Okay, I don't get it... SARA has a 2 TCF Prospect on a structural high in the Wilcox Sand Fairway that is sandwiched between MMR's 1 TCF Davy Jones structure & the recent 546.7 BCF Lineham Creek Discovery... I don't understand why more people are not all over this, buying SARA like crazy at these levels... How long will it be before SARA announces a Joint Venture with MMR to drill the Long John Silver Prospect??? Is MMR is a position to take on another wells at this time???
A couple of more points:
The Davy Jones "prospect" is estimated at much higher than 1 TCF (more like 4 - 6 TCF) - however, this is yet to be proven until they can 1) get the wells to flow commercially and 2) drill additional offsets. Are you familiar with the problems MMR has had with the completion/flow test of the Wilcox at DJ1?
Also, the recent ~500 BCF is total probable (by 3rd party analysis done for MMR) of the Lineham Creek Yegua sands found around 24,000'. They have yet to announce if they have found any Wilcox pay. They have less than 1,000' to go to TD - so hopefully will hear more from CVX on this in March.
MMR is not in a position to take on anything more until the CVX deal closes, IMO.
The one item that concerns me a bit is that SARA has said that their leases are on the "crest" of the LJS structure. Usually, being updip is where you want to be. However, so far the UD structures have shown that the sands thin out towards the crest of the structures and you want to be somewhat down dip. Even so, SARA should be in a good position IF LC and or DJ works out.
-I have never followed MMR too terribly close because natural gas has been a 4-letter word since late 2008, though I find their ultra-deep wells to be very interesting... If I understand correctly, the high BHT & mud weights that push the limits of traditional OBM, has resulted in a scenario where Barite has settled in the bottom of the well. As the Barite pilled-up, I believe that it's density cause it to be 'extruded' through the perforations, then extruded into the pore networks of the pay-sand, effectively reducing the permeability of the near-wellbore-formation to zero... Last I heard they were going in with some kind of acid to try & dissolve the Barite. Unfortunately for MMR, Barium-Sulfate (Barite) is not very soluble, so any solution that would have a good chance to dissolve the Barite would likely also damage their casing (The last sentence is hypothetical & my opinion).
-Here are my thoughts regarding SARA's leases being on the 'crest' of the Jong John Silver Structure: Yes, the farther up-dip one goes toward a salt or fault related structure, the more the sands do tend to thin (in most cases). This is a negative consideration is one is trying to quantify the amount of reserves directly below SARA's Long John Silver Leases vs MMR's Leases... On the other hand, a well placed at/near the pinnacle of structure will produce far more reserves over the life of the well than a similar well-bore that is placed down-dip in thicker sands. Not only will the pressure be higher at the pinnacle of the trap, but the high permeability to the tiny methane molecules will allow better drainage of the structure (which is so obvious, I regret typing it).
-Since it sounds like you anticipate the upcoming financials to be less that desirable. Do you think that SARA will make a new 52-week low?
-Since you are pretty familiar with the ultra-deep play, lets say that some other indiustry players wanted to jump into the play once MMR establishes production & confirms that the play will work. Would SARA's Long John Silver Prospect be attractive to these E&P companies? or is SARA's Long John Silver Prospect a-dime-a-dozen (just one of many, many such ultra deep structures in the Wilcox Fairway???
I appreciate you 1) sharing your knowledge & 2) sharing your time...
Good questions, DS. I've been accumulating this as I'm a believer in the ultra deep. However, several things have happened over the last couple of quarters that has knocked the pps down:
1) The hurricane in the 3rd qtr shut in production that lingured into the 4th qtr. This "delayed revenue" caused a cash crunch for the SARA (being as small as they are). I believe this is the biggest reason for the pps being around $3 now.
2) They had some cost overruns on wells in the 2nd half of last year and the most costly well - mesa verde - was a disappointment for the targeted Marg sands.
3) MMR has not been able to produce successfully yet from the Wilcox at DJ1.
They do seem to be building cash back up and we should know more in the 4qtr release.
The Long John Silver prospect is probably a ways off, time wise (JV & spudding). This is one of the reasons why they drilled mesa verde - to keep the leases HBP at LJS. Keep an eye on the results from the Lineham Creek well. The results so far are from the Yegua sands. The Yegua was also found at DJ1, but was not "clean"/commercial. Will it be commercial halfway between at LJS? Also, let's see if the Wilcox is found at Lineham Creek. Finally, let's see if they can produce from the Wilcox (at LC or at DJ).
SARA has said in presentations that they are more than happy to let MMR/CVX de-risk the play. SARA doesn't have the $$$ to do that.