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Movie buffs hold dear the precept that the first movie in a series is usually the best. That’s not always the case; for example, the second in The Godfather trilogy is regarded by many as the finest. In mid-2003, Denver-based private firm Cordillera Energy Partners LLC was sold to Patina Oil & Gas Corp. for $248 million. The acquisition involved 600 producing wells in the Anadarko, San Juan and Permian basins.

Now Cordillera II is enjoying the limelight. And this particular sequel is on track to rack up even more impressive returns than its predecessor. Cordillera II, formed in December 2004, has focused its efforts in solid, multi-pay areas such as the Texas Panhandle, deep Anadarko and East Texas basins. (It had some properties in the Williston Basin, but divested those.)

At present, the company has 215,000 acres of leasehold and produces 82 million gross (35 million net) cubic feet of gas per day. Its growth is robust, and it expects to double that volume within a year.

Panhandle resource play
Cordillera’s main stage is the Texas Panhandle, and its leading play is the Granite Wash. The company works the thick Granite Wash sequence in Hemphill and Roberts counties, Texas. The wash deposits were formed during Pennsylvanian times when great masses of sediment were shed from uplifts bounding the basin to the southwest. These sediments spread laterally and stacked vertically to create a submarine fan complex composed of interlayered sandstone, siltstone and shale.

Cordillera is developing the more distal regions of these submarine fan deposits, extending such fields as Buffalo Wallow, Hemphill and Mendota basinward. In its area, up to 1,700 feet of sandstone occurs.

Certainly, the Granite Wash has been known to be gas-productive for years, but it was just an understudy to the A-list Morrow sandstones and Hunton carbonates. Now, the Granite Wash is a star in its own right.

“This is the intersection of new capital and new technology with an established producing area,” says George Solich, president. “People have been drilling wells here for decades, but gas prices are now sufficient to drive forward exploration for objectives that were once considered secondary.”

Cordillera’s piece of the Granite Wash has all the hallmarks of a classic resource play, says Jeff Simmons, engineering manager. “It covers a sizeable area, has low dry-hole risk, and is scalable. Activity can be ramped up or down, depending on economic conditions.”

As worthy a performer as it may be, the Granite Wash hasn’t received the acclaim lavished on more well-known resource plays in the Piceance and Fort Worth basins. Nonetheless, its size is staggering. Cordillera has calculated that Hemphill and Roberts counties alone contain between 30- and 40 trillion cubic feet of recoverable reserves, much of which is still entrained in the thick, tight wash sequence.

The Granite Wash reservoirs that Cordillera targets are anomalously underpressured, notes Ed LoCricchio, senior geologist. “Traditional Morrow targets in this part of the basin are overpressured, so shows in the Granite Wash were commonly suppressed and the Granite Wash reservoirs were damaged during drilling of these deeper tests.”

Additionally, the Granite Wash contains lots of feldspars, rich in potassium. The minerals play havoc with log readings, and make it difficult to identify pay with traditional evaluation methods.

Meanwhile, small E&P shops, with modest acreage blocks, have historically worked the region. “These companies historically haven’t had the need or tools to incorporate huge databases in their drilling, to try to extrapolate trends across the region,” says Barry McBride, geologic manager. Cordillera believes that to truly understand the Granite Wash, it had to step back to a widescreen view and gain a regional perspective.

Consequently, one of Cordillera’s competitive advantages is a digital database it has been painstakingly constructing. “We’ve been able to take advantage of recent advances in computer technology that are available to geologists these days,” says McBride. “We use mapping software, rasterized and digital logs and our various digital databases to generate and exploit our reservoir model over a large area.”

Cordillera is working toward an internally consistent correlation system and depositional model that incorporates all Granite Wash wells, and to date has integrated more than 7,500 wells in its database. “Another real added advantage to the Granite Wash play is the multiple stacked-pay potential in the Douglas, Tonkawa, Cleveland and Atoka zones,” says Cal Crawley, completions manager.

Of course, it’s one thing to know where to drill and it’s another to have the correct leases in hand. Cordillera has assembled several large contiguous acreage blocks in its Panhandle plays, not an easy feat in an area with such a sophisticated group of landowners, restrictive lease terms and long history of production.

Another key to successful economic returns in the reservoir are multiple-stage fracture stimulations. Cordillera works from the bottom of the Granite Wash section upward. It typically fracs up to five stages per well, and leaves the rest behind pipe. “A key is to stimulate the wells and get them tied to sales as quickly as possible,” says Kamil Tazi, vice president, engineering and planning.

In Hemphill County, multiple stacked sands are present and vertical wells are the method of choice. Cordillera looks at 1- to 2 billion cubic feet (Bcf) of recoverable reserves for a vertical well, with an initial potential (IP) of 1- to 3 million cubic feet per day. Depending on the number of slickwater frac stages, costs for a typical 12,500-foot Granite Wash test range from $1.8- to $2.5 million.

Although spacing is as close as 20 acres per well in some portions of the play, such as Buffalo Wallow, Cordillera has expanded the productive region dramatically while drilling no more than a single Granite Wash producer per 640-acre section. This activity has set the stage for significant infill development on 80-acre spacing, and eventually on 40- and 20-acre spacing.

