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Energy: Exploration & Production
June 3, 2014
Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Wunderlich Securities, Inc.Five Post Oak Park, Suite 1400
4400 Post Oak ParkwayHouston, TX 77027
DJ Basin Niobrara Play - Four Years After the Land Grab, One More Sweet Spot!SummaryIn our June 2012 piece titled “DJ Basin Niobrara Play: Two Years After the Land Grab, Sweet Spots Emerging,” we identified threedistinct sweet spots in the Wattenberg Field prospective for the Niobrara B (Figure 1). Since then, it has been a drilling frenzy, with NobleEnergy (NBL-$71.67, Buy) and Anadarko Petroleum (APC-NR) leading the charge. PDC Energy (PDCE-$63.50, Buy) and BonanzaCreek Energy (BCEI-$53.46, Buy) are not far behind in testing multiple benches in the Niobrara, delineating the Codell, and drillingextended lateral wells. More recently, the Wyoming portion of the play came back to life with a potential fourth sweet spot identified eastof Cheyenne, Wyoming. This new sweet spot has positive implications for EOG Resources (EOG-$105.38, Buy), Bill Barrett Resources(BBG-$24.41, Buy), Anadarko Petroleum, and privately held Cirque Resources LP.
Key Points■ Drilling dollars have been focused on the Colorado side of the play. Between January 2010 and April 2014, 2,338 horizontal
wells have been drilled in Weld County, Colorado, versus 108 horizontal wells drilled in Laramie County, Wyoming. Weld County,Colorado, has been favored for two mains reasons. First, historical vertical drilling in the Wattenberg provided a superior well database enabling a better understanding of the reservoir. This led to higher success rates on the Colorado side. Second, the existinginfrastructure shortened the lag time between drilling and sales resulting in a shorter payback period, which is great for cash flowgeneration. Synergy Resources (SYRG-$11.34, Buy), for example, capitalized on this short cycle time and built a very profitablevertical program from scratch; the company has since transitioned into horizontal drilling successfully.
■ Just as we were about to forget about Wyoming, EOG delivered some stunning Codell tests. EOG released test results fromthree Codell wells in Laramie County, Wyoming (sweet spot #4 in Figure 1 and 2): the Jubilee 513-0820H, a long lateral beginningproduction at 1,411 boepd (8% gas), Windy 504-1806H starting production at 1,510 boepd (7% gas) and the Pole Creek 525-2413Htesting at 1,165 bopd. Furthermore, EOG completed three horizontal wells in the Niobrara shale during 2013 with average IP of 700bpd.
■ The Codell in Wyoming looks just as attractive as the Niobrara in Colorado. All four EOG wells to date in the Codell are longlaterals (9,000’) and have delivered IPs in excess of 1,000 boepd. The target drilling and completion cost is $7.3 million per well withan average gross EUR of 695 Mboe per well yielding after-tax rates of returns greater than a 100%. EOG plans to drill 26 net Codellwells in 2014. In Weld County, Colorado, EOG expects average gross EURs of 430 Mboe per well in its extended reach Niobrarawells, yielding a direct after-tax rate of return of approximately 40%.
■ Bonanza Creek doubled its land base by acquisition. On May 22, 2014, BCEI announced that it has agreed to pay $175.5 millionin cash and issue up to 1.1 million shares of stock for assets consisting of approximately 86,400 gross (34,600 net) acres and netproduction of ~700 Boe/d (85% oil). The seller is privately held DJ Resources. Overnight, BCEI boosted its footprint from 34,600 netacres to 70,100 net acres, giving the company a much larger drilling inventory. In addition, the company is seeing strong results from40-acre spacing wells in the Niobrara using 28-stage fracs. BCEI’s acreage now overlaps with that of BBG's.
■ Bill Barrett Corporation has acreage in three valuable areas of the DJ Basin. The BCEI deal shined nicely on BBG's 40,000+net acre position in the NE extension of the Wattenberg and EOG's Wyoming results looked solid for BBG's position in the region aswell. Despite being in all the right places in the DJ Basin, the stock hasn't gotten the credit that we feel is deserved and we look atBBG as a great way to play the Codell and Niobrara in both Colorado and Wyoming at a compelling valuation.
■ The Northeast extension continues to deliver strong results. The first movers continue to be Noble Energy, Whiting Petroleum(WLL-$71.99, Buy), and Carrizo Oil and Gas (CRZO-NR). New comer Pacific Energy Development or PEDEVCO Corp. (PED-NR)now holds 16,341 net acres and Synergy Resources holds 24,700 net acres just south of this area. NBL plans to drill two down-spacingpilots in the East Pony area, testing 24 wells and 32 wells per section. Whiting Petroleum now has a sizable footprint at its Red TailProspect area. Carrizo Oil and Gas has 47,500 net acres in this play; the company has confirmed 60-acre spacing and is now testing40-acre spacing. The company has 1 rig running, and plans to drill 11 net wells and frac 15 net wells in 2014.
■ Exploration and Development efforts in the Wattenberg could lead to new surprises. While most of activities in Weld County,Colorado, are developmental in scope, exploration efforts are ongoing in nearby areas. We expect to see new Codell and Niobrara Cwells being drilled by EOG and Cirque Resources near Cheyenne, Wyoming (sweet spot #4), and continual exploration and delineationdrilling in northeast Colorado (sweet spot #2) where SYRG is pursuing the Greenhorn and Niobrara B. Stepping out even further,ConocoPhillips (COP-NR) has two rigs delineating its acreage in Adams, Arapahoe, and Elbert counties. Stay tuned!
For Required Disclosures and Reg AC, please see page 22 of reportFINRA/SIPC
Wattenberg Horizontal Niobrara Play Fully in Development Mode in Colorado
The DJ Basin is a large asymmetric basin straddling Colorado, Wyoming, Nebraska,
and a small piece of Kansas. A pair of first movers set off the “gold rush” in early
2010 in Weld County, Colorado when EOG Resources announced that its first
horizontal Niobrara well, the Jake 2-01H, came online at 1,558 boepd (sweet spot #3
in figure 1), and Noble Energy‟s Gemini well followed with more than 1,000 boepd
for the first 60 days. Since then, the play taken off rapidly.
