Energen Corporation (NYSE: EGN) has purchased five-year leases for more than 11,000 net acres in the Bone Spring and Avalon shale trends in the Permian Basin in the Texas General Land Office sealed bid sale for a total purchase price of $37 million.
Based on 320-acre spacing, the company estimates that the acreage, primarily in Reeves County, offers the potential for approximately 30 Bone Spring locations and 30 Avalon shale locations.
A horizontal drilling play targeting the 3rd Bone Spring sands at a vertical depth of 11,000-11,300 feet, the typical 3rd Bone Spring well has an estimated ultimate recovery (EUR) of 400-500 thousand barrels of oil equivalents (MBOE); Energen Resources’ drilling and completion costs are approximately $7.5 million per well. As operator, Energen has drilled and completed 11 Bone Spring wells and currently is drilling four more. The Company plans to drill another 11 wells in the 3rd Bone Spring sands by year-end 2011.
The Avalon shale offers a horizontal oil play at a vertical depth of 8,500-9,000 feet. Energen Resources believes that the EURs could be approximately 300-350 MBOE, with well costs of some $5.5 million. The Company currently is completing its first Avalon shale well.
Together with existing acreage, the new leases bring Energen Resources’ total 3rd Bone Spring position to more than 61,000 net undeveloped acres with 180 potential drilling locations (based on 320-acre spacing); the Company’s total Avalon shale position is estimated to be more than 91,000 net undeveloped acres with 280 potential drilling locations (based on 320-acre spacing).