Sell side firms can have a significant short-term influence on stock prices, and this impact was demonstrated earlier in the week when Venoco (NYSE:VQ) moved 5% higher after an analyst upgraded the stock from neutral to buy. This performance occurred despite a sell off in the overall market as investors started to focus on the problems of Italy, the next potential domino in the European sovereign debt crisis. (To learn more about Supply Side influence, check out The Impact Of Sell-Side Research.)
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Here's a quick review of Venoco's most recent quarter and the company's oil and gas assets, which are located mostly in California. The company has a number of legacy assets in the onshore and offshore area and is also conducting horizontal testing of the Monterey Shale on its properties.
First Quarter of 2011
Venoco reported average daily production of 17,815 barrels of oil equivalent (BOE) per day in the first quarter of 2011. This was a 3% sequential increase from the fourth quarter of 2010 and a 2% decline from the first quarter of 2010.
Venoco has 47% of its proved reserves and 55% of its production located in the Sacramento Basin in the northern part of California. The company has been active here for many years and has drilled more than 450 wells since 2005, with an estimated 600 additional locations on its 223,000 net acres assuming 20-acre spacing.
In 2010, the typical natural gas well in the Sacramento Basin contained only 700 million gross cubic feet of reserves, but the average well cost of $875,000 makes it economic in today's price environment.
Venoco plans to put about 30% of its 2011 capital budget into the Sacramento Basin, enough to drill 40 wells and conduct 220 recompletions.
Venoco has 53% of its proved reserves and 42% of its production located in various onshore and offshore areas in Southern California. The company reported that 85% of its Southern California production comes from the South Ellwood, Sockeye and West Montalvo fields.
In 2011, Venoco plans to spend between 20 and 25% of its capital budget in these three fields, enough to fund just over a dozen wells and recompletions. (To gain a better understanding of the terminology used, read Understanding Oil Industry Terminology.)
Venoco has several hundred-thousands of acres of leases prospective for the Monterey Shale and is focusing a lot energy on this formation in 2011. The company is targeting at least half a dozen separate areas in Southern California that has exposure to this play.
Venoco plans to spend up to 50% of its capital budget in 2011 to evaluate and develop the Monterey Shale. These funds will be used to add acreage, participate in 14 gross wells and fund the completion of the company's share of a 3D seismic program being conducted jointly with Occidental Petroleum (NYSE:OXY).
Venoco has disclosed disappointing results from the Monterey Shale over the last 12 months, adding volatility to the stock. In October 2010, Venoco reported that the company's first horizontal well drilled into the Monterey formation was uneconomic due to a high water cut.
This news caused a large sell off in Venoco, and must have come as a shock to some investors, many of whom may have forgotten the geological risk associated with all oil and gas plays, including shale and unconventional formations.
Other California Players
California is the site of many oil and gas operations. One large operator is Aera Energy LLC, which is jointly owned by Royal Dutch Shell (NYSE:RDS) and Exxon Mobil (NYSE:XOM). The venture is responsible for approximately 25% of the state's production.
The Bottom Line
Venoco felt the power of the sell side, which can sometimes have an inordinate short term impact on individual stocks. (To help you learn more about the oil industry, check out A Guide To Investing In Oil Markets.)
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