Between January 2010 and April 2014, 2,338 horizontal wells have been drilled in
Weld County, Colorado. In sharp contrast, only 108 horizontal wells have been
drilled in Laramie County, Wyoming. There are several reasons why Weld County
has been favored over Laramie in Wyoming:
Multi-year vertical drilling in the Wattenberg provides a superior well data
base and enables better understanding of rock properties and productivity.
Success rates have been higher along the Colorado mineral belt.
Existing infrastructure shortens the lag time between drilling and sale,
resulting in a shorter payback period-great for cash flow generation.
Noble Energy, a first mover, has methodically tested out key play parameters with
multiple pilots. Anadarko Petroleum (APC-NR) continues to enjoy great margin in
the core with its mineral ownership. In October 2013, the two announced a land
swap–NBL blocked up lands in the northeastern half of the Wattenberg, and APC
blocked up the southeastern portion, creating even better scope and scale.
PDC Energy did a sizable acquisition in mid-2012 and added 35,000 net acres to its
footprint and continues to focus on its 97,000 net acres in the Wattenberg core (sweet
spot #1 in figure 1). Synergy Resources Corp., a long time Wattenberg producer,
now has ~25,200 net acres in the core
Moving to the northeast edge of the core, Bonanza Creek Energy will soon close a
34,600 net acre purchase doubling its footprint to 70,100 net acres. Bill Barrett
Resources entered the play in 2012 via a 30,070 net acre acquisition and began active
drilling in 2013; the company‟s footprint in the core has grown to 40,200 net acres
since then.
Moving out of the core area and into the new Northeast Colorado extension (sweet
spot #2 in figure 1), the first movers there are Noble Energy, Whiting Petroleum, and
Carrizo Oil and Gas (CRZO-NR). New-comer Pacific Energy Development or
PEDEVCO Corp. (PED-NR) now holds 16,341 net acres. Synergy Resources hold
24,700 net acres just south of this area.
Exploration & Production June 3, 2014
2
Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
A Fourth Sweet Spot Discovered in Laramie County Wyoming, East of
Cheyenne
In our June 2012 piece titled “DJ Basin Niobrara Play: Two Years After the Land
Grab, Sweet Spots Emerging,” we identified three distinct sweet spots in the
Wattenberg Field prospective for the Niobrara B. Since then, more benches in the
Niobrara have been proven productive and the Codell turned out to be a great
horizontal target, too. Recently, we pulled production data for wells drilled in the last
two years in Laramie County, Wyoming, and a fourth sweet spot emerged. We saw a
cluster of strong wells located just east of Cheyenne, Wyoming (figure 1).
Sweet spot #4 is defined by a cluster of wells drilled by EOG, APC, and private
companies Kaiser Francis and Cirque Resources just east of Cheyenne. This is
setting off renewed interest in Southern Wyoming.
FIGURE 1– WATTENBERG FIELD – NEW SWEET SPOT FOUND IN WYOMING
Source: DrillingInfo, annotated by Wunderlich Securities. This is a composite production bubble map. In Wyoming,
the map displays horizontal wells drilled in the last two years where as Colorado shows wells drilled in the last four
years in order to high light the Hereford area which has been relatively inactive in the last two years.
While most producers have left the northern DJ basin, EOG kept working and
completed four net wells targeting the Codell in Laramie County, Wyoming in 2014.
These wells include the Jubilee 513-0820H, a long lateral beginning production at
1,411 boepd (8% gas), Windy 504-1806H starting production at 1,510 boepd (7%
gas) and Pole Creek 525-2413H testing at 1,165 Bopd (results from the fourth Codell
Exploration & Production June 3, 2014
3
Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
well were not disclosed by the company). Furthermore, EOG completed 3 horizontal
wells in the Niobrara shale during 2013 with an average IP of 700 bopd.
In addition to EOG, BBG, APC, Kaiser Francis Oil Co. (Private), Lone Star Land
and Energy (private), Cirque Resources (private), have been active in the area.
A Tally of Who’s Who in the Four Sweet Spots in the Wattenberg
Since our last update in June 2012, a number of transactions have transpired.
Companies exiting the basin include SM Energy (SM-NR), Chesapeake Energy
Corp. (CHK-$29.31, Buy), Marathon Oil Corp. (MRO-NR) and Continental
Resources (CLR-$140.07, Hold). The remaining publically traded companies are still
active in the four sweet spots:
Sweet Spot #1: Wattenberg Core and Great Wattenberg Area
Encana Corp. (ECA-NR) – 49,000 net acres
Anadarko Petroleum – 350,000 net acres
Noble Energy – ~365,400 net acres
PDC Energy – 97,000 net acres
Bonanza Creek – 70,100 net acres
Bill Barrett Corp. 40,200 net acres
Synergy Resources Corp. – 25,200 net acres.
Sweet Spot #2: Northeast Colorado
Noble Energy – ~243,600 net acres
Whiting Petroleum – 122,656 net acres
Carrizo Oil and Gas– 47,500 net acres
PEDEVCO Corp. – 16,341 net acres
Synergy Resources Corp. – 24,700 net acres.
Sweet Spot #3: Hereford in Colorado (also named Critter Creek)
EOG Resources has drilled more than 40 wells in the Hereford area
Bill Barrett Corp. exploring the Chalk Bluffs area just north of Hereford
Sweet Spot #4: East of Cheyenne, in Laramie County, Wyoming
EOG Resources – 50,000 net acres in the Niobrara and 72,000 net acres in
the Codell.
Bill Barrett Corp. – 22,120 net acres in the Chalk Bluffs area.
Anadarko Petroleum – significant land grant acreage in Wyoming
Cirque Resources – 90,000 net acres
Noble Energy -100,000 acres
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Interest in Wyoming Stems from the Silo Field Discovered in 1981
With primitive 1990-era horizontal wells in the Silo Field producing as high as 2,026
bopd without stimulation, the area has naturally drawn renewed attention. The Silo
Field in Laramie County, Wyoming, is located ~80 miles north of Greeley Colorado.
