Southern Energy Corp. Announces Gwinville Lower Selma Chalk Completion Results

Executive Summary

• Southern Energy Corp. announced preliminary production results from the completion of its first "drilled but uncompleted" (DUC) horizontal well, the GH LSC 13-13 #2, in the Gwinville Field.
• The well averaged 3.6 MMcfe/d over its first 30 days of production, representing a >100% increase compared to original LSC horizontal wells drilled by previous operators.
• The completion cost was reduced to US$2.2 million (10% below estimates), leading to a revised total capital estimate of ~$4.0 million for future wells (a >20% reduction from previous estimates).

Key Details

• Well Performance: The GH LSC 13-13 #2 well averaged natural gas rates of 3.6 MMcfe/d (99% gas) over the first 30 days of production.
• Production Comparison: This rate is an increase of >100% compared to the average of the original LSC horizontal wells in Gwinville drilled by previous operators.
• Completion Stimulation: The well was stimulated with 25 fracture stages, placing over 5.3 million lbs of proppant, which is a 70% increase in proppant intensity compared to original LSC horizontal wells.
• Cost Savings:
  • Completion cost was US$2.2 million, over 10% below pre-job estimates.
  • Water flowback rates were over 70% lower than Southern's Upper Selma Chalk horizontal wells, resulting in initial operating cost savings of ~$0.20/Mcfe.
• Revised Capital Estimates:
  • Total capital required to drill, complete, tie-in, and equip future Gwinville LSC horizontal wells is estimated at approximately $4.0 million.
  • This is a reduction of over 20% from previous management estimates and significantly below the $5.0 million estimates in the company's third-party reserve report.
• Economic Break-even: Based on a revised LSC type curve with an IP30 rate of 3.6 MMcf/d and a capital cost of $4.0 million, the break-even (15% IRR) is at a Henry Hub price of $3.70/MMBtu.
• Future Plans: Southern will monitor regional natural gas pricing and well performance before deciding on the completion timing of the remaining two DUC wellbores (drilled in the LSC and City Bank formations).
• Pricing Premium: Since bringing production online in late June, Southern has benefited from a daily natural gas basis premium of approximately 17% above Henry Hub pricing due to seasonal power demand in the southeast U.S.

Notable Quotes

• Ian Atkinson, President and CEO: "We are very pleased with the early flowback results of the GH LSC 13-13 #2 well that will help us establish a long-awaited type curve for the remaining potential 60+ LSC horizontal locations in our vast Gwinville inventory... The Southern operations team has safely executed this operation at 10% below our original completion estimate, which not only drives a much quicker payout on this capital but will also allow Southern to start redeveloping the Gwinville Field much sooner..."