Oklahoma City-based Chaparral Energy, Inc. and Houston-based Bayou City Energy, L.P. announced the creation of a joint venture drilling operation to fund further development of Chaparral’s 110,000-acre STACK position, according to a press release issued on Monday.
“We are pleased to announce our partnership with Bayou City, whose significant investment experience and success in the STACK is a further testament to the value and potential of Chaparral’s Garfield and Canadian County assets,” said Earl Reynolds, Chaparral’s Chief Executive Officer. “Their flexible E&P investment platform and ability to execute on unique, operator-friendly transaction structures will allow us to accelerate our STACK development plans in both Canadian and Garfield counties, while maintaining our low-cost structure and corporate balance sheet.”
Under the agreement, BCE will fund 100 percent of the drilling, completion and equipping costs associated with 30 joint venture STACK wells, subject to average well cost caps that vary by well-type across location and targeted formations, resulting in a maximum capital commitment of approximately $100 million. The initial plan includes 17 wells in Canadian County and 13 wells in Garfield County to be drilled and operated by Chaparral, with the ability to expand the partnership for further drilling.
“We are thrilled to partner with Earl Reynolds and his team at Chaparral in developing these targeted drilling locations in Canadian and Garfield counties,” said William McMullen, BCE’s Founding Partner. “Chaparral has demonstrated a track record of being a consistent, low-cost operator, while still being able to achieve high production rates and strong EURs. We expect the development program to deliver favorable economic returns even in today’s challenging commodity price environment.”
What’s in it for BCE? The private equity firm will receive wellbore-only interest in each well totaling an 85 percent working interest until the program reaches a 14 percent internal rate of return in exchange for funding. Once achieved, ownership interest in all wells will be divided, with Chaparral owning a 75 percent working interest and BCE retaining a 25 percent working interest of Chaparral’s leasehold interest in each well.
Chaparral will retain all acreage and reserves outside of the wellbore, with both parties paying lease operating expenses based on ownership interests. Both companies are moving full steam ahead. Drilling has begun on the first joint venture well.
“Chaparral’s tremendous STACK acreage position, coupled with their proven ability to repeatedly deliver strong results while maintaining some of the lowest drilling and completion and lease operating costs in the industry has them well positioned to become a key player within the STACK,” said Mark Stoner, BCE Partner. “BCE is excited to enter into this partnership as we work together to unlock the vast potential of Chaparral’s Garfield and Canadian County STACK acreage.”