It has produced more than 11.5 mmboe of oil and 10.4 bcf of gas and is still
producing about 1,500 bopd.
Discovered in 1981 with the completion of the Champlin 300 Amoco B1 well, it was
revitalized in 1990 with horizontal drilling.
The total Niobrara package is about 280 to 300 feet thick, with at least four
productive limestone intervals (benches) averaging 30 feet in thickness. The Lower
limestone is named Fort Hays and the Upper Limestones are grouped under Smoky
Hill Member.
A total of 18 horizontal wells and 40 vertical wells were drilled in the 1990s. These
primitive horizontal wells flowed at 216 bopd to 2,026 bopd without stimulation. Oil
gravity is at 35º API and GOR at 1,030 cubic feet per barrel. The Niobrara Chalk at
the Silo Field is tight, with matrix porosity ranging from 6% to 16% and
permeability of less than 0.1 milli-darcy. Average pay thickness ranges from 30-60
feet.
The productive interval can be mapped using resistivity logs. A northwest trending
anomaly was mapped corresponding with known production in the Silo field. The
high resistivity reading is likely caused by oil-filled fractures. Productive wells have
maximum resistivity of more than 40 ohm-meters.
EOG is on to a New Codell Sweet Spot Just East of Cheyenne, Wyoming
EOG held 400,000 net acres in the trend in early 2010 and by August 2011, the
company held 220,000 net acres in the Niobrara Play. During 2010, EOG ran two
rigs in the play with an estimated well cost of $3.4 million. EOG’s first well, the Jake
2-01H, drilled in late 2009 came online at 1,558 boepd and produced 50,000 bbls in
the first 90 days (555 boepd average).
This well proved that the large and unexplored area between the Wattenburg Field
and the Silo Field can be prospective. Furthermore, EOG’s geologic mapping
indicates that rather than one blanket play, there are isolated sweet spots in the play.
The play is complex with fractures and as a result, EOG proceeded cautiously. The
company believed that long-term production results were needed to understand the
play’s economics.
EOG set out to prove that tectonically related fracture systems are not prerequisite to
oil production, and that there is sufficient matrix porosity formed by expulsion
fractures. By inducing artificial fractures, these relatively tight rocks can produce oil.
Exploration & Production June 3, 2014
5
Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Shortly after the Jake well, EOG announced results from two other wells:
Elmer 8-31 H (2,000’ lateral) tested 730 boepd; and
Red Poll 10-16H (5,200’ lateral) tested 1,100 boepd un-stimulated.
After drilling the Jake, Elmer, and Red Poll wells, EOG drilled about 40 horizontal
wells in the Hereford Area with an average peak 30-day production rate of 254
boepd (84% oil). We observed that EOG brought on line a batch of Niobrara wells in
August 2011 and then went “radio silent”.
Fast forward to the first quarter of 2014, the company announced that it had
completed four net wells in 2014 (three were drilled in 2013) targeting the Codell in
Laramie County, Wyoming (figure 2):
Jubilee 513-0820H, a long lateral began production at 1,411 boepd (8% gas)
Windy 504-1806H started production at 1,510 boepd (7% gas)
Pole Creek 525-2413H tested at 1,165 Bopd.
Furthermore, EOG completed 3 horizontal wells in the Niobrara shale during 2013,
with average IP of 700 bpd.
FIGURE 2: TOP 15 HORIZONTAL WELLS IN LARAMIE COUNTY WYOMING – RANKED BY
MAXIMUM 30-DAY OIL VOLUME
Source: Drilling Info data, annotated by Wunderlich Securities, Inc.
Of the four EOG wells drilled and completed to date in the Codell, all have long
9,000-foot laterals and IPs in excess of 1,000 boepd. The wells averaged 78%, 36-
degree API oil. In 2014, EOG plans to drill 26 Codell net wells. The target drilling
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
and completion cost is $7.3 million per well with an average gross EUR of 695 Mboe
per well which should yield after-tax rate returns greater than a 100%.
According to EOG, it has identified the best acreage capable of making repeatable
consistent wells. The company has captured 72,000 net acres and has identified 220
net well locations with an estimated reserve potential of 125 million-boe net.
The company also identified 50,000 net acres prospective for the Niobrara, in Weld
county, Colorado (sweet spot # 3). The reserves consist of 71%, 35-degree, API oil,
with the expected average gross EURs of 430 Mboe per well. Target well costs for
the 9,000-foot lateral are $9 million per well due to larger fracs yielding a direct
after-tax rate of return of approximately 40%.
EOG is completing its first long lateral and expects to improve well productivity
along with well costs. The company has identified 235 net drilling locations with
estimated net reserve potential of 85 million boe net. In 2014, the company plans to
drill 13 net wells in the Niobrara and expects to add a third rig in late May with first
production starting this year.
Southern Wyoming is hot again: Positive for APC, BBG, and Cirque Resources
To get a better look at Wyoming, we retrieved horizontal wells drilled in the Laramie
County in the last two years and focused on the top 15 wells, ranked by 30-day peak
oil rates. EOG‟s two Codell tests, Jubilee and Windy ranked first and second
respectively. Only four of the top 15 were Codell wells, the rest were all Niobrara
targets.
The third best well is the Kasier Francis Rosy well about 10 miles north of the EOG
Jubilee and Windy wells; this well has a 30-day peak production rate of 736 boepd
(91% oil).The fourth best well was drilled by BBG, a Niobrara target located ~12
miles southeast of the EOG Codell wells.
While Anadarko Petroleum is not on the list yet, it has the potential to be there soon.
APC was active in this area and drilled a number of wells in 2011 but then decided to
focus on the core instead. We recently spoke with the company about their presence
in Laramie County and they are well aware that EOG’s success in the area is a
positive for them. Anadarko Petroleum still holds massive land grant acreage in
Wyoming resulting from the UPR acquisition in 2000.
