Prior to merging in July of 2012, both Billings-based Voyager Oil and Gas and Denver-based Emerald Oil Inc. were focused on non-operated lease holdings. But since the merger, the new company, which kept the Emerald Oil name, has shifted its focus and is emerging as a new Williston Basin operator, recently completing its first Bakken well.

Both companies had non-operated acreage positions in the Williston Basin and decided to merge and convert non-operated acreage into operated acreage, which, according to Emerald’s Chief Executive Officer McAndrew Rudisill, has been successful.

In a May 29 interview with Petroleum News Bakken, Rudisill said he formed Emerald Oil in 2011 as a private company focused on acquisition of leasehold acres in the Williston Basin. While the company was not operating any of its acreages, Rudisill said he was putting together an operating team with the idea of shifting to operating its acreages.

Then after the 2012 merger, Rudisill said Emerald recapitalized. With new capital it made some critical acquisitions in and around the company’s Low Rider core area in central McKenzie County, North Dakota. Emerald currently holds approximately 54,000 net acres, of which 23,500 are operated acres and are located in Dunn, McKenzie and Williams counties, North Dakota, and in Richland County, Montana.

While Emerald is using third-party drilling and fracking contractors, Rudisill said the company does have its own team doing fracking design as well as its own team that manages the drilling and fracking processes. “Everything is engineered internally. We have our way that we like to do it, and it seems to be working.” The company’s operations team is led by David Veltri, former Baytex vice president and general manager and now Emerald’s chief operating officer.

The company is based in Denver, but its land team operates out of Billings led by former Voyager Chief Executive Officer and now Emerald Executive Chairman J.R. Reger. Emerald also has a field office in its Low Rider area in McKenzie County.

Emerald Oil Inc. is now a publically traded company. The Australian firm Emerald Oil and Gas NL owns a small percentage of Emerald Oil Inc. stock, but otherwise the two firms are not affiliated.





First producing well

In March, Emerald completed its first operated well, a Middle Bakken well in Foreman Butte field in the company’s Low Rider core area in west-central McKenzie County. That well, which was completed with 35 frack stages, had a 24-hour initial production rate of 1,801 barrels of oil equivalent per day, and a 30-day average production of 1,025 boepd.Emerald is currently fracking another well, has drilled two others, and one more is currently being drilled. The company expects to have all of these gross operated wells producing by the end of June, and will release results once 30-day production data are available.

In the first quarter of 2013, Emerald had interests in 217 gross non-operated wells in the Williston Basin, up 12 wells from the end of the fourth quarter of 2012. At the end of the fourth quarter of 2012, the company had interests in 118 wells in the basin.

In addition, Emerald had interests in 32 other wells that were being drilled, being completed or awaiting completion at the end of the quarter. And the end of the same quarter of 2012, the company had interests in 42 wells that were not yet completed.

Emerald’s total net Williston Basin production in the first quarter was 95,811 boe with total new production of 89,112 barrels of oil, all of which was non-operated. Average daily production in the first quarter was 1,065 barrels.

The first quarter 2013 production declined from the fourth quarter of 2012 when the company’s total net production was 110,114 boe for an average daily production of 1,197 boepd. Net total oil production in the fourth quarter was 101,314 barrels.

According to Rudisill, the production decline in the first quarter was in part the result of the company’s conversion from non-operator to operator. “We were not acquiring any additional non-op acreage, and we were also in the process of selling some of our non-op acres, some of which has some wells on them.” In addition, he said, the company had more wells come on production in the fourth quarter of 2012 than in the first quarter of 2013.

“In reality we were anticipating we would have about 1,100 boepd in each quarter. The fourth quarter ended up being a little higher than that. The first quarter of 2013 ended up being just a little bit lower than that.”

2013 and beyond

In mid-May Emerald added a second drill rig; both are drilling in McKenzie County. The company raised its 2013 Williston Basin drilling budget by nearly 30 percent to $127.6 million. As a result, Emerald has increased its gross operated well guidance from 10 to 16 wells to be drilled in the basin in 2013. With an estimated 75 percent average working interest, the company’s new well guidance for 2013 increased from 8.2 to 12.0 wells. Overall, Emerald estimates it will drill 11 wells per rig per year, and with two rigs operating, the company anticipates drilling 22 gross wells in 2014.Emerald is also working to drive down drilling and completion costs, which had been estimated at $11 million per well. “One of our other goals is to bring our cost to drill and complete each well to under $10 million,” Rudisill said.

For production, Rudisill told Petroleum News Bakken that the company’s target exit production at year end 2013 is 2,850 boepd. And in terms of acquiring additional leaseholds, he said that Emerald has set a new target for year end 2013 of 30,000 operated acres, up from its original 2013 target of 20,000 acres. “We blew through our original target of 20,000 acres.”

Looking out further, Rudisill said the company has its longer-term, bigger-picture goals. “Number one,” he said, “you’re going to continue to see our total net acreage number grow. You’ll continue to see the percentage of operated relative to non-operated grow. And then we target 10,000 barrels per day or greater in under five years.”

Other Emerald acreages

In addition to its Williston Basin acreages, Emerald has acreage in the Heath play in central Montana and the Tiger Ridge area in north-central Montana, as well as in the Sand Wash of the Greater Green River Basin and in the Denver-Julesburg Basin. Rudisill said the Heath and Sand Wash acreages are holdings the company could sell, and it has already sold some of the Sand Wash acreage. He said the company could also sell the Denver-Julesburg acres, but he said the company is probably going to keep the Tiger Ridge acres because that is a long-lived, low-cost gas asset.Rudisill went on to say that the company is not putting any capital into those other acreages, and its plan is to focus completely on the Williston Basin. “We’re going to continue to monetize non-operated acres and acquire operated acreage positions around our core areas in the Williston.”

Positioned to grow

Emerald has a very strong balance sheet for a company of its size, according to Rudisill. He said the company has approximately $130 million in cash on the balance sheet pro forma, and is actively increasing the size of its credit facility with Wells Fargo. “We think that we’re in a position to not only rapidly grow production but really rapidly grow the reserves.”Rudisill also believes there is good Three Forks potential in the area of the company’s McKenzie County acreage where other operators have drilled Three Forks wells. “I think another point to note is that we’re very excited about the potential Three Forks in this area. You’ve got a couple of new wells in and around the acreage recently, and our engineering team is really interested in seeing how that plays out over the next couple of months. We’ll probably look to drill a Three Forks well before the end of the year.” After that, Rudisill said, “you’ll just continue to see us infill around where we’re continuing to operate today, increasing our working interest position, and continuing to acquire more acres.”

—Mike Ellerd

 


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