Evan,
In '97, CWEI is going to perform a $3.1M seismic survey of 20,000 acres of their North Giddings Block in the pursuit of pinnacle reef wells. If they find suitable targets to drill, each well will cost on the order of $4M as the depth of the well could be anywhere from 14,000 to 19,000 feet; however the rewards of discovering a pinnacle reef well far outweighs the cost. Yes they will have expenditures. The last odds I saw on the success rate of pinnacle reef wells was 42%. At this time, according to notes from Lajuanda Holder, CWEI's Director of Investor Relations, none of the analysts are attributing any earnings from pinnacle reef wells in '97. The seismic survey was originally scheduled to begin at the beginning of January, however the Tidelands seismic crew is finishing up another project and earlier in the month, CWEI let it be known that the survey might not begin until the end of the month (which is almost here). Being that the survey won't be completed in the first quarter of '97 should mean that the entire $3.1M won't be charged against the first quarter, so I believe that CWEI is going to have a good first quarter financially. The only estimate I have seen for the first quarter is from Hanifen and that is 0.44, the first quarter of '96 was 0.19. It is my belief that as long as CWEI beats the '96 earnings quarter to quarter, the stock price will continue up; I think we are good through the first two quarters of '97, at which time the actual drilling should carry the stock. A tentative time frame is: drilling should start either at the end of the second quarter, or at the beginning of the third quarter, and it will take on the order of three months to drill a pinnacle reef well. CWEI currently has three drilling rigs working the Austin Chalk formation in the same area; they just brought the third rig on at the end of December. Austin Chalk wells only take a month to complete (5K-7K deep) and cost approximately $1M per well. The three rigs should provide increased production with partial effects of the additional rig being seen in the first quarter and the full effect seen in the second quarter. Lajuanda will let us know when the seismic survey commences. Yes, I do monitor activity on the other stocks in the energy sector and have followed GLM.
Buzz Mills |
