The recent dip in crude prices is helping a local exploration and production company acquire more acreage on which to drill in Weld County.
Officials from Platteville-based Synergy Resources said falling crude prices only positioned them to acquire more acreage — and they proved it days later, announcing they had acquired 17 horizontal wells, 73 operated vertical wells, 11 non-operated vertical wells, and 5,040 gross acres (4,053 net) with rights to the Codell and Niobrara formations. The deal cost $125 million.
“We’re always looking. We always have our antennas out,” said Synergy co-CEO Ed Holloway in an interview. “It’s just part of the business.”
Holloway said in an earnings call with analysts on Oct. 28 that the company plans its future on $75-a-barrel oil to avoid the headaches of volatility. Prices swung from over $100 earlier this year to $80.52 per barrel in late October on the West Texas Intermediate exchange, prices on which the Rockies producers typically rely.
“While recent volatility is disconcerting, it’s not a surprise to us, nor were we counting on a $100 (per barrel) model to execute our plans,” Holloway said in the earnings call.
The newly acquired acreage is in a strategic spot for the company, Holloway told analysts in a conference call Oct. 31.
“If you looked at our map and where our acreage is at, our weakest acreage position was in southern part of the new Wattenberg Field, and it happens to be in an area where (drillers are) having really strong results.
“And we’re on a leasing campaign in that area, as well, and trying to bolster up our positions,” Holloway said. “We’re currently working on a 22-well pad in that area that this acquisition bolts onto. … Once you look at our map, it really shows how this all bolts together for us going forward.”
The company reported its year-end (ending Aug. 31) earnings with triple-digit growth all around from the same time last year, reported Monte Jennings, the company’s CFO:
–Production is up 169 percent.
–Revenues are up 147 percent.
–Operating income is up 133 percent.
–Earnings before interest, depreciation, taxes and amortization are up 164 percent.
–And, net income is up 940 percent for the quarter and up more than 201 percent for the year at $28.8 million.
The company through the year brought on an additional 31 horizontal wells, and plans for another 35 in the next five months.
Together, the results will mean the company, which now has a third drilling rig in its program, will produce on average 8,000 barrels of oil equivalent per day for their first fiscal quarter of 2015, which it is now in. Earlier this fall, the company reported it had reached a production record at 8,600 barrels of oil/equivalent.
The additional acreage does not mean the company will add more rigs, Holloway said.
“I really think everyone has to be careful about rig count,” Holloway cautioned analysts. “The efficiencies of these ADRs (Automatic Drilling Rigs), the two rigs we picked up earlier in ’15 will be capable of drilling what three rigs in ’14 were.”
In November 2013, the company completed two acquisitions in the Wattenberg Field that added approximately 1,800 net acres to its leasehold in the field and 59 operated producing vertical wells. This came after acquiring Orr Energy’s 36 producing wells in late 2012.
Prices hit a high of $144 in June 2008 and bottomed out at about $54 in March 2009, according to Macrotrends. Crude prices hit a high of $109 per barrel in August, and have been falling ever since.
Jennings reported that the company on average sold its oil between $75 to $87 per barrel in the last year.
Holloway told analysts that the plunging oil prices prompted the aggressive players in the acquisition market to slow down. “It’s opened up opportunities for us to move in and get into discussions with operators because they’ve backed off,” he said. “We’ve seen this in the past, going forward. We continue to have our antenna up, and we’re always in discussion on several opportunities.”
Added company COO Craig Rasmuson, “As prices come down, we really scale up opportunities for acquisition.”
While acquisitions are always on the table, in some cases can take a couple of years to flesh out, Holloway said.
“We’ve been in chatter or discussions with a lot of acquisitions a couple of years ahead of time, where we can grow into a certain level,” Holloway said. “Just maintaining the communication level with potential sellers or trade-outs, it’s an ongoing conversation. We always have the antenna up and looking.”
Meanwhile, the company plans to go forward with a $325 million to $350 million on capital expenditures this coming year, mostly in the core of the Wattenberg Field.