Caza Oil & Gas are ready to roll out project after project for some time yet

Just inland from the coasts of Louisiana and Texas AIM listed Caza Petroleum is making exciting progress in developing oil and gas wells from its considerable library of seismic data. Several are poised for drilling programmes, while one Texan drilling programme has just encountered a 'potentially significant' gas find.

This find is part of the Bongo play in Texas, equidistant from Houston and the Gulf of Mexico coast. Preliminary drilling has begun on the O.B. Ranch #1 well, where Caza retains a 40 per cent working interest before completion and a 42.24 per cent working interest after completion after farming out a portion of its 65 per cent participating interest in Bongo to Verus Investments Limited and Singular Oil & Gas Inc. Bongo is a significant 3-D seismically defined, three-way closure in the Wilcox formation. An unsuccessful well was drilled at the deeper Wilcox level – the original target – but on the way down showed promise, a pleasing peculiarity of Texas and Louisiana geology.

Logging results from the preliminary drilling indicate 'a potentially significant discovery of natural gas and natural gas condensate' – a seismically defined trap that covers approximately 600 acres. 'The net pay calculated from high resolution log analysis indicates the presence of substantial volumes of hydrocarbons,' says CEO Michael Ford. Furthermore, drilling and seismic data also suggest there is even more upside potential further up-hole, with a Yegua-level anomaly 'that may hold additional high-value potential'. Caza has agreed with its partners to refocus efforts on the former, but warn that drumming up appropriate equipment to fracture stimulate across various sections could take at least two months.

Sensible approach

These initial indications are an important validation of the company's model, which has been to effect a low-cost, low-risk approach to developing seismic data passed over by larger oil companies.

Joining AIM and the Toronto Stock Exchange in December 2007 with a £6 million fundraising and a market cap of £27 million, Caza is the vehicle for a library of 8,000 square miles of 3D seismic over prospects in Louisiana, Texas and New Mexico, and 20-plus associated property leases. This data resource represents an incredibly large amount for a small company. The company is exploiting improved technology and techniques to investigate these overlooked deeper onshore Gulf regions, using data that the company largely acquired from distressed sellers and farming out the projects to a diverse range of interested larger companies still operating in the oil-focused region.

'The data shows there is lots of potential,' says executive chairman John McGoldrick . 'These properties hadn't been drilled because they were out of “radar range” when the majors were interested in the region before they went offshore.'

Caza's management team – where seasoned Gulf of Mexico oilman McGoldrick is partnered with Texan geologist CEO Michael Ford and an experienced board – will continue to execute these farm-out deals, enabling them to progress a large programme and exposing the company to a handful of high-impact opportunities while minimising risk and cash spend. It's a good strategy as there are no guarantees in the oil and gas sector and for a small company this is a way to get exposure to big opportunities which it normally could not afford. 'We're reducing our capital expenditure by leasing out, bringing in partners to allow us to get a number of projects on the go,' says Scotsman McGoldrick. 'Hopefully if you have a collection of big impact wells one will work.'

Some of the exploratory programmes have underwhelmed. Four wells in the emerging horizontal  play at Abo/Wolfcamp in New Mexico that were farmed out to LSE- and NYSE-listed Endeavour International have not thrown up much yet. After the area was explored using vertical wells in the 1980s and 1990s that were generally abandoned due to low permeability, advances in technology and technique are making production viable although McGoldrick admits results have disappointed. 'We're scratching our head with those a bit. That programme was a bit of a disappointment to be honest. That area is pretty much on hold while we wait and see what others in the area do.' Elsewhere, the hitherto disappointing Matthys-McMillan play is soon due to be subjected to pressure tests to determine potential reserve volumes of gas. Although unsatisfactory to date, what the results here have done is encourage the company in its view that  the region retains 'the potential' for Wilcox sand distribution and 'still has potential for financial success due to the Yegua interval'.

Other irons in the fire

Such vicissitudes are the norm for small oil and gas explorers. The benefit of its ever-rolling programme is that Caza has a number of other projects in train that are potential 'company makers'. The projects with the biggest potential are the Gulf plays, such as Bongo. Another potential 'high impact' prospect upon which Caza has pinned great expectations, is Arran in Louisiana, not far from Lafayette. If successful, this could expose Caza to large reserves and would increase Caza's production rates significantly: it is estimated to hold 250 Bcf (billion cubic feet) of gas and 8 MMbbl (million barrels) of oil condensate. After the prospect was recently farmed out to Pass Petroleum, with the agreement requiring Pass to fund 100 percent of the initial appraisal costs attributable to Caza's 50 percent working interest in the prospect to earn a 37.5 percent participation interest. The plan is to commence operations in September.

A further project with considerable potential is Las Animas in in Duval County ,South Texas. 'We're also looking for partners,' says McGOldrick. 'It's potentially very big. It's the same deep Wilcox play. Very large but expensive so we'll need to find a partner.' The prospect is of a simailr estimated size as Bongo, with two targets in the Upper Wilcox Duval Complex, both at depths of 14,000 to 18,000 feet.

Among its numerous other irons in the fire, Caza and its partners are poised to move on projects in West Texas's Permian Basin. The Windham Woolfberry project was farmed out to Devon Energy in May, and the pair expect spudding to begin in the current quarter.

'Further forward we're busy looking to lease out two or three other projects too,' says McGoldrick. 'The good thing about having so much data is that we've only reprocessed about 1,000 square miles of data, so we've got another 6,200 of data we haven't touched.'

Although fluctuating gas prices and disappointing drills had hit the shares, Caza bounced from March's 3.5p to a intra-day high of alsmost 30p on the back of the hugely encouraging results from Bongo. With this, the company's strategy appears to be bearing fruit, while its large library and  low cash burn should see it continue to roll out project after project for some time yet.