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Figure 3: Top 15 Horizontal Wells in Laramie County, Wyoming
Source: Drilling Info data, tabulated by Wunderlich Securities, Inc
Another key player in the new sweet spot # 4, Cirque Resources LP holds 90,000 net
acres mostly in Laramie County, Wyoming. We recently caught up with Cirque
Resources, a privately held exploration company and one of the first movers on the
Wyoming side. The company‟s acreage overlaps EOG‟s footprint that is prospective
for the Codell and Niobrara C.
Cirque Resources was ahead of the game and had pointed out in the past that the
Codell is slightly thicker in Wyoming and the log porosity appears to be as good or
better than the Codell in Wattenberg core.
In our last theme piece, we mentioned that “the company plans to participate in
several Niobrara wells in 2012 and will likely participate in several horizontal Codell
wells in the next 12 months.” Cirque did end up drilling 8 Codell wells in 2012. And
in 2014, Cirque is running one rig with plans for 10 to 12 wells in areas both north
and south of EOG‟s Jubilee and Windy wells. Cirque Resources LP‟s founder Peter
Dea believes that “With about 20 oil wells producing, 20 more waiting on
completion and several hundred active permits, the companies have largely shifted
into development mode.” Furthermore, he laid out Cirque‟s plans going forward,
“True to Cirque's „build and sell‟ strategy, we plan to ramp up production and take
the project to market by early 2015 for a successor to execute on extensive
opportunities for full field and infill development"
Thinking Outside the Four Sweet Spots to the Next Frontier
With drilling activities picking up and progress being made in delineating all three
benches of the Niobrara in addition to the Codell, we are just beginning to get a
Well# Operator Lease Well# Reservoir Name First Prod.
Max
Month
Avg.
(BOE/D) % Oil
1 EOG JUBILEE '103-0433H CODELL SAND Sep-13 1100 90%
2 EOG WINDY '504-1806H CODELL SAND Dec-13 1101 90%
3 KAISER FRANCIS ROSIE '1-35H NIOBRARA Oct-13 736 92%
4 BBG '24-8H NIOBRARA Mar-12 634 95%
5 EOG '80-09H CODELL SAND Jan-13 561 89%
6 KAISER FRANCIS HAWKEYE '1-12H NIOBRARA Apr-12 505 92%
7 LONE STAR '12-62-16-1H NIOBRARA Jul-11 478 94%
8 EOG POLARIS '1-24H NIOBRARA May-11 475 93%
9 EOG '2-1-1CH CODELL SAND Jan-13 502 85%
10 KAISER FRANCIS TRAPPER '1-2AH NIOBRARA Sep-12 445 91%
11 EOG JUBILEE '69-04H NIOBRARA Mar-12 437 90%
12 BBG '44-18H NIOBRARA Feb-12 414 92%
13 EOG MIDGETMAN '10-11 1NH NIOBRARA Apr-12 434 84%
14 EOG '01-18H NIOBRARA Mar-13 399 90%
15 KAISER FRANCIS CHEYENNE '1-6AH NIOBRARA Dec-12 351 94%
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
handle on the productivity of these intervals. Producers are racing to test various
down spacing configurations and are drilling longer laterals. As already noted, with
EOG‟s success in Wyoming, we are looking at Laramie County as prospective for
the Codell and the Niobrara once more.
In other more recent developments, producers are targeting the Carlile and the
Greenhorn intervals especially towards the northwest portion of the Wattenberg Field
in Colorado. Morgan County could be an interesting place to look for productive
Greenhorn intervals. While sweet spot #4 is the news of today, these areas could be
the news of tomorrow.
Stepping out even further, ConocoPhillips (COP-NR) has some interesting acreage in
Adams, Arapahoe, and Elbert counties 30 miles south of the Wattenberg Core in
Weld County (See Figure 4). Across the three counties ConocoPhillips holds
130,000 net acres. The company has an ongoing appraisal program running 2 rigs.
Average early rates are showing production greater than 600 boepd with an 86%
liquids mix.
Figure 4: ConocoPhillips: Pursuing the Niobrara South of the Wattenberg
Source: Conoco Presentation, April 2014
A Recap of Wattenberg Activities for our Coverage Universe
Noble Energy: Looking at 24 to 32 Wells Per Section in the Wattenberg
NBL entered the basin in late 2004 by acquiring Patina Oil and Gas for $3.4 billion.
The company holds a total of 609,000 net acres in the play with ~365,400 net acres
in the Wattenberg Core and extension area, ~243,600 net acres in northeast Colorado
area, and 100,000 acres in Wyoming.
NBL produced 95,000 boepd in 1Q14 which was impacted by severe winter weather;
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
this is down slightly from the 100,000 boepd produced during 4Q13 which was
impacted by the flash flood in September of 2013. NBL had to burn more of its
produced natural gas to keep major facilities running. In addition, the timing of
bringing a number of wells online was delayed as a result of the storms and facility
upgrades. All of these wells are now online and producing.
NBL continues to operate 10 drilling rigs in the DJ Basin and expects to maintain
that level into the third quarter of this year. During 1Q14, NBL spud 67 wells with an
average lateral length of nearly 5,400 feet. 20% of these wells were extended reach
laterals.
The company is one of the first to pursue drilling extended lateral wells (ERL).
These wells could provide ~3.4x uplift versus normal lateral wells and generally
show a flat decline profile in the first year. Since NBL has been so successful with
ERL wells, the company has extended its total lateral footage to 1.62 million from
1.59 million without changing its budget of $2 billion in the DJ Basin.
The original drilling plans called for 320 total wells with a mix of 262 normal length,
28 medium length and 30 long laterals, on a normalized basis equivalent to 365
normal length wells. The revised plan calls for 191 normal length wells, 30 medium
length wells and 66 long laterals. While the absolute well count will drop to 287
from the 320 planned, on a normalized basis, the company is drilling the equivalent
of 369 normal length wells.
The key is the impact on the bottom line, these are the differences:
A normal lateral (4,000‟) has EUR of 305 Mboe at $4.3 million, yielding
87% BTROR and BT PV 10 of $4.4 million.
