Basic Earth Science Systems Inc. has refocused its strategy towards exploration and development drilling and is emphasizing a joint venture in Saskatchewan, in the Williston basin north of Montana and North Dakota where Basic has been active since 1983.
"This is the first exploration well that we will drill in over a decade, primarily because we were pursuing acquisitions and just didn't have the ability to go out and look at exploration deals," said Basic Pres. and CEO Ray Singleton.
Initially formed as a geophysical services company in 1969, the Denver-based independent was primarily an exploration company during the 1980s when it drilled exploration wells in Wyoming and North Dakota.
But caught holding excessive debt with a bank that was taken over by federal regulators, Basic shifted to an acquisition and exploitation strategy in the early 1990s. Since then, Basic has paid off its debt and positioned itself to become an exploratory driller again.
Williston basin
Singleton said the US side of the Williston basin has become very pricey and competitive, although he sees technology tools such as 3D and horizontal drilling offering a viable means of growth in the area.
"On the downside of that, the US side of the Williston basin's Red River formation is very heavily drilled. The average target size probably is down to 125 acres," Singleton said. "So when you are successful finding a Red River well, there are rarely development locations that are generated by that."
Meanwhile, the Red River formation remains relatively unexplored in Canada. Basic's subsidiary Legent Resources Corp. bought a 12.5% interest in the joint venture with a group of privately held US companies. The joint venture is operated by Zinke & Trumbo Canada Corp.
"Before we got involved, they had already developed a number of prospects. They had acquired a respectable amount of seismic data, 30,000 acres under lease, and all of this was on prospective structures. We liked their concept, we knew the geology in the Williston, and we understood it. We liked the reserve potential and the target size on the Canadian side," Singleton said.
The joint venture also provided Basic with "a very rapid way to gain an exploration exposure." The first well is expected to be drilled in November.
Primarily oil producer
As of Mar. 31, Basic owned a working interest in 59 producing oil wells and 6 producing gas wells. It operated 52 wells in North Dakota, Montana, Colorado, Texas, and Wyoming. Its reserve base was 86% oil and 14% natural gas.
"We've certainly strategized that we probably need a better balance (between oil and gas), but we seem to keep going back to our comfort zone, which is the Williston, and it's primarily an oil province," Singleton said.
Looking to the future, Singleton said that the Saskatchewan project, if successful, has the potential to increase Basic's reserve base by 30-50%/year for at least 2 years.
In addition to the Saskatchewan JV, Basic wants to add some lower-risk development drilling exposure and some high-impact plays within 6 months. "We think we can accomplish both of those in that time frame, especially if these oil prices remain at current high levels," he said.
Singleton also wants to move Basic's stock off the OTC Bulletin Board and onto a more shareholder-accessible exchange. In addition, he also foresees the need to alter the company's skill set to emphasize exploration and drilling.
"This is the first exploration well that we will drill in over a decade, primarily because we were pursuing acquisitions and just didn't have the ability to go out and look at exploration deals."