To date, it has drilled 28 vertical wells in Hemphill County and has three rigs at work. An additional rig will be added shortly.

In adjoining Roberts County, Cordillera targets Granite Wash where it contains only one or two benches and appears to be a great application for horizontal wells. “Our philosophy for tight reservoirs is to use horizontal wells to enhance the drainage radii of the wells,” says Tazi.

Granite Wash horizontals extend 1,500 to 2,000 feet into the reservoir and are expected to recover 2 to 4 Bcf per well. Cordillera has two horizontal wells currently drilling in Roberts County, and it plans to frac the laterals in both of those.

The Texas Panhandle has turned into a blockbuster play for Cordillera, and it plans to expand its activity there. “We’re active on all fronts—in producing property acquisitions, land acquisitions, leasing and drilling,” says Solich.

East Texas opportunities
Another major stage of operations for Cordillera is East Texas, where the company works a variety of geographic areas and plays from Travis Peak, Pettet and James Lime in Southern Pine Field in Cherokee County to Cotton Valley Lime and Cotton Valley Sand in South Gilmer Field in Upshur County. This fall, Cordillera will debut a drilling program in Coon Creek Field, also in Cherokee County.

“Even with the amount of activity and industry focus on the East Texas Basin, we are still finding significant opportunities,” says Solich. These range from recompletions to refracs to drilling opportunities in zones that are above or below historical production. “We like to mitigate our risk by working in known basins in existing fields. Essentially, we specialize in field rejuvenation.”

In Southern Pine, historical production has been from Travis Peak. Although production to the north has been developed on 80-acre spacing, several of Cordillera’s gas units still only have one well per 640-acre unit. “This year we will focus on expanding Travis Peak production with vertical wells,” says McBride. “We’d like to get to at least one well per 160 acres.”

To date, Cordillera has drilled three wells in Southern Pine, and will drill another this fall. Vertical wells cost $2.5- to $2.7 million each, depending on the number of fracs. Travis Peak wells make 1 to 4 Bcf each, and IPs generally ranging between 1- and 1.5 million cubic feet per day.

The area has significant upside potential in Pettet as well. Cordillera’s properties are adjacent to Houston County’s Decker Switch Field, where horizontal Pettet activity is booming.

“This is another area where we think horizontal technology has application. Here, horizontal wells will allow us to encounter secondary porosity such as fracture swarms,” says Tazi. In this type of application, there can be order-of-magnitude differences between performance of vertical and horizontal wells.

“It’s a very flashy area, and if you hit fracture-swarms right you can get some incredible wells.” Horizontal well costs about $3.8- to $4 million each—for a single, unstimulated lateral. Estimated ultimate recoveries for horizontal Pettet wells in Southern Pine are 2 to 4 Bcf, with IPs from 3- to 4 million cubic feet per day.
In its South Gilmer area, the company drilled six wells last year. For 2007, it plans a horizontal and a vertical test in that field. The horizontal will target Cotton Valley sands, which are similar in nature to the recent horizontal successes drilled by Devon Energy, Goodrich Petroleum and Anadarko Petroleum in Panola and Harrison counties.

Third in a trilogy
Now Cordillera is launching another version of itself. Cordillera III was capitalized in May, and it will work the Anadarko and East Texas basins alongside Cordillera II.

“We have two companies going at once, with $200 million in equity in Cordillera II and $500 million in equity in Cordillera III,” says Tad Herz, executive vice president and chief financial officer. That’s an impressive jump from the $10-million commitment that launched Cordillera I in February 2000.

Each company has had a very strong relationship with Houston- and Dallas-based private-equity provider EnCap Investments LP. “EnCap has been our primary equity partner, and we have a great partnership with EnCap and our institutional investors.”

Cordillera I was formed with 100% EnCap financing; Cordillera II has 50% EnCap funding and 50% funding from institutional investors that are invested in a series of EnCap funds, and III is structured in a similar manner to Cordillera II. Indeed, all of the investors in Cordillera II, save one, have invested in III. Additional investors have also come onboard in the third wave.

All three Cordillera entities have also relied on a strong credit facility of six banks led by J.P. Morgan Chase. “We made the decision to form Cordillera III before we exited Cordillera II because we didn’t want to lose people, momentum or opportunities,” says Solich. “It’s a way of continuing to create value as a private-equity-sponsored company.”

At present, Cordillera III has acquired acreage and will soon begin drilling. In the Texas Panhandle, the company has taken a farm-out from a major operator in Hemphill County, and plans to drill 10 wells on that project shortly. Plans are afoot in East Texas as well, where the company is launching an infill Glenrose development project in Madison County.

“Our strategy with Cordillera II and Cordillera III is the same: to find more value in assets than was there before. We consolidate assets in a few key areas, and we add reserves, production and cash flow,” says Solich. “We bring focus and good science to the table, and we think we buy the right properties, in good fields and in good areas.”

Indeed, the stage is set for another stellar performance by the veteran Cordillera cast.

Copyright 2007 Hart Energy Publishing