Tuesday, March 12, 2013

Laredo derisks Wolfberry

Laredo's release today states that they "have reduced the risk and uncertainty associated with this entire acreage block for vertical development of the Wolfberry interval."  They are referring to their Wolfberry Garden City block which runs from the southern edge of Howard County and through Glasscock and Sterling Counties.  As Lynden's Wind Farms property is on the eastern edge of Laredo's Permian Garden City acreage, Laredo is implying that LVL's Wind Farms property is also derisked.  One can begin to value LVL's Wind Farms property at $40,000/acre similar to their recent sale to Breitburn.  Also, Wind Farms has Cline potential as well.

Here is the statement from Laredo's release:

"The Company increased its Permian-Garden City acreage holdings to approximately 145,800 net acres at year-end 2012. Drilling results from more than 800 vertical wells, of which approximately 250 are deep vertical wells, have reduced the risk and uncertainty ("de-risked") associated with this entire acreage block for vertical development of the Wolfberry interval. In addition, based on actual production history from the Company's horizontal wells that have been correlated with core analysis, single-zone tests and supporting industry activity, the Company now believes that it has de-risked the effective equivalent of approximately 360,000 net acres in the Permian-Garden City area for horizontal development from the four stacked zones. By zone, the de-risked acreage consists of approximately 80,000 net acres in the Upper Wolfcamp, approximately 80,000 net acres in the Middle Wolfcamp, approximately 73,000 net acres in the Lower Wolfcamp and approximately 127,000 net acres in the Cline shale. There is significant overlap of the de-risked acreage by zone that provides development opportunities for multiple stacked laterals to utilize common drilling pads and surface facilities. A pilot program to test the vertical and horizontal spacing criteria of the development laterals, within the four stacked zones, is expected to begin in the second quarter of 2013. In addition, the delineation program will continue in 2013 to de-risk additional acreage, by zone, for horizontal development."

Given that Wind Farms is surrounded by Pioneer on the west, Laredo on the east, Range to the north and Apache to the north and south, Wind Farms is very well positioned.  It seems easy to calculate LVL's Wolfberry value and see that Lynden’s Wolfberry pieces alone support a much higher price.

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