That is not the plan. Floyd will grow it to sustainable profits and cash flow and sell it, maybe to a major or to an investment group. Likely somewhere north of 100k bopd of production.
Balance sheet should be greatly improved. Another 530 million today from east Texas gas sales (once a jewel but eclipsed by huge Haynesville dry gas asset which is on idle). Add that to 1.8 billion from Jonah and a couple of other deals. I would think pretty soon they could begin the process of starting to restore some of the dividend cut.
Just to emphasize again - the earnings report talks about the upper end of the range for expected EUR for the Cane Creek horizontals as 1,500,000 barrels. No one has been able to crack the nut there for decades, but Fidelity may have done just that. And there is huge amount of oil there if it can be recovered.
The difficulty has been that the oil zones are oil in salt sandwiches and in a lot of wells it hasn't flowed very well or very long.
Not likely. ECA has five focus areas which they think is the right number. They do not want to spread their capital around. 1. They just sold extra TMS acres to HK, why would they buy them back at a premium now good wells are coming out ? , 2. Bakken has lower IRR than their 5 plays (Montney, Duverney, DJ Niobrara, New Mexico, and TMS). 3. East Eagleford will prove out to be a nice asset, but I don't think ECA wants to add another area to use up capex money, they want to drill flat out in manufacturing mode on the five plays they have chosen. And they have other great assets (like Haynesville dry gas) that they could ramp if nat gas prices bounce up).
Added 50k bopd of oil production in purchase. ECA whiffed on Eagleford initially but they have now entered. Fits with Suttles plan to move to more balanced mix of oil/liquids and gas.
So I guess they have 6 main areas - Duvernay, Montney, DJ Niobrara, New Mexico Gallup, Tuscaloosa Marine Shale, and now Eagleford. I hope they arn't jumping from TMS to Eagleford because the scale of TMS is really incredible if they can get that to work.
Still I like it - almost doubled oil production overnight, with positive cash flow already on this asset, reinvesting proceeds from non-core sales.
52 million shares were sold and ECA got 1.46 billion. Underwriters can sell another 7.8 million shares (why wouldn't they) - so ECA picks up another 218 million. That is 1.7 billion to pay debt and invest in other areas like their core resource plays.
But ECA still holds 70.2 million shares. of Prairie Sky. A $10 gain in share value yessterday means that ECA made $702 million yesterday just on share price appreciation. And their stake in PSK is 2.7 billion - the shares will pay a nice dividend. They can use the dividend as cash flow pay their own dividend, to grow other areas, to pay down debt, or they can spin off the remaining shares to current EC shareholders. Ultimate flexibility. Remember that these acres were getting minimal valuation within ECA market cap because of the depressed market for dry gas.
Doug has managed to convert nothing (of course there was value, but it wasn't being reflected in market cap) into 1.7 B in cash and 2.7 B in equity shares in a pretty quick and nimble way.
Next step maybe end of year is to raise dividend a little and signal importance of steady predictable dividend increases to loyal ECA shareholders. That will happen.
HK will never pay a dividend. The goal for most early stage oil and gas companies is to grow to the stage where cash flow covers ongoing capex with enough left over to start paying a dividend. The goal for new HK is to develop extremely valuable key resource plays that can be sold to a bigger company at a nice profit. I never got a penny of dividends from old HK and I don't hink it ever became free cash flow positive because they were drillign like crazy at Eagleford and at Haynesville. What I did get was $38 for each share from BHP.
KM Ranch 3H may be most important well this year. One of the most impressive thing about Eagleford wells is their predictability. The old HK drilled for years with ZERO bad wells. Same with other operators. That was why 3 eagleford duds in a row was so shocking when Crimson stated drilling Eagleford wells on their acres. But we were rescued by Buda, buda , buda. However it is apparent now that the buda wells are more hit and miss than Eagleford wells (unless they figure out some completion stategy that gives more consistent results). And that is holding back the USEG share price - they have to prove they hit a lot more buda wells than they miss. If they start drilling highly economci eagleford wells on their acres that will get more weighting.
There is no evidence that they can operate anything.
A lot of nice stuff. The paradox basin is "dear" to my heart and fortunes as DPTR went bust trying to make that work. It is amazing they have a horizontal cane creek well at 690,000 bo still producing 1000 bopd and that they now list top end of EUR range at 1,500,000 barrels.
This is a nice report.
They haven't left the dry gas business . They have idled back Haynesville but it is an absolute jewel - and it is in perfect spot to supply LNG exports from gulf area. They could quickly ramp Haynesville to 1 or even 2 bCF/day if the economics start to approach that of oil wells. But why do it now when they have higher margins on the oil/liquids side and adding to gas production right now adds to the wrong side of the supply//demand equation that is finally coming into a little better balance.
The problem hasn't been whether there is oil there.
The problem has been the oil is very deep, there is a rubble zone, there is clay, there has been trouble making the curve, the wells have been VERY expensive to drill, the reults have been inconsistent. Once all that is worked out (they seem to be making good progress on al those fronts), the TMS may be a new egleford.
1. TMS is taking off. Goodrich and now HK accelerating their activity. Lots more results soon including several new TMS wells by ECA
2. Haynesville interest also picking up as Haynesville ideally located to supply gulf coast LNG export facilities. ECA has awesome Haynesville acres, throttled back but capable of being quickly ramped to 2 BCF/day!
They sell into the same pipeline as Deep Panuke. (To Algonquin city gates (Boston). They got $16.80 average price in Q1. That will be a little boost to ECA revenues.
But that will happen next winter as well as there is bottleneck (not enough pipeline capacity) preventing ample supplies to Algonquin citygates (Boston). Notice where Corridor locked in $11.74 gas price on the same Maritime pipeline that takes Deep panuke gas. They may not get $19 next winter, but they will get huge premium to gas prices elsewhere.