Fremont Petroleum Corporation (ASX: FPL) is arguably the most active micro-cap currently drilling on the ASX today.
FPL controls and operates 100% of its 16,798 acre Florence oil field located in Colorado which is currently producing at circa 110 barrels of oil per day.
Not only has FPL commenced spud activities this past week in an initial 2-3 well drilling program on the shallow Pierre oil development but it has also announced a farm-out of its deeper Greenhorn formation targeting an oil-rich shale with the cost being covered 100% by its new JV partner.
The Florence field located in Colorado is a conventional development asset held 100% by Fremont. The development play is a gravity drainage field with the Florence field displaying relatively predictable flows rates, decline rates and financial outcomes by applying low cost conventional and proven drilling techniques.
Based on success in the adjacent field, the development of the play has been considerably de-risked when 3D seismic and soil geo-chemistry testing is used to pin-point seeps in the field and subsequent drilling locations.
The development wells have been designed using a combination 3D seismic technology and highly advanced surface geochemistry. The combination of these two technologies has detected a hydrocarbon accumulation in the area which will be targeted with the upcoming drilling program. FPL has applied the surface geochemistry technology to directly intersect the thickest oil sections of the reservoir.
The Pierre formation is rich in crude oil (~99% oil cut) and limited associated gas.
The oil from Florence has shown to be 31 – 35 API gravity light crude, a premium product.
The economics of the Pierre play are highly compelling. From well economics published by FPL the estimated single well payback between ~7 months, IRR’s are ~150%.
The Pierre play has one of the highest IRR’s in the US (in the current oil price environment) and is estimated to have one of the lowest breakeven price at $30/bbl.
The Pierre is shallow at 2,000-4,000 feet total vertical depth so has cheap drilling and completion costs of US$0.5m per well.
Fremont capitalised on the down-turn in the oil industry and secured a full drill rig fleet on a long term rental agreement. This agreement affords the Company flexibility and optionality and as such there are no issues with rig availability and high daily rig rates.
Fremont’s different approach to drilling combined with shallow conventional drilling compares favourably to some of the oil plays in the US.
Growing revenues are the focus where FPL anticipates that it will be in a self-funding position by the end 2018/early 2019 based on the base case well IP rate of 135 barrels per well.
Revenue forecasts per the Company presentation on a low and base case is illustrated as follows and show how compelling the field economics are even in the current oil price environment.
FPL via acreage acquisitions has built a largely a dominant position in the Florence Field with a largely contiguous footprint in the western part of the field which has been shown to be more oil & liquids prone than the eastern part of the greater play.
Thus far FPL has drilled 3 Pierre wells with all completed and ready for production. An additional 3 Pierre development wells are forecast to spud in the 2H of 2017.
FPL’s acreage position is large for a junior (~16,000 acres), all 100% owned, meaning FPL can dictate drilling programs.
Recent validation via a reserve and resource report highlights to value and potential of the Florence field. The independent study indicated that Fremont is potentially sitting on a 100 million barrel oil field.
Due to a limited amount of drilling, bankable reserves of 1.6 million barrels of oil were assigned to 3,700 acres with a net present value of AUD$ 20.5 million.
With further development over time and assuming the geology is contiguous, the points to the value of this filed being in excess of AUD$ 100 million.
A significant amount of drilling has taken place in the Pierre play over the last 50 years so the geology is very well understood. The amount of well data provides for extensive reservoir control and recent drilling is displaying continuity across the play and confirm significant amounts of oil remain in the place and untapped:
Last week FPL successfully executed a farm-out of its deeper Greenhorn shale play. The farm-out in the current oil-price environment was an aberration in a market which has seen limited farm-out transactions over the past 24 months.
The Greenhorn formation, which is found at depths of circa 6’000 feet, will have eight horizontal drilled into it totalling 4’000 feet of lateral reach.
The Company engaged Digital Formation Inc, an independent Denver-based geological and petrophysical firm, to conduct a petrophysical analysis of the extensive electronic logging data that was obtained during the drilling of the C11-12 Pathfinder well in 2012.
Digital Formation’s analysis estimates the Greenhorn Formation over the Pathfinder Property contains up to 9.53 million barrels of oil in place per square mile. The Pathfinder Property is 26.25 square miles in total.
Activity and news flow are expected to be the major theme for FPL over the coming three months with a host of Pierre development wells being drilled, the massive unconventional prospectivity of the Greenhorn to be tested, reserves updates to be undertaken and subsequently a growing production profile to be proven.