SM Energy

Stacked-Pay Oil Plays In Powder River Basin
SM announced in its press release that it has recently agreed to acquire approximately 40,000 net acres in the Powder River Basin. The acquisition will increase SM’s previously disclosed position to approximately 105,000 net acres. While the seller was not disclosed, it clearly is QEP Resources (QEP) who has just announced a $145 million divestiture in its Northern division.
(Source: SM Energy, May 1, 2013)
The acreage is prospective for Frontier, Niobrara, Shannon and Sussex formations. SM plans to focus initially on the Frontier, Sussex, and Shannon and sees a combined 90+ MMBoe resource potential on its acreage.
The acquisition price appears very attractive, although permitting delays and environmental issues have been a factor complicating operations in the PRB.
It is important to emphasize the stacked pay potential of this basin, with the acreage being acquired capturing portions of several plays’ fairways.
The Sussex is a shallower formation which has been a significant vertical oil producer. QEP has estimated EUR potential for short (5,000-foot) laterals of 300-450 MBoe per well.
The SM presentation provides IP results for three Frontier long-lateral wells, one operated by SM and two partner wells, which had 30-day IP rates of 927 Boe/d; 1,418 Boe/d; and 1,734 Boe/d. The results are, without doubt, very impressive. SM’s presentation also provides a long-lateral (1,280-acre drilling unit) type curve and estimates EUR at 1,067 Mboe, of which 65% is oil.

SM Energy… 5/1/2013 Conference Call Comments

Talking about our Powder River Basin assets recently, we’ve been testing several wells in zones of interest. Our original target in this basin, you may recall, was the Niobrara, which had mixed results based on our testing. However, our recent results and the results of several other operators in the Frontier section have been very good. Our recent operated well, the Dandy State [ph], had a peak 30-day initial production rate of 927 BOEs per day. Two partner wells that we participated in had peak rates for 30 days of approximately 1,400 BOEs and 1,700 BOEs per day, respectively.

We’re really excited about the Frontier, and we think that the Shannon interval can be interesting as well. In fact, we recently completed a Shannon test that had a peak 30-day IP of approximately 500 BOEs per day. We recently entered into an agreement to add approximately 40,000 additional net acres to our Powder River Basin position for $65 million, which includes some seismic acquisition cost.
After closing, we expect to have approximately 105,000 net acres in the total Powder River Basin, with about 62,000 net acres and what we consider to be some of the best rock for the Frontier play. You can see from the map provided that the acreage we are adding is a great bolt-on to our existing acreage position. Our combined position will have potential for about 250 gross Frontier wells. And we estimate that our aggregate acreage position will have about $90 million BOEs of total net resource potential.