A medium lateral (7,000‟) has EUR of 470 Mboe at $6.3 million, yielding
97% BTROR and BT PV 10 of $7.7 million.
A long lateral (9,000‟) has EUR of 750 Mboe at $7.7 million, yielding 188%
BTROR and BT PV 10 of $15.1 million.
About 70% of the planned wells will be drilled in the Wells Ranch and East Pony
areas and about 20% in the Core, Greeley Crescent, and Mustang areas. While within
the oil window, the company can drill at least 16 wells per section, 30% to 40% of
total planned wells will be drilled at denser spacing.
Within the 609,000 net acres in the Wattenberg Core and extension area, the
company believes that it has net un-risked resource potential of 2.6 billion boe. Of
this footprint, 87% is in the oil window, two--thirds are covered by the Integrated
Drilling Plans (IDP boosts NPV by 30% to 50%) and 70% to 75% are considered de-
risked.
The company has confirmed that it can fit 16 Niobrara wells per section in the oil
window; this is equivalent to 9,500 locations with less than 10% recovery. At the
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Well’s ranch IDP, NBL has been using this 61,000 net acre area as a “laboratory”
and has confirmed that 40-acre spacing wells are performing in line with 80-acre
spacing wells with 18 months of production history backing up this conclusion. NLB
knows that 16 wells per section will generate $70 mm BTNPV 10 per a section and
is setting to prove that the 24 wells per section configuration could yield $100 mm of
PV10 per section and the 32 wells per section configuration could yield $130 mm of
PV10 per section.
Of the wells planned for 2014, more than 40% are drilled at higher density (24 to 32
wells per section) with 5 down spacing plans in 5 IDPS (figure 5): Wells Ranch (3
tests, 80 wells), East Pony (6 tests. 35 wells), Greeley Crescent (2 tests, 12 wells),
Mustang (1test, 10wells) and Core (2 tests, 5 wells).
Figure 5: NBL’s upcoming down spacing pilots in the Wattenberg
Source: NBL’s presentation December 2013
At the Loeffler pad in the Core IDP area, NBL drilled 5 standard Niobrara-Bench C
wells. With more than 100 days of production behind, they are tracking the 600
Mboe type curve, this includes two wells drilled at a 24-well per section spacing.
Exploration & Production June 3, 2014
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
PDC Energy Systematically Performing Down Spacing Pilots
PDCE has 97,000 net acres (97% HBP) and is currently the third largest leaseholder
and producer in the Wattenberg Field. The company has identified a 3P horizontal
drilling inventory of 2,800 wells (assuming 22 gross wells per 640 acres with 16
Niobrara and 6 Codell wells). Weighted average EUR per well is 370 Mboe, with a
mix of 50-80% liquids. With more wells drilled, PDCE continues to refine type
curves for its three zones within the Wattenberg field with an EUR of 500 Mboe at
the inner core, 400 Mboe for the middle core, and 285 Mboe for the outer core.
In aggregate, PDCE‟s Niobrara type wells (standard lateral) yield 370 Mboe,
generate IRR of 70%, and have a PV10 of $4.0 million and a payout of 17 months.
The company has 2,013 gross Niobrara locations (3P). PDCE‟s Codell type wells
yield 370 Mboe, can generate IRR of 73%, and have a PV10 of $4.7 million and a
payout of 17 months. PDCE has 822 gross Codell locations (3P). Drilling and
completion costs per standard well are $4.2 million.
For 2014, PDCE plans to spend $467 million on the Wattenberg (72% of its total
budget). Also, in 2014, the company expects to spud 115 operated (20 inner core, 49
middle core and 46 outer core wells) and participate in 66 non-op wells; of this
group, 20 will be longer lateral wells (6,500‟ to 7,000‟).
More wells are being drilled in the inner core due to better economics, and PDCE‟s
development plan is geared towards available capacity on the DPC system (DPM-
$54.43, Hold). The 2014 drilling plan is based on 3 to 8 well pads, and 16-wells per
section spacing. Drill depth averaged 7,300‟ with lateral lengths ranging from 4,000
to 7,000‟. The Codell and Niobrara intervals are 300-350‟ thick combined. It takes
PDCE 13-15 days to drill a well; these wells are then completed with 16-25 stage
fracs using sliding sleeve swell/HYD packers.
During 1Q14, the company produced 20,544 boepd (52% from horizontal wells)
from the Wattenberg despite very severe winter conditions, a huge ramp up
compared with the 15,388 boepd produced in 1Q13. The DJ basin contributed 77%
of PDCE‟s total production for 1Q14. During the quarter, the company spud 24
horizontal wells (16 Niobrara and 8 Codell) and brought 13 on line.
PDCE has drilled 16 wells at the Waste Management Pad, testing various
combinations of spacing and zones. The key takeaway is that these wells are
performing better than a typical middle core well with C-bench showing the
strongest results. The company also demonstrated that 20-stage Niobrara wells
perform better than 16-stage Niobrara wells. The company just pumped seven 25-
stage jobs. With these wells just coming on line, we look forward to seeing the
cumulative production curves.
For 2014, PDCE has two 20-well pilots planned, both in the Middle Core area, the
Sunmarke Project and the Chestnut Projects (see figure 6).
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It gets more ambitious in 2015 as the company plans to be involved with a 24-well
test in the Middle Core (6N/66W), a 26-well pilot in the Outer Core (6N/63W, with
NBL), a 28-well pilot in the Middle Core (6N/66W), and a 32- well pilot in the
Middle Core (4N/67W).
Figure 6: PDCE’s upcoming down spacing pilots in the Wattenberg
Source: PDCE presentation, May 2014
Synergy Resources Corp. – Successfully transitioned into horizontal drilling
When we first initiated coverage on Synergy Resources, the company had a market
cap of $140 million, held 28,009 net acres in the Niobrara Play in the northern DJ
Basin, and was only drilling vertical wells. Of the land base, 12,506 net acres are
located in the Wattenberg core in the “donut hole”, a sparsely drilled area in the City
of Greeley.
