STACK producer, shale investor link on drilling, working interest

By Luke Geiver | October 02, 2017

Chaparral Energy, the Oklahoma-focused exploration and production company named after a roadrunner, has formed a joint development agreement with Bayou City Energy. The JDA will fund 100 percent of Chaparral’s drilling, completion and equipping costs in its STACK acreage located in the counties of Canadian, Kingfisher and Garfield. In exchange for funding, BCE will receive 75 percent of Chaparral’s working interest in the wells until BCE received a 14 percent internal rate of return on its investment—at which time BCE’s working interest in wells funded by the JDA will decrease to 25 percent.

The initial drilling program under the JDA will involve 30 wells, each using enhanced completion designs determined by Chaparral. Work associated through the JDA has already started. The agreement doesn’t limit Chaparral’s ability to invest its own capital into other wells. According to Chaparral, the JDA will also help it to redirect its own capital to towards other acreage acquisitions or holding acreage by production.

Earl Reynolds, CEO of Chaparral, said the flexibility of BCE to be operator-friendly will allow the company to accelerate its STACK plans.

Mark Stoner, BCE partner, said that “such drilling partnerships allow BCE’s capital to target the best drilling locations available today via a resilient investment structure that allows both parties to achieve their strategic and financial objectives in a dynamic pricing environment.”

BCE’s team was attracted to Chaparral’s ability to achieve high-production rates and strong EURs in the STACK.

Chaparral currently has 110,000 net acres in the STACK which equals a potential recovery of more than 900 MMboe. The company produces 8,700 boe/d and has more than 3,000 de-risked operated drilling locations. The average cost for drilling and completion the company pays is $3.6 million per well.

In April, BCE announced that it had raised $946 million—since its inception in 2015—to invest in the North American E&P sector. At the time, company founder and managing partner William McMullen said the appetite for oil and gas investments is spectacular. “Investors are looking for attractive entry points and differential ways to create value in the E&P space,” he said.

The company was formed to make privately negotiated controlled equity investments in the upstream oil and gas space in the range of $5 million to $30 million.