Venoco prefers Monterey vertical well economics

Venoco Inc., second largest acreage holder behind Occidental Petroleum Corp. in the California Miocene Monterey shale oil drilling play, may run six to eight rigs and drill 50-75 wells in 2012 focusing on vertical drilling and optimized completion techniques.

The Denver-based Venoco welcomed but didn’t name three new players that in recent weeks have joined the Monterey play, which covers an estimated 10 million acres in several basins. Venoco is operating a single rig in the play, in which it holds 214,000 net acres and expects to end the year at 300,000 acres in three basins: San Joaquin, Santa Maria, and the Salinas Valley.

The company expects to drill 30-40 wells next year at its Sevier Monterey area, an undeveloped ARCO Oil & Gas Co. oil discovery adjacent to giant Midway-Sunset field in the southern San Joaquin basin, said Tim Marquez, Venoco chairman and chief executive officer.

The first interval tested without stimulation in the Lower Monterey at Sevier is the company’s best rate to date, and two more Monterey zones remain to be tested. The rig is drilling a Sevier confirmation well. Venoco’s 2011 Monterey production guidance is a 150 b/d average from Sevier and delineation wells the company may drill in partnership with Oxy at the 100,000-acre Three Amigos area in San Joaquin.

Marquez said Venoco is evaluating a matrix play concept, a mixed play concept, a resource play concept, and several other play concepts in the Monterey. The work has been going on for 18 months. Venoco’s experience indicates that a majority of the Monterey play will be developed with less expensive vertical wells and acid instead of the more expensive hydraulic fracturing, Marquez said.

Without divulging the specific geographic locations of most of Venoco’s Monterey activity, Marquez said the company has tested a conventional sand above the Monterey that it believes will be commercial and that company geophysicists see interesting features below the Monterey “that will definitely warrant some tests over the coming year.”

Venoco won’t hike its $200 million capital budget for 2011, half of which was dedicated to the Monterey, but likely will double it next year. The increase will be fueled in part by California crude oil prices, now at $111/bbl, that are tracking those of UK Brent and are expected to swing from $6 below West Texas Intermediate in the 2011 first half to $7 above WTI in 2012.

A 2011 Energy Information Administration study attributed 15.4 billion bbl of technically recoverable oil resources to the Monterey shale, nearly two thirds of EIA’s estimate for all Lower 48 shale oil plays.

Marquez said Venoco’s legacy southern California oil fields are performing well, it has hundreds of infill locations that represent 680 bcf of technically proved gas resources in the Forbes formation and has de-risked the deeper Guinda formation in the Sacramento basin, and expects to add at least 7 million bbl at South Ellwood field in the Santa Barbara Channel after an 8.5-mile pipeline to shore is approved.

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