and financial management will allow us to
survive and prosper during the collapse of the financial markets
and industry downturn. It is important for investors to note that,
i) we have reduced our debt by $56 million in 2008 to $40 million,
ii) we have considerable cash flow to support our staffing,
obligations and capital expenditures, and iii) because many of our
opportunities are �held by production,� we can shift our capital
budget to projects with greater economics under current conditions.
We believe our diversified approach contributes to our strength and
staying power and will allow the Company to continue to grow
profitably.�
About GeoResources,
Inc.
GeoResources, Inc. is an independent oil and gas company engaged
in the acquisition and development of oil and gas reserves through
an active and diversified program which includes purchases of
reserves, re-engineering, and development and exploration
activities, currently focused in the Southwest, Gulf Coast and the
Williston Basin. For more information, visit our website at
www.georesourcesinc.com.
Forward-Looking
Statements
Information herein contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, which can be identified by words such as "may," "will,"
"expect," "anticipate," "estimate" or "continue," or comparable
words. All statements other than statements of historical
facts that address activities that the Company expects or
anticipates will or may occur in the future are forward-looking
statements. Readers are encouraged to read the SEC reports
of the Company, our Annual Report on Form 10-KSB/A for the year
ended December 31, 2007, and any and all other documents filed with
the SEC regarding information about GeoResources for meaningful
cautionary language in respect of the forward-looking statements
herein. Interested persons are able to obtain free copies of
filings containing information about GeoResources, without charge,
at the SEC�s Internet site (http://www.sec.gov).
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