Fast forward to 2014, the company‟s footprint grew to almost 50,000 net acres with
25,200 net acres in the core area and 24,700 net acres in the northeast extension. The
company has captured 630 to 945 potential horizontal well locations based on 16-24
wells per section in the Niobrara (A, B and C benches) and the Codell.
SYRG plans to spend $189 million in fiscal 2014 (ending August 31, 2014) to drill
34 horizontal wells as an operator and to participate in 5 net non- operated wells. The
company is active on 6 pads: Renfroe and Leffler to the north, Kelly Farm in the
center (with 4 wells permitted), and Union, Eberle and Phelps pads to the south. We
expect a huge yearend reserve addition from the company‟s first foray into horizontal
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drilling in the Wattenberg.
In the northern acreage, Renfro and Leffler wells are humming along. The company
updated the 180-day flow rate for the Renfroe Pad (280 boepd average for the 2
Codell wells and a 230 boepd for the 3 Niobrara B wells) along with the 30-day
average for the 6 Leffler Pad wells at 300 boepd. The drilling and completion costs
for Renfroe and Leffler were $3.6 million per well and $3.7 million per well,
respectively. These earlier pads were completed with less than 20 stages using
sliding sleeves. We expect to hear about the 90-day rates from the Leffler Pad in
July.
Figure 7: SYRG’s Wattenberg land base
Source: SYRG presentation, May 2014
In the southern acreage, the Phelps pad has begun producing with Union and Eberle
not far behind. The 3 Codell and 3 Niobrara wells at the Phelps pad just began
producing after being completed (figure 1) with 25-stage fracs using the plug and
perf method. SYRG is drilling the 5th of the 6 wells planned at the Union pad and at
the Eberle pad, it started drilling the 1st of the 6 wells planned.
Also, SYRG did drill one science well with a 35% working interest. The Buffalo Run
well located in the NE extension was drilled in March 2014. Sidewall cores have
been collected in the Niobrara and the Codell with full cores in the Greenhorn.
SYRG believes that it could have 154 potential Greenhorn and Niobrara-B locations
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assuming 4 wells per section (160-acre spacing).
SYRG is the smallest of the Wattenberg pure plays with a huge “runway”. The
company has successfully transitioned from vertical drilling to horizontal drilling and
is breaking the record for low drilling and completion costs. The company is
intensely focused on cash flow and will likely be able to ramp up without stressing
its balance sheet, which is rare in this section.
Bonanza Creek Energy, Inc. – 70,100 net acres with a much longer runway
Bonanza Creek has been drilling vertical Niobrara wells in the DJ Basin since 2006
and drilled its first four horizontal wells in 2011 with an average 30-day rate of 458
boepd. On May 22, 2014, BCEI announced that it has agreed to pay $175.5 million
in cash and issue up to 1.1 million shares of stock for assets that consist of
approximately 86,400 gross (34,600 net) acres and net production of ~ 700 boepd
(85% oil).
Including the stock, the deal total ~$225 million, netting out the 700 boepd of
production valued at ~$50 million, amounts to BCEI paying ~$5,000 per acre, the
going price and a fair deal in our view. The seller is privately held DJ Resources, a
long time Wattenberg Basin explorer. Overnight, BCEI boosted its footprint from
34,600 net acres to 70,100 net acres, giving the company a much larger drilling
inventory.
BCEI will operate 23,000 net acres and plans to consolidate. The average working
interest in the acquired properties is 40%. In the core area, which is 23,000 net acres,
BCEI has average working interests of 63% and will operate; the rest is being
operated by Noble Energy and PDC Energy. Of the new footprint, 38% is held by
production; the company will deploy 2 more rigs in 2015 to secure the leases.
The acquired land base consists of two largely contiguous asset positions to the north
and south of BCEI‟s current lease hold (figure 1). BCEI‟s new footprint nicely
overlaps with that of Bill Barrett Resources.
The company added 1,700 gross (700 net) 3P locations in the Niobrara B and C
Benches (80-acre spacing) and the Codell (160-acre spacing). The company now has
pro forma 3P locations of ~ 3,500 gross (2,000 net), representing a drilling inventory
of 25 years based on current activity levels.
The company‟s current Niobrara B wells (standard lateral) are expected to have an
EUR of 313 Mboe (62% oil), with a cost per well at $4.2 million and PV10 of $4.2
million per well at $90/bbl oil. The payout is 1.5 years.
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Figure 8: BCEI’s 40-acre down spacing projects
Source: BCEI presentation, May 2014
During the first quarter, BCEI updated test results from its Super-Section tests
(figure 8), the 30-day IP rate from 3 pads supports 40-acre spacing for Niobrara B
(16 wells per section/640 acres) –a result which disappointed investors. The west pad
tested 80-acre spacing for Niobrara B and C staggered with a 30-day rate at 448
boepd. The Middle pad tested 40-acre spacing for Niobrara B with a 30-day rate at
374 boepd. The east pad tested 80-acre spacing for Niobrara B staggered on top of
80-acre spacing for Niobrara C with a 30-day rate at 516 boepd. The tests support at
least 20 wells per section and could push up to 36 wells per section.
On May 22, 2014, BCEI gave an addition update on four 40-acre spaced Niobrara B
Bench wells, alternating 18 and 28-stage completions and delivering a 30-day
average of 477 boepd per well. This result represents a 25% improvement over Pad 2
in the Super-Section (completed with 18 stages).
In addition, two well 80-acre pad tests (with 28-stage completion offsetting a
traditional 18-stage completion) delivered an initial 30-day production rate of 500
boepd. The average 90-day production rate for the 28-stage completion was
approximately 14% higher than its 18-stage counterpart at 422 boepd. Using a 28-
stage frac for 40-acre spacing wells seems to achieve better results as the reservoirs
near the bore holes are more effectively “rubblelized”. The implication of these
successful 28-stage tests is positive for all producers; we think that the current
drilling inventory for these Wattenberg producers could be understated as we are just
beginning to see 40-acre tests with 28-stage completions.
