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Rigorously Applying Science
Our growth strategy continues to focus on two core
projects—natural gas
drilling in the Northern Anadarko Basin and recovering stranded gas from low-pressure
reservoirs using our patented Calliope Gas Recovery System. We have proven that
both projects are repeatable, and we believe that they provide abundant opportunities
for growth.
Our ability to create value is rooted in the rigorous application of science.
Our scientists developed a new geologic model for an old producing area of Oklahoma.
Thirty wells later, there are at least that many more wells to be drilled. Our
scientists also created Calliope to recover natural gas stranded in low-pressure
reservoirs. Calliope not only brings dead wells back to life, it catapults them
into the top ranks of U.S. producing wells. And it works virtually every time.
That type of science is an important part of the
fundamentals of our business. Our geology is
expanding and looking deeper where the costs are higher but the
potential is greater. Through our Calliope Technology Partnership, we continuously
work on new technology that will increase the recovery of natural gas stranded
in low-pressure reservoirs. The U.S. Patent Office recently issued us a new patent
covering an important enhancement that we discovered while pushing Calliope’s
application envelope. And we recently filed a patent application for a completely
new gas production technology.
Creating Synergy
Successful drilling is the engine behind the sharp
increases in our production
and cash flow. However, Calliope is
the engine that provides stable, long-lived reserves at a moderate cost and low
risk. Together, drilling and Calliope offer a superb, and possibly unique, formula
for achieving our goal of adding both production growth and long-lived gas reserves
at a reasonable cost and risk. This year’s statistics speak for themselves.
After a 43 percent increase last year, successful drilling was primarily responsible
for another nine percent production gain this year. And that is only part of
the story. Our best wells were drilled late in the year causing fourth quarter
production to jump 48 percent, and providing a very favorable trend going into
next year.
As for building long-lived gas reserves, Calliope did its job by adding substantial
new reserves at a modest cost. This year, our reserves surged 41 percent while
we drove down our three-year average finding costs by 10 percent to $.86 per
Mcfge, or $5.15 per BOE. We added 6.3 Bcfge of new proved developed reserves,
yielding an outstanding 377 percent production replacement percentage at a time
when our industry is straining just to replace its production.
At year-end, proved reserves totaled 16.1 Bcfge with natural gas representing
86 percent of reserve volumes. Importantly, our engineers take a conservative
approach to booking reserves with virtually all of CREDO’s reserves classified
in the proved developed category.
Investing in the Future
This year capital spending increased to $5,520,000,
by far the highest level in our history. We drilled
21 wells with working interests ranging up to 60 percent.
Eighteen (18) of the wells were completed as producers. Drilling was concentrated
on our 17,000 gross acre Sand Creek Prospect and our 6,000 gross acre Two Springs
Prospect. The wells targeted the Morrow and Chester formations at depths between
7,000 and 9,000 feet. Both properties have ample room for additional drilling,
and we believe more excellent wells are likely.
We installed Calliope on six dead, or uneconomic, wells last year with 100 percent
success. At the same time, we fortified Calliope’s track record and expanded
the envelope for its application. In addition to obtaining a new enhancement
patent, Calliope’s depth of operation was extended by 43 percent to 18,400
feet. We are in various stages of preparing to install new Calliope systems on
four additional wells in Oklahoma.
Calliope not only brings dead wells back to life, it catapults them into the
top ranks of U.S. producing wells. The initial production rate for our non-prototype
Calliope wells averaged 270 Mcfge per day, ranking them in the top 15 percent
of all producing wells in Oklahoma. Although reserve statistics are not available,
we are confident that Calliope’s average reserves of
1.10 Bcfge per well rank even higher than its production.
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