Posts tagged ‘mid continent oil’

I think the Market has it wrong with Jones Energy (JONE)

The most frustrating thing that has happened in the last few weeks has been to watch Jones Energy get clobbered from $18 to $14.  Frustrating because I think the market has it wrong.

The drop has been precipitated by Jones cautious comments about the test of a new frac design.  To recap, Jones initiated a 20 well program that increased the cluster density per frac and the amount of proppant used (which resulted in a bigger frac per stage).  The program was done to evaluate whether this would increase production and EUR’s enough to justify the increased cost (about $900,000 per well).  The company provided progress when they released their February 14th company update.  They basically said that the evidence so far is not strong enough to justify moving to the new completion technique and that more data is required:

Of the 14 wells with 30 or more days of production, 12 have produced at or above historical type curve. Over the next two quarters, the Company will monitor production data on the test wells and undertake additional optimization techniques, prior to making a decision on whether the level of production is significant enough to justify the incremental capital investment per well, and which design to utilize going forward. In the interim, Jones Energy will be employing its traditional open-hole completion technique in the Cleveland, which is the basis for its guidance for the balance of 2014. Going forward, the Company expects its average Cleveland AFE to remain at a best-in-class $3.1 million, which we expect will allow us to continue to generate compelling rates of return in our core play. Read more