First Woodbine well for SM Energy a rousing success, say analysts

Denver, CO-based SM Energy Co. (NYSE: SM) has completed an exploratory test well in San Jacinto County, in the Woodbine formation in East Texas. The Horizon Properties 2H (SM 100% WI), a horizontal completion in the Woodbine interval, produced approximately 740 BOE/d in a 24-hour test, flowing at 1,520 PSIG casing pressure on a 27/64ths inch choke, while cleaning up after fracture stimulation. Production consisted of 305 Bbl/d of 42 degree API gravity oil and 2,600 MCFD of rich gas (approximately 1250 BTU/scf). The well will be shut-in to await construction of a gathering system.

In a flash note to investors Monday, analysts at Cowen Securites called the well a “rousing success as a first well in this play.”

“At the depths the company is targeting, the length of lateral used, and the positive performance of this first well, this performance highlights that this play has exciting potential, and the next well to be drilled in the region will be set up as an important second half catalyst for the company,” the analysts said.

Analysts at Jefferies LLC agree. In the firm's note to investors Monday, analysts called the result promising, nothing that the play "could become a significant driver of future growth as SM has captured a meaningful acreage position."

SM Energy has increased its acreage position in East Texas to approximately 105,000 net acres and expects to drill additional test wells targeting the Woodbine formation as well as other intervals of interest beginning in the third quarter of 2013. SM Energy expects to construct the necessary gathering system once several of these wells have been drilled. Capital for the 2013 delineation program will be funded largely from the company’s existing New Venture budget.

SM Energy also increased the borrowing base under its existing revolving credit facility from $1.55 billion to $1.9 billion and amended the terms of its credit facility to increase the commitment amount from the bank group to $1.3 billion, from $1.0 billion, and to extend the maturity of the facility by approximately two years to April of 2018.

Tony Best, CEO, commented, “We are excited about the initial results in our first Woodbine test in East Texas. The Horizon Properties 2H well was a science well with approximately 2,500 feet of effectively stimulated lateral length. We expect to be able to improve our results on subsequent wells in this play.”

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