Synergy Resources Corp.’s (SYRG) most recent corporate presentation includes the slogan “at home in the Wattenberg.”

Synergy apparently decided it needed an expansion in its master suite. The company said Sept. 15 that it has signed an agreement to purchase core Wattenberg Field interests in producing wells and leasehold from K.P. Kauffman Co. Inc. for $78 million.

Net production is about 1,200 barrels of oil equivalent per day (boe/d).

Synergy will pay $35 million in cash and 4.4 million shares of common stock for 4,300 net acres in its core, primarily in the mid to high gas-to-oil ratio area. Synergy will also acquire working interest in the Wattenberg Field and nonoperated working interests in 25 gross (about five net) horizontal wells in the Niobrara Shale and Codell Formation.

Baird Equity Research analyst estimated that Synergy paid $4,186 per acre assuming $50,000 paid per flowing boe.

"The assets purchased in the Kauffman transaction are located in the core of the Wattenberg Field where we have existing leases and production that fit nicely into our operational footprint," said Lynn Peterson, president of Synergy.

As of Sept. 14, Synergy had 89,000 net acres in the greater Wattenberg area, about 90% of which is operated. Its northeast Wattenberg extension area includes another 52,000 net acres.

The company has 1,060 potential horizontal locations in the Wattenberg:

  • Niobrara A, 234 wells
  • Niobrara B, 288 wells
  • Niobrara C, 291 wells
  • Codell, 247 wells

Fiscal 2015 fiscal fourth-quarter production should be about 10,800 boe/d based on production from operated properties and estimates from nonoperated assets still under review. Average daily production in fiscal 2015 is estimated to be about 8,700 boe/d.

The transaction has an effective date of Sept. 1, and is expected to close by Oct. 30.

K.P. Kauffman is an independent oil and gas production, drilling, well service and transportation company engaged in the exploration, development, acquisition, operation and well service of oil and gas properties in the Rocky Mountain states, Denver-Julesburg Basin, North Park Basin, Piceance Basin and Permian Basin. KPK is a privately held company founded in 1984.

Operations Update

Synergy said Sept. 15 that its fiscal 2016 production would be 10,800 boe/d, flat with the fourth quarter of fiscal 2015, Baird Equity said. The company’s fiscal year ends in August.

The company’s fiscal 2016 capex budget calls for up to $300 million in spending, with up to $240 million going toward operated horizontal wells in the Wattenberg.

The company is focused on reducing its completed well costs, said Craig Rasmuson, Synergy COO.

The company's actual costs for the 11 wells on its Cannon pad are about $2.5 million per well on average. These wells were all standard length lateral wells with 20-22 completion stages each. Nine of the wells were completed utilizing sliding sleeves and two of the wells used plug and perf, Rasmuson said.

"For our fiscal 2016 drilling program we are estimating that well costs for standard length laterals will range between $2.5 million and $3 million each," he said.

The company has one drilling rig under contract through the end of calendar year 2015. The rig is currently drilling a pad with eight standard length lateral wells.

If one rig is utilized for the entire 2016 fiscal year, Synergy estimates operated drilling capex should be about $120 million.

Synergy has discretion over its fiscal 2016 drilling program with no long-term drilling commitments and minimal lease expirations.

During fiscal year 2015, Synergy drilled 46 gross operated horizontal wells in the Wattenberg Field and brought 38 net wells into production.

The company’s 12 wells in inventory include four standard length laterals of about 4,300 feet, four mid-length laterals at 7,200 feet and four extended-length laterals at 9,500 feet. The company said it plans on completing the four mid-length laterals by the end of December.

Rasmuson said the company also continues to experience a positive impact from lower line pressures in the northern section of the Wattenberg Field, where DCP Midstream Partners LP's (DPM) newly operational Lucerne 2 Plant is located.

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