By Amy McLellan
AIM-listed Empyrean Energy, which in February terminated plans to put itself up for sale, has reported a surge in production from its Sugarloaf AMI Project in the prolific Eagle Ford Shale, Texas. Even as the oil price was sinking over the last three months of 2014, operator Marathon Oil was continuing to tap this prolific play for more barrels: Empyrean’s post-royalty production was 1,217 boepd, up 38 per cent on Q3 2014.
And those numbers are rising: at the end of 2014 there were 187 gross producing wells at Sugarloaf; that tally as of 20 March 2015 was 205. It seems there’s plenty of appetite to keep adding to the well inventory despite the continued low price as Sugarloaf remains one of the largest marginal cost shale plays in the US.
“Despite extremely challenging oil prices recently, our production from Sugarloaf is continuing to grow steadily as further development wells are brought on line,” said CEO Tom Kelly. “We are fortunate that our project is located in the liquids rich sweet spot of the Eagle Ford Shale play and therefore enjoys relatively low marginal costs of production compared with other shale plays across the USA.”
Empyrean only has a modest footprint in this play – a three per cent working interest in approximately 24,000 gross acres centrally positioned in the liquids-rich sweet-spot – but it has been a transformational asset. The operator, NYSE-listed Marathon, is continuing to find ways to optimise well performance and drive down drilling and completion costs.
Spud to total depth cycle times have dropped from an average 24 days in late 2011 to as low as 10 days, averaging out at 12 days during 2014. This means some wells drilled in late 2014 came in under US$7 million and further cost reductions are expected going forward as rig and service costs come down in line with the oil price.
Marathon is also targeting the Austin Chalk wells, which come online at lower spacing density, offering the potential to deliver a significant increase in contingent resources and proven reserves for existing producing locations in the short to medium term: 21 of the 205 gross wells at Sugarloaf are completed in the Austin Chalk.
The challenge for Empyrean is to keep pace with Marathon. While last month the formal sale process was terminated against a backdrop of low oil prices and market uncertainty, the AIM-listed company is in active discussions with its current debt funder, Macquarie Bank Limited, and is also evaluating alternatives in order to secure the required additional funding to support its continued participation in the project.