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Callon: Onshore operations exceeding expectations

Haynesville Shale producing, but the Natchez-based petroleum group is minimizing recovery there in the interest of long term production results

Natchez-based Callon Petroleum Co.’s move into onshore drilling is apparently paying off.

In a late September operations update, the company said proved reserves increased to 13 million net barrels of oil equivalent (MMBoe) on Sept. 1, representing a 34 percent increase from the end of 2009.

Reserve additions, the operations filing said, were primarily driven by Callon’s development of drilling activity in the Permian Basin in West Texas and Southeast New Mexico and the Haynesville Shale in the Ark-La-Tex region.

Production from the Wolfberry oil play in the Permian Basin is currently 500 net barrels of oil equivalent per day (Boe/d), representing a jump of 43 percent since the end of 2009. Callon has added a second rig and forecasts production to approach a 1,000 net Boe/d exit rate by year-end.

First production from the George R. Mills Well No. 1H in the Haynesville Shale started on Sept. 3. The well is currently producing at a restricted rate of 10-12 million gross cubic feet of natural gas equivalent per day (MMcfe/d).

“We have made significant progress in growing onshore production and converting probable reserves into proved reserves, which is consistent with our strategic growth plan to reinvest cash flow generated from our offshore assets into onshore plays offering long-term growth potential with a balance between oil and natural gas production,” Callon chairman and CEO Fred Callon said in the filing. “Our development drilling program in the onshore Wolfberry oil play of the Permian Basin has resulted in a 43 percent increase in onshore oil production to date. With a drilling inventory of 125 remaining locations in the Wolfberry oil play, based on a 40-acre development plan, we have strong visible growth potential and we are actively pursuing complementary bolt-on acquisitions to build and solidify our position. We successfully drilled and completed our first Haynesville shale well, which now holds our leasehold position in that play.”

Overall, Callon has added 4.4 net million barrels of oil equivalent of proved reserves, representing a 35 percent increase since the beginning of 2010.

The development of the Wolfberry well and the consolidation of interest in its three development areas contributed 2.1 net million barrels of oil equivalent. The completion of the Haynesville Shale development well contributed 2.3 net million barrels of primarily gas.

Gary Newberry, Callon senior vice president of operations, said in the update in those numbers validates the company’s decision to develop its onshore drilling operations.

“We have made significant progress in diversifying our portfolio and our team is executing well in our operations and developments,” he said.

Callon officials did not return messages seeking comment last week.

Callon said in the September update that its Wolfberry oil well in the Permian Basin is exceeding expectations, which led the company in early September to add a second drilling rig at the development. Ten wells have been drilled at the site, and Callon said it plans to drill a total of 23 by the end of the year. In September alone, Wolfberry’s production had increased from 350 net barrels of oil per day to 500 net barrels of oil per day. According to the update, Callon expects production at the site to reach 1,000 net barrels of oil per day by the end of the year.

The company’s first well at the Haynesville Shale started production Sept. 3. The production rate is being restricted to between 10 million and 12 million gross cubic feet of gas per day to minimize damage and maximize recovery, Callon said.

Callon added that it has no remaining drilling obligations in its Haynesville Shale position and currently plans to remobilize a rig to the area once natural gas prices warrant continued development.


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