Vero Energy Inc. (Vero Energy) has reported drilling and operating results for the first quarter of 2009. During the quarter, Vero Energy participated in the drilling of seven (6.4 net) wells of which four were horizontal wells, and had a drilling success rate of 100%. Edson was the primary focus where five wells were drilled including all the horizontal wells. The company also performed two successful recompletions on lands owned by industry partners.
In the quarter, Vero Energy was able to fulfill seven of the eight commitments on industry partners still remaining from year end 2008, and have entered into no additional commitments.
“Vero Energy once again had a very successful quarter of drilling and completions, stepping out of our existing base and continuing to increase our inventory of projects,” said Doug Bartole, president and chief executive officer. “Vero Energy is committed to sustainability and profitability and over the past few months we have had discussions with many of our shareholders about the current operating and economic environment. Like our shareholders we do not believe the current environment is profitable for our industry to reinvest capital into exploration and drilling. As such we have taken various measures which will position us into the recovery.”
Finding and development costs in 2008 for North America are averaging about $3.65/mcfe (based on third party research which has been normalized for foreign exchange and comparison of reserve categories) as compared to Vero Energy at $2.61/mcfe. Current production, based on field estimates, is about 8,200 (82% natural gas). With the Alberta government’s latest royalty relief designed to stimulate activity, four wells were brought on production at the beginning of April 2009 and one (0.4 net) nonoperated well was brought on late last week. These wells had tested production of over 2,000 boed (84% natural gas) and were brought on production at about 1,200 boed. With a focus on profitability the company also shut in over 400 boed (82% natural gas), due to high field operating costs. This includes one well producing over half of the shut in volumes that was restricted at a third party facility and had high processing and gathering fees. The well is to be re-routed to another third party facility and the company expects to have that well back on production sometime in the second quarter.
Other highlights in the quarter included the completion of the expansion of the company’s Edson gas processing facility to 35 mmcfd with Vero Energy maintaining a 70% working interest (and operatorship). In addition Vero Energy commenced production of a horizontal well that had test rates of about 1000 boed with very little pressure drawdown or depletion. Based on pressure data Vero Energy believes this well has the potential to maintain these rates for a significant amount of time, but it is currently restricted due to capacity restraints and intentional choking due to current commodity prices. The company has now drilled 26 producing horizontal wells in the greater Edson core with 17 producing in the Rock Creek and nine producing in two different zones within the Mannville Group. This is substantially more horizontal wells than any other operator in the area and this continues to establish us as a leader in this technology and with low capital cost structure. The full cycle economics from Vero Energy’s Edson project are on par with most of the top natural gas projects in North America.
Industry finding costs, coupled with current natural gas prices due to the near term supply and demand imbalance, verify Vero Energy’s position that currently there is very poor to no return in investment into new drilling. The company will be deferring drilling activity until later in the second half of the year. When operations resume the company will execute a solid drilling program with plans to drill about seven (6 net) wells including five (4.5 net) horizontal wells to be brought on production prior to the end of year. This project is expected to bring on over 12 mmcfd of natural gas net to Vero Energy by year end and specifically into the first quarter of 2010 where currently future commodity prices have natural gas at about $6/mcf. This plan allows Vero Energy to continue to monitor changes throughout upcoming quarters and the company will be ready to react quickly. Key to the company’s plan is to pace growth prudently while delineating for the future. The company’s drilling inventory and reserve base is solid, continues to grow, and will be accessed in a timely manner.