GMX Resources Inc. will base its future growth on maintaining a focus on exploration and development of natural gas in its core areas of operation, according to Ken Kenworthy Jr., chairman, president, and CEO.
Presently, the Oklahoma City-based independent's reserves are 85% gas. "We have chosen to focus on natural gas reserves," Kenworthy said, adding, "We believe the longer-term market demand for this cleaner energy source is very strong."
Kenworthy said that GMX will drill up its proven undeveloped reserves to increase production and net income. The company also is in the market to sell part of its assets or the entire company, Kenworthy explained. "A partial sale could be part of East Texas, all of New Mexico, and all of Louisiana and should provide the capital for GMX to drill in East Texas in 2003," he said.
Core areas of operation
GMX's core areas of operations lie in the Sabine uplift of the East Texas basin of Texas and Louisiana. The company owns and operates the majority of 45 wells in Texas, 7 wells in New Mexico, and 6 wells in Louisiana. GMX has 70 wells with proven undeveloped reserves totaling 44 bcfe. These proven undeveloped reserves comprise 69% of the firm's proven reserves. "This company is built on growth from drilling these proven undeveloped locations," Kenworthy said.
GMX's production had grown 92% by the second quarter vs. the second quarter of 2001. So far this year, the company has not drilled any wells due to constraints with capital and time, Kenworthy noted. "We have sold most of our Oklahoma and Kansas properties recently, which has lessened those constraints," he said.
The company is working to gain access to additional capital through a possible joint venture or partnership in hopes to aid drilling before yearend.
Nearly all of GMX's capital in 2001 was spent on drilling and completing 10 wells in East Texas. Most of these were dual completions, and each well had two or more separate producing reservoirs in either the Pettit, Travis Peak, or Cotton Valley formations at 6,000-10,000 ft.
Kenworthy said that GMX prefers to serve as operator of its properties because it gives the company control over the development and creates higher value once the assets are sold.
Growth strategy,challenges
GMX's strategy for growth, Kenworthy explained, is to keep overhead costs low and proportionate to its drilling activity. The company also tries to maintain low lease operating expenses and takes advantage of increases in production and strong gas prices.
In the coming year, maintaining the company's growth strategy will be challenged by the oil and gas commodity markets, which Kenworthy foresees will be "choppy, volatile, and sideways."
Access to capital, particularly in light of the current market conditions, also will serve as a hurdle for independents in general, Kenworthy noted.
"We have chosen to focus on natural gas reserves. We believe the longer-term market demand for this cleaner energy source is very strong."
