Torchlight Energy, the company that hopes to bring the shale oil boom to Hudspeth County just east of El Paso, has received the results from its first test well.
The results are promising, executives say, and the company (Nasdaq: TRCH) is now shopping for a partner to do more testing and ultimately develop a new oil play.
“We are in negotiations over deal terms with several possible partners,” Torchlight Energy chief operating officer Willard McAndrew told El Paso Inc.
The Plano-based company, which survived a brush with bankruptcy last spring, came west in search of oil last year. It leased 168,000 acres in Hudspeth County, mostly from the University of Texas System.
Executives say they believe they have found what they came for – a “significant” new oil field discovery in Texas. The company calls it the Orogrande Prospect.
“We went out and took a chance and got this (test) well drilled, and everything we were looking for and better is there. It is better, thicker and cleaner,” McAndrew said.
The venture is speculative, but Torchlight Energy executives think the results from scientific testing completed this month are enough to entice a big player to drill additional vertical wells to measure the extent of the play. They would also drill horizontal wells to determine flow rates and the reserve potential.
“We have derisked the opportunity,” McAndrew said.
Torchlight Energy is a young company. It started trading on the Nasdaq exchange in December 2013, and now operates in established oil fields in South Texas, Kansas and Oklahoma.
The tests in the Orogrande Prospect were performed by third parties, according to the company. Halliburton conducted most of the log suites and SCAL Inc. did the sidewall core test and analysis.
The technical details of the findings are on the company’s website, www.TorchlightEnergy.com.
What the results confirmed, McAndrew said, is the geology in its Orogrande Prospect reflects that of the Midland Basin farther east. That’s good news for Torchlight, because fracking technology has unlocked large stores of oil in the Midland Basin, which is part of the Permian Basin, one of the oldest oil fields in Texas.
“The recipe is the same,” McAndrew said.
The Orogrande Prospect stretches from the Hueco Mountains to the Cornudas Mountains, and on the surface, it looks like empty desert grassland.
Torchlight’s new 6,109-foot-deep test well was the first drilled in Hudspeth County since three wells were drilled in the area almost a decade ago. But that testing was done before new fracking technology launched a domestic oil boom.
Before Torchlight, that boom had not come any closer to El Paso than Midland and Odessa, almost 300 miles away.
But earlier this year, the company was in financial trouble.
Its stock fell 90 percent in three months, from nearly $4 in September 2014 to 40 cents in January, which put the company in danger of being delisted from the Nasdaq exchange. Executives said they were the victims of a “short attack,” which involves an investor taking a large short position and then trying to drive the stock price down.
As Torchlight’s stock price was plunging, so was the price of oil. The company risked defaulting on its debt.
But Torchlight has apparently managed to turn things around. Executives announced in June that they had raised $9.8 million from private investors to pay off the company’s senior debt. Shortly after that, the company announced it was back in compliance with Nasdaq.
The stock has risen 92 percent since May when the company announced completion of its first well.
“We are in great shape financially right now,” McAndrew said.
Oil exploration sometimes requires a dose of faith, and for McAndrew, oil and faith mix.
“The Lord has worked a miracle,” he said.
Fracking, which involves pumping large amounts of water, sand and chemicals, including some toxic ones, into the ground, has raised concerns among regulators and some environmental groups who believe the technique poses risks to the environment.
Locally, environmental activists who oppose Torchlight’s plans are particularly concerned about the impact fracking could have on local water supplies.
To view logs and core analysis for the Orogrande, visit Torchlight’s website, www.torchlightenergy.com/current-projects/orogrande-project.
Torchlight stock closed at $1.18 on Friday.