Resolute Energy Corp. (ticker: REN) is engaged in the acquisition, development and production of onshore domestic hydrocarbons, principally crude oil. Resolute’s producing assets are the Aneth Field in the Paradox Basin of Utah and Hilight Field in the Powder River Basin of Wyoming, in the Permian Basin of West Texas and in the Bakken trend in the Williston Basin of North Dakota.
Resolute Energy released its Q3’13 results on November 5, 2013 and announced a production increase of 23% to 11,504 BOEPD in comparison to its Q3’12 results. The company reported production in Q3’13 was 12% sequentially lower than of the average of 13,107 BOEPD in Q2’13, due to curtailments and delays in permitting, completion, and services. Production from the Permian assets in the third quarter increased 19% to 337 MBOE from 282 in Q2’13, but that was not enough to offset the production lost from the sale of its New Home properties in the Bakken, which accounted for 900 BOEPD of the 1,603 BOEPD sequential production decline. REN used the proceeds from the New Home sale to pay down outstanding debt.
Resolute recorded a net loss of $2.7 million, or $(0.04) per share, on revenue of $89.1 million during the three months ended September 30, 2013.
Initial Horizontal Results
Importantly, Resolute completed its first four horizontal wells in the quarter. Three of the wells are in the Gardendale area in the Permian Basin and targeted the Wolfcamp B formation. REN reported that the Midkiff 1818H reached a peak 24-hour production rate of 775 BOPD, and the other two horizontals are flowing back.
During the third quarter, the company bolted on an additional 4,200 net acres to its Permian Basin leasehold, bringing Resolute’s total footprint in the Permian to 25,800 net acres.
The company estimates it has an inventory of 30 horizontal drilling locations in Gardendale alone, and more than 70 horizontal drilling locations in its existing Permian leasehold. REN admitted its location estimates are conservative because only four locations are identified per section, but downspacing becomes an option if testing results are positive. REN is currently running tests on the Turner well and sees approximately 12,000 of its 45,400 net acres as prospective locations.
The fourth horizontal well was drilled in the Powder River Basin of Wyoming and targeted the Turner/Frontier formation. The Castle 3-21TH was spud on August 10 and completed on October 12. The well showed a peak production rate of 607 BOEPD and 90% of the stream was crude oil. REN reported it was permitting additional Turner/Frontier wells, and that it has 45,000 acres in the Powder River Basin, all held by production.
REN anticipates releasing an operations update in December 2013 to provide details on horizontal development.
Consistency Expected from Gardendale Verticals
REN has drilled 18 vertical wells in the Gardendale since April 2013, and 17 of the wells were completed in Q3’13 and averaged a 24-hour peak production rate of 130 BOPD and a 30-day peak production rate of 75 BOPD. Nine of the wells were completed in the second half of the quarter and contributed relatively little to Q3’13 production. REN began the wells early in Q2’13, so delays were attributed to differing schedules with its service providers. Resolute expects Q4’13 to run more smoothly, and the impact of the wells will allow the company to reach its Q4’13 guidance of 12,000 BOEPD.
Research Commentary
Oil & Gas 360® compiled a few paragraphs from research analysts who wrote on Resolute Energy following the announcement. OAG360 suggests that you contact the analyst and/or salesperson to receive a complete copy of the report. Please read the important disclosures at the end of this note.
*SunTrust Robinson Humphrey Quick Thoughts – 11.6.13
Successful first Wolfcamp B. In the Midland Basin, Resolute’s first horizontal Wolfcamp B well peaked at a 24-hour rate of 775 Boepd (87% oil) from a 4,500’ lateral, or 172 Boepd/1,000’ of lateral. This is right in line with the peer average per lateral foot and represents a solid test, in our view. Two other Wolfcamp B wells have been completed and are cleaning up.
Now testing Delaware Basin. The Permian rig has since shifted to the Delaware Basin, where Resolute plans to spud two Wolfcamp A wells with similar ~4,500-laterals. Following industry success in the Wolfcamp A, the company plans to focus its activities there but may test the Wolfcamp B later.
Permian Basin prize getting bigger. We previously assumed success for the Wolfcamp B and Turner, another formation Resolute successfully tested in the Powder River Basin. However, we now include an additional 3,200 net acres in the Delaware Basin for potential resource. Additionally, we give Resolute credit for the Middle Spraberry and Wolfcamp D on its Gardendale Midland Basin acreage following industry success.
Production miss. 3Q production of 11.5 Mboepd was well below our 13.3 Mboepd expectation, with oil output 15% below our view and gas/NGL production 10% below our estimate. We take 4QE production from 13.6 Mboepd to 13.2 Mboepd, putting 2013E output at 12.4 Mboepd just above the 12.325-14.325 Mboepd adjusted guidance range. Beyond the near-term, we believe the results have implications for 2014.
Potential 2014 implications. We previously thought there might be the potential for the company to severely limit capital spending and CO2 injections at Aneth next year and use the steady cash flow from that asset to fund acceleration in the Permian. It now appears that scenario is unlikely given the 3Q results, where Aneth showed a surprisingly quick and sharp reaction to the slowing injections.
*Capital One Morning Energy Summary – 11.6.13
Earnings miss overshadowed by what we see as a good first effort for REN’s initial Permian horizontal (peak 24-hr rate of 775 boe/d, 87% oil for the 4,500 foot lateral well) with future well results likely to improve as the company improves its knowledge in the play. We note that the 775 boe/d rate is about 90% of the average IP rate achieved by FANG for its early Midland County Wolfcamp B wells with similar laterals & frac stages. Our 2014 CFPS estimate drops to $2.21 from $2.41 on lowered production estimate (13.1 Mboe/d from 14.2 Mboe/d), mainly related to temporary downtime at Aneth EOR field. Look for REN to provide an ops update in December with results expected for its 2nd & 3rd Wolfcamp horizontal wells.
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