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Bill Barrett Corp
Bill Barrett Corp. has 75,500 net acres in the Niobrara. Of the land base, 13,170
acres are in the Wattenberg core (Colorado), 40,200 net acres in the Northeast
Extension (Colorado), and 22,120 net acres located in the Chalk Bluff area
(Wyoming and Colorado). BBG produced 6,430 boepd as of 1Q14 and has 66
mmboe of proved reserves in the DJ Basin.
BBG plans to drill 120 gross (72 net) horizontal wells this year with activity focused
in all three areas.
Whiting Petroleum Corp.
Located on trend and just north east of the Wattenberg core and extension areas is
sweet spot #2, North East Colorado. Within the northeast Colorado sub-play, NBL
drilled the Rohn 16-96HN with a 30-day peak rate of 710 boepd and Carrizo drilled
the State 36-24-9-61 with a 30-day peak rate of 509 boepd (Figure 1). These wells
are looking as good as any well in the extension area, and we find this very
encouraging. Unlike the core, this area is not densely drilled and producers can start
with a clean canvas. Noble‟s record-breaking extended reach lateral, the Wells
Ranch 29-68HN, which delivered a 30-day test of 878 boepd, is nearby (Figure 1).
Northeast Colorado is ideally set up for extended laterals for those producers with a
contiguous land base, in our opinion. The big hitters in this area are Noble Energy
with ~243,600 net acres, followed by Whiting Petroleum Corp. with 122,656 net
acres, and Carrizo with 58,733 net acres. Why is this area working? The industry
believes that a large-scale and long-lived tectonic feature, the Transcontinental Arch,
has exerted influence on the Niobrara Play in the Wattenberg Field and nearby areas.
With high-tech tools, WLL can analyze cores very quickly and accurately with the
goal of pre-screening potential “reservoirs” in various resource plays including the
Niobrara and the Williston Basin. By shortening the cycle time on core analysis,
WLL can move fast, leasing attractive plays quietly ahead of competition, drilling a
few wells and returning for a few more rounds of leasing.
For the Niobrara play, over 800 feet of cores were taken from two wells and
extensive lithologic and 3-D textural analysis was performed. In addition, WLL has
access to other cores through its membership in the Core Lab (CLB-NR) multi-client
industry project.
In the Niobrara play, the company has acquired 174,892 gross (122,656 net) acres in
the Redtail Prospect; WLL has average working interest (WI) of 72% and net
revenue interest (NRI) of 59%.
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Appendix
Geologic Overview and Production History of the DJ Basin Niobrara Play
First discovery in the DJ Basin occurred in 1865 at the Florence Field. The first
commercial discovery was made in 1901 at the Boulder Field with production from
the Codell sandstone. The Beecher Island Field produced gas from the Niobrara
Chalk in 1919. Other big discoveries include the Wellington Field in 1923 and the
Greasewood Field in 1930. In 1970, the Wattenberg Field was discovered producing
out of the Muddy/J Sandstone. In 1972, Spindle Field was discovered.
After almost five years of exploration and delineation, we believe that we have
isolated some of the key elements needed for a productive Niobrara Play as listed
below.
Lithology – the right mix of minerals.
Source rock – highly organic and capable of generating oil.
Thermal maturation – right burial for generation of oil.
Porosity and permeability – conduits enabling oil molecules to move.
Tectonic enhancement – fracture porosity, hot spots, and extra heat flow.
Dissolution features – enhance flexures and increase fracture porosity.
The Niobrara Formation is fairly uniformly deposited in Colorado and Wyoming. A
number of first movers used resistivity logs to isolate prospective areas for leasing.
The variation in resistivity reading within a fairly uniform Niobrara interval is likely
caused by the presence of oil-filled porosity, enhanced by fractures.
Stratigraphy
The DJ Basin has multiple productive reservoirs. Within the Lower Cretaceous, the
principle productive zones in the basin are:
The Muddy and
The J Sand (Dakota Group).
In the Upper Cretaceous, from the oldest to the youngest, the productive zones are:
The D Sand,
The Codell Sand Stone,
The Niobrara Formation, and
The Pierre Sand and Shale (with the Shannon-Sussex plays).
The Niobrara Formation is underlain by the Muddy Formation (J Sand), which is a
very fine grain sandstone ranging with 3 to 90 feet. The Niobrara is overlain by the
Pierre Shale, which is equivalent to the Mancos Shale in the Sand Wash Basin and
the Steele Shale in the Washakie and Great Divide Basins.
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Toward the North and West, the Niobrara becomes less calcareous and grades into
the Baxter Shale Formation in the sparsely drilled Sand Wash Basin, Washakie
Basin, and the Great Divide Basin. The Niobrara Formation consists of thick
organically rich shales with interbedded benches. These benches have greater
carbonate content than the adjacent shale and are calcareous and fracture prone.
Producers are targeting these benches for horizontal drilling.
More recently, there is an interest in the underlying Carlile Shale and the Greenhorn
Limestone. Both could be interesting bonus plays. These bonus plays can have a
“multiplier” effect on the number of drillable locations on each lease and will have a
compounding effect on EUR per drilling unit.
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
FIGURE 9– STRATIGRAPHIC CHART OF THE DJ BASIN AREA
Source: USGS
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Wunderlich Securities, Inc.Irene O. Haas • 713.403.3980 • [email protected] A. Wangler • 713.403.3985 • [email protected]
Figure 10– The DJ Basin –Wattenberg Field and surrounding areas
Source: USGS
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Companies Mentioned
Ticker Rating Price Price Target
BBG BUY 24.41 40.00CHK BUY 29.31 36.00DPM HOLD 54.43 57.00NBL BUY 71.67 94.00SYRG BUY 11.34 15.00
Ticker Rating Price Price Target
BCEI BUY 53.46 65.00CLR HOLD 140.07 120.00EOG BUY 105.38 124.00PDCE BUY 63.50 97.00WLL BUY 71.99 95.00
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Disclosures:
Analyst Certification
I Irene O. Haas and Jason A. Wangler, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject companies andtheir underlying securities. I further certify that I have not and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s)in this research report.
