AWE Limited (ASX: AWE) advises that Marathon Oil, the Operator of the Sugarloaf Area of Mutual Interest (AMI) in Texas, USA, has provided an update on its 2013 drilling activity and 2014 development plans. AWE has a 10% working interest in Sugarloaf which is located in a liquids-rich part of the Eagle Ford shale.
An accelerated drilling program, comprising 100 to 110 new wells (gross), is planned for Sugarloaf in calendar year 2014 as the Operator focuses on high quality acreage. This is a significant increase over the 48 wells (gross) spudded in calendar year 2013 (estimated total at year end).
AWE anticipates the increased development drilling at Sugarloaf will result in a substantial increase in production and further enhance the value of this asset.
The Operator has forecast a reduction in gross drilling costs, from USD 7 - 8 million per well to USD 6.5 - 7.5 million per well. This has been achieved by reducing drilling time by 50% and stimulation cycle time by 40% since 2012 and achieving 97% operational uptime in 2013.
Additional facilities infrastructure and pipeline capacity is also planned for 2014, in line with the forecast increase in the number of wells drilled. The additional capex requirements in calendar year 2014 are well within AWE's funding capacity, particularly given the rapid payback for Sugarloaf wells.
The results from the downspacing testing program were very positive. The Operator reported that 90% of 2013 wells were drilled at 60-acre spacing or less and were drilled from multi-well pads. Wells drilled at 40 and 60-acre spacing exhibited higher initial production than wells previously drilled at 80 to 160-acre spacing. Well performance continues to improve and in calendar year 2014 the Operator will develop select areas at 40-acre spacing as well as piloting 30-acre infill density.
The successful production test from the two pilot wells in the Austin Chalk achieved results in line with Eagle Ford wells. The aggressive pursuit of co-development of the Austin Chalk, in parallel with the main horizons, plus increasing infill drilling density will potentially extend the oil production peak.
There will be further delineation of the Upper Eagle Ford/Austin Chalk in 2014.
AWE Managing Director, Bruce Clement said, "The Sugarloaf investment has been very successful for AWE with substantial increases in 2P Reserves achieved over the past two years and development wells delivering high returns and rapid payout.
"We strongly support Marathon's focus on accelerated development of the Sugarloaf AMI, which is within the sweet spot for the for the broader Eagle Ford play, and we expect that doubling drilling activity in 2014 will deliver substantial increases in both production and value for AWE.
"It is exciting that new initiatives, such as tighter well spacing, improved drilling and completion techniques, and the successful Austin Chalk trials have all provided positive results, and we look forward to further success in 2014," Clement said.
Sugarloaf liquids are sold at a premium to WTI on the Louisiana Light Sweet crude (LLS) market and approximately 70% of oil production is transported by pipeline, resulting in lower operating costs.
AWE's current Sugarloaf production mix is approximately 75% liquids, 25% gas with more than 91% of AWE's Sugarloaf revenue derived from liquids.
