This Could Send Goodrich Petroleum Stock Even Higher

Despite some lumpy well results from the Tuscaloosa Marine Shale, Goodrich Petroleum appears on a path to growth with an attractive market valuation.

Jul 9, 2014 at 4:04PM

Is it possible that after a volatile move higher in shares of Goodrich Petroleum Corp (NYSE:GDP) since February that it could head even higher and potentially significantly so? The oil exploration and production company has recently announced drilling results in the Tuscaloosa Marine Shale, or TMS, that had gotten progressively better until the last well after some initially disappointing outcomes.

In reality, the recent decline from $30 only has the stock back to levels barely above the highs of 2013 while the production results suggest the company could sit on some very oily acres. Comparing the recent valuation to some other players in liquids-rich areas such as Gulfport Energy Corp (NASDAQ:GPOR) and Halcon Resources (NYSE:HK) makes the stock worth a longer look.

TMS turning into a premier oilfield
While Goodrich Petroleum isn't all about the TMS, it does have a large focus in the shale along with nearly half of the total resource potential for the company. The other major resource potential is in the Haynesville Shale, which is focused on natural gas. In fact, Goodrich was a successful driller in the Haynesville until natural gas prices plunged.

With over 310,000 net acres in the TMS, the company has seen the stock rise and fall and rise again on the back of that potential resource. Some initial bad results nearly crushed the stock, but the recent results are starting to support a potential home run in the region. A well turned on production back in April at initial production rates of 1,270 boe/d followed by a June well with 1,450 boe/d peak production rate. With both wells producing over 95% oil, the company is quickly able to cover the well costs, which hit $13 million each. Unfortunately, the most recent well result of 740 boe/d has the market confused on the real potential of the acreage.

In a similar manner, Halcon Resources has built up a 314,000 net acre position in the TMS with recent strong well results. The most recent well announced in early June could produce up to 1,548 boe/d. 

With capital expenditures doubled for the second quarter compared to the first quarter, Goodrich should begin seeing considerable production growth after a few years of declines in Haynesville production after dramatically reducing expenditures.

Huge resource potential
With an enterprise value of only $2 billion, Goodrich Energy remains a relatively small E&P play. The dilemma for investors is that the company has proved reserves focused mostly on a couple of plays around the Haynesville Shale that provide them 452 Bcfe of gas. The key, though, is that the resource potential soars to 8,577 Bcfe based on the TMS and the Shelby Trough portion of the Haynesville Shale, both areas account for around 7% of the current proved reserves. 

Screen Shot

Source: Goodrich Petroleum

The current enterprise value amounts to a value of roughly $1.46 per boe based on the huge resource potential.

Though an energy firm like Gulfport Energy has roughly double the production and revenue levels, it has smaller proved reserves and acreage positions. Gulfport only has approximately 179,000 net acres in the Utica/Point Pleasant Shale and the company reported year-end proved reserves of only 38.4 million boe.  

Bottom line
Goodrich Petroleum has a relatively small enterprise value for the resource potential owned. The company faces risks primarily in the development of the TMS that again popped up with a low well result, but enough wells have produced solid oil production in the region from both it and Halcon Resources to suggest the company is now on the path to major growth.

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