Valuation/Risks:
We base our price targets on our net asset value estimates, taking into account the proved reserves that can be developed and booked within a five-year period for mostcompanies. We also assign value on probable and possible resources on known projects.
E&P companies are exposed to commodity risks, execution risks, exploration risks, regulatory risks, financial risks, and production delays.
This report constitutes a compendium report (covers six or more subject companies). As such, Wunderlich Securities, Inc. chooses to provide specific disclosures for the subjectcompanies by reference. To access current disclosures for the subject companies, clients may e-mail a request to [email protected], or may write or call the WunderlichSecurities Research Department at Wunderlich Securities, Inc., 400 E. Pratt Street, Suite 720, Baltimore, MD, 21202, 866.297.8259.
Company-specific disclosures:
In the past 12 months, Wunderlich Securities has received compensation from Synergy Resources Corporation for investment banking services.
In the past 12 months, Wunderlich Securities managed or co-managed a public offering of the securities of Synergy Resources Corporation.
Wunderlich Securities intends to seek or expects to receive compensation for investment banking services from Bill Barrett Corporation, Chesapeake Energy Corporation,Continental Resources, Inc., Synergy Resources Corporation and Whiting Petroleum Corporation in the next three months.
In the past 12 months, Synergy Resources Corporation has been a client of Wunderlich Securities.
General disclosures:
Prices are as of the close of Jun 02 2014.
Ratings Distribution (in Percentages) & Investment Banking Disclosure Chart Information
Ratings Distribution & Investment Banking Disclosure
Rating Count Ratings Distribution* Count Investment Banking**
Buy -rated 151 64.81 43 28.48
Hold -rated 81 34.76 15 18.52
Sell -rated 1 0.43 0 0.00
* Percentage of all Wunderlich-covered stocks assigned an equivalent Buy, Hold, or Sell rating.
** Percentage of companies within Wunderlich-rated Buy, Hold, and Sell categories for which Wunderlich or an associated firm provided investment banking services within thepast 12 months.
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There are three rating categories within the Wunderlich Securities Investment Rating System: Buy, Hold, and Sell. The rating assigned to each company is based on thefollowing criteria.
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Baltimore 400 E. Pratt Street Suite 720 Baltimore, MD 21202 866.297.8259 Boston 260 Franklin Street Suite 510 Boston, MA 02109 617.892.7151 Denver 1099 18th Street Suite 2850 Denver, CO 80202 866.493.6588 Houston 4400 Post Oak Pkwy Suite 1400 Houston, TX 77027 888.385.6928 Leesburg 608 South King St. Suite 1701 Leesburg, VA 20175 571.403.5612 Memphis 6000 Poplar Avenue Suite 150 Memphis, TN 38119 800.726.0557 Nashville 3000 Meridian Blvd. Suite 180 Franklin, TN 37067 866.490.7949 New York 527 Madison Avenue 10th Floor New York, NY 10022 212.402.2100
Equity Research
Director of Research James L. Dobson 212.402.2059 [email protected] Chief Market Strategist Arthur Hogan 212.402.2056 [email protected] Consumer Restaurants Robert M. Derrington 615.567.2087 [email protected] Collin Carpenter 615.567.2086 [email protected] Diversified Industrials Environmental Services/Energy Waste Michael E. Hoffman 410.369.2620 [email protected] Brian J. Butler, CFA 410.369.2614 [email protected] Industrial Distribution Brent D. Rakers, CFA 901.251.2236 [email protected] Anjali R. Voria, CFA 901.251.2238 [email protected] Transportation Nicholas Bender, CFA 901.251.2230 [email protected] Energy Exploration & Production Irene O. Haas 713.403.3980 [email protected] Exploration & Production/Onshore Oilfield Services Jason Wangler 713.403.3985 [email protected] Master Limited Partnerships Abhishek Sinha 713.403.3989 [email protected] Utilities/Power Michael Bates 212.402.2057 [email protected] Financial Services Mortgage REITs/BDCs Merrill Ross 703.669.9255 [email protected] Carmen Bellacasa 540.277.3371 [email protected] Equity REITs Merrill Ross 703.669.9255 [email protected] Craig Kucera 540.277.3366 [email protected] Regional Banks Kevin Reynolds, CFA 615.567.2085 [email protected] Technology, Media & Telecommunications (TMT) Cable/Satellite Entertainment Matthew Harrigan 303.965.7966 [email protected] Communications & Networking Equipment Matthew S. Robison 415.572.0936 [email protected] Internet & Social Media Blake T. Harper, CFA 410.369.2624 [email protected] Institutional Equity Sales Manager of Institutional Equity Sales Brooke E. Hrimnak 410.369.2609 [email protected] Beth Adams 972.772.5066 [email protected] Clifford Athey 410.369.2627 [email protected] Greg Brown 303.260.7902 [email protected] Sally Chandler 901.259.9437 [email protected] Brett Chiles 901.259.9436 [email protected] James Donovan 617.892.7222 [email protected] Gregory Glatt 410.369.2633 [email protected] Thomas Hadley 303.260.7905 [email protected] Haywood Henderson 901.259.9438 [email protected] John Hohweiler 410.369.2610 [email protected] Blake Kukar 901.259.9411 [email protected] Brian Ludwig 617.892.7225 [email protected] James L. Myers III 212.402.2061 [email protected] Kyle Norton 212.402.2060 [email protected] Kristi Papanikolaw 212.402.2058 [email protected] Christina Rosso 212.402.2055 [email protected] Thomas S. Stephens 410.369.2602 [email protected] Claudette Teti 617.892.7224 [email protected] Institutional Equity Trading Director of Institutional Equity Trading Stephen C. Iskalis 303.260.7901 [email protected] John Belgrade 888.257.4152 [email protected] Chuck Berry 303.965.7961 [email protected] Erik Briggs 410.369.2611 [email protected] Trip Carey 617.892.7220 [email protected] William R. Kitchens 901.259.9439 [email protected] Daniel Muhly 410.369.2606 [email protected] Jonathan Vonder Linden 212.402.2062 [email protected]