8-K: Equus Subsidiary Morgan E&P Achieves Production Milestone and Increases Proven Reserves

Equus Total Return, Inc. subsidiary Morgan E&P has successfully completed two horizontal wells, achieved initial production over 1,000 barrels per day, and increased its proven reserve value by 135%.

Summary

• Equus Total Return, Inc. announced that its subsidiary, Morgan E&P, has completed two horizontal wells in North Dakota.
• The wells, Baranko 1-28H and Obrigewitch 1-33H, were drilled into the Middle Bakken formation, reaching depths of 19,920 feet and 21,356 feet, respectively.
• Both wells were completed with 60-stage fracture stimulations and began flowback procedures on December 3, 2023.
• Electronic Submersible Pumps (ESPs) were installed by January 26, 2024, to accelerate flowback.
• The wells are currently producing over 1,000 barrels of oil per day combined, with further increases expected.
• Morgan has sold a portion of its working interest in these wells to Bakken Partners I, LLC for $5.6 million.
• This sale provides BPI with an average of 37% working interest in the wells.
• The proceeds from the sale will be used for past and future capital expenditures related to the wells.
• Morgan's proven reserve value has increased by 135% to $31,986,856, with $27,359,924 classified as proved developed producing (PDP) reserves.
• The increase in proven reserves is due to the successful completion of the two wells.
• Morgan's net drilling locations have increased from 15 to 18.
• The estimated ultimate recovery (EUR) from a single well is expected to be approximately 814,000 barrels of oil equivalent.
• Morgan increased its acreage in the Bakken/Three Forks formation by 25.9% to 5,976.84 net acres.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the successful well completions, strong initial production, significant increase in proven reserves, and the sale of working interest. The company is clearly making progress in its development program.

Positives

• The successful completion of the first two horizontal wells demonstrates Morgan's operational capabilities.
• The initial production rate of over 1,000 barrels of oil per day is a strong start.
• The sale of working interest for $5.6 million provides capital for future development.
• The 135% increase in proven reserve value significantly enhances the company's asset base.
• The increase in net drilling locations from 15 to 18 provides future growth potential.
• The increase in acreage by 25.9% provides additional development opportunities.

Negatives

• The document mentions that the company uses certain terms, such as EUR, that the SEC prohibits in filings, indicating a potential risk of overstating future potential.
• The company notes that the PV-10 is a non-GAAP financial measure, which differs from the GAAP financial measure of 'Standardized Measure' because PV-10 does not include the effects of income taxes on future income.

Risks

• The company acknowledges that actual results may differ materially from forward-looking statements due to various factors.
• These factors include conditions in the oil and gas industry, changes in reserve levels, political and economic conditions, and drilling and operating risks.
• The company also notes risks related to the availability of drilling rigs, materials, and labor, as well as regulatory and environmental changes.
• There is a risk that the assets acquired by Morgan do not perform consistent with expectations.
• The company notes that neither CG&A nor Morgan can guarantee any amounts that may be recoverable from these properties.

Future Outlook

Morgan anticipates further increases in production as the wells continue flowback for the next few weeks and expects to publish its initial IP 30 rate towards the end of Q1 2024. The company also expects the number of net drilling locations to increase as additional acreage and working interests are acquired.

Industry Context

The announcement reflects positive developments in the oil and gas sector, particularly in the Bakken region, where horizontal drilling and hydraulic fracturing have enabled increased production. The sale of working interests is a common practice in the industry to manage capital expenditures and share risk.

Comparison to Industry Standards

• The production rate of over 1,000 barrels per day from two wells is a positive result, although specific comparisons to other wells in the Bakken region would require more detailed data.
• The 135% increase in proven reserve value is a significant achievement, indicating successful development of the asset.
• Companies like Continental Resources and Hess Corporation are major players in the Bakken region, and their results could be used as benchmarks for comparison, however, this document does not provide enough detail to make a direct comparison.
• The estimated ultimate recovery (EUR) of 814,000 barrels of oil equivalent per well is within the range of typical Bakken wells, but actual results can vary significantly based on well location and completion techniques.

Stakeholder Impact

• Shareholders will likely view the increased production and reserve value positively.
• Employees of Morgan E&P are likely to be encouraged by the successful well completions.
• Customers of Morgan E&P will benefit from the increased oil production.
• Suppliers and creditors may see increased business opportunities with Morgan E&P.

Next Steps

• Morgan will continue flowback procedures on the two wells.
• Morgan expects to publish its initial IP 30 rate towards the end of Q1 2024.
• Morgan will continue to acquire mineral rights in the Bakken/Three Forks formation.
• Morgan may elect to drill additional wells in the first two Drilling Space Units (DSUs).

Key Dates

Keywords

oil and gas, exploration, production, reserves, drilling, Bakken, horizontal wells, working interest, PV10, Morgan E&P, Equus Total Return