Richard / Tossing around some thoughts
COMMENT: Enjoy reading commentaries both here and at at the korner
REPLY: Thanks Richard - You and Darwyn are probably the only two visitors I had today at the Korner. Glad you guys appreciate the effort of the Korner Crew.
COMMENT: IF the goofiness in Saddam-land does translate into a blip upwards in oil pricing then MAYBE a brief window will be available to lock on some higher oil prices but if that doesn't happen will SEH be able to realize the healthy revenues they are currently reporting compared to peers? I don't know.........
REPLY: When comparing to the previous year, 1999 prices will be lower - no doubt about it. However, the pricing assumptions the company used to provide their forecast - appear reasonable at this time.
COMMENT: Second thing - SASKATCHEWAN. Besides being able to watch your dog run away from home for a week isn't this also home to general declines and high watercuts. I realize this is a generalization however there are many examples of cos. who have been snagged with declining production and increasing amounts of water in the oil. Maybe I'm missing something but I occassionally wonder if this is/will become an issue someday?
REPLY: Southeastern Saskatchewan and these concerns have always been a concern of mine also. However, the company has extensive experience in the area and appears to be doing the right thing in their developemental drilling. The real problem is not so much declines - but over use of horizontal drilling. Companies need to develope with vertical wells. These pools are small and horizntal wells suck up the oil in very short periods. In the past, companies operating in this theater dressed up their production numbers via horizontal wells and have since learned that longer life (lower daily production) vertical wells were best for laying the groundwork for future growth. In regards to water, the company started a waterflood program which too date has been very successful.
The following are excerpt's from their recent report.
With current production already 10 percent higher than third quarter
levels, Startech will meet its projected 1998 production exit rate of 10,200 BOED for a sixth year in a row.
Third quarter operations were highlighted by successful drilling for
light oil at Lougheed, Alida and Browning in southeast Saskatchewan, and for natural gas at Retlaw in southeast Alberta.
At Lougheed, Startech continues to focus capital towards drilling
development wells into unswept areas of this long life, light oil pool. Startech's second horizontal well at Lougheed continues to produce at 400 bopd with a very low watercut. The waterflood expansion undertaken in the second quarter will be expanded in early 1999 due to the highly successful results achieved thus far. Production at Lougheed is now more than 2,000 bopd net to Startech. Startech expects to achieve production rates of up to 3,500 bopd net in 1999 through the drilling of horizontal and vertical development wells.
Startech's 1999 preliminary drilling program calls for the drilling of 70 wells (50 net) in the present low crude oil price environment. As a result of Startech's high quality, long life reserve and production base, and its solid development drilling inventory, in 1999 Startech will generate growth in daily production of more than 25 percent over 1998 - spending internal cash flow only.
As a result of the steps that were taken by management, Startech is
positioned to resume solid per share growth in production, cash flow and net asset value in 1999 and beyond, even in a low crude oil price environment. This growth will be based upon Startech's high quality, long life reserve and production base, solid balance sheet and inventory of development drilling locations in core areas.
Consequently, utilizing a capital budget funded entirely out of internal cash flow, in 1999 Startech projects daily production of 11,000 BOED (80% light oil/20% natural gas), cash flow of $33 million and cash flow per share of $1.44 basic and $1.33 fully diluted - at US $15.75 WTI per barrel and C$2.25 per mcf AECO pricing.
This represents internally generated growth of 25 percent in production and 33 percent in cash flow per fully diluted share over 1997 -- at low oil prices.
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