Bayou City Energy’s affiliate to invest in STACK acreage development in US

Bayou City Energy’s (BCE) affiliate BCE Roadrunner (DrillCo) has signed a joint development agreement (JDA) to finance the drilling of joint wells on Chaparral Energy’s STACK acreage in Canadian and Garfield counties, Oklahoma, US.

Through the collaboration, the companies intend to target the Osage, Meramec and Woodford formations.

The companies will embark on a drilling programme, which is expected to initially include the development of 30 wells in one tranche.

BCE founding partner William McMullen said: “We expect the development programme to deliver favourable economic returns even in today’s challenging commodity price environment.”

According to BCE, development work on the wells began earlier this month and is expected to continue through to next year.

Under the JDA, DrillCo has the right to acquire 85% of Chaparral’s working interest in each well by wholly funding Chaparral’s working interest share of drilling, completion and equipment costs.

For the first tranche, DrillCo is set to incur a maximum capital spending of around $100m.

Chaparral CEO Earl Reynolds said: “Their flexible E&P investment platform and ability to execute on unique, operator-friendly transaction structures will allow us to accelerate our STACK development plans in both Canadian and Garfield counties, while maintaining our industry-leading, low-cost structure and overall healthy corporate balance sheet.”

Once DrillCo achieves a 14% internal rate of return in the tranche, its stake is expected to be reduced to 25% of Chaparral’s initial working interest.