Non-Op Epsilon Taps Peak’s PRB Wells as Next Big Growth Driver
Epsilon Energy is acquiring Peak E&P’s operated asset in the core of the Powder River Basin, one of the more challenging and enigmatic U.S. plays. Epsilon will lean on the Peak team’s 15 years of in-basin experience, Peak CEO Jack Vaughn told Hart Energy.
For Epsilon Energy, historically focused on a non-operated portfolio, the purchase of Peak Exploration and Production opens the door to E&P operations in the Powder River Basin with an experienced team.
Epsilon recently announced agreements to acquire and its affiliates in the core of the Powder River oil play. Peak E&P LLC and Peak BLM Lease LLC, collectively known as Peak, are majority owned by Yorktown Energy Partners' funds.
The acquired Peak assets include 40,500 net acres primarily in Campbell, Converse and Johnson counties, Wyoming. Production averaged around 2,200 boe/d (56% oil, 44% gas) in the second quarter. The transactions are expected to close in the fourth quarter.
Peak is led by Chairman and CEO Jack Vaughn, who will join the Epsilon board after closing. Vaughn and Peak have a long track record of building oil and gas businesses and entered the Powder River in 2012.
Vaughn told Hart Energy that the combination with Epsilon creates mutual advantages. It provides Epsilon with a new engine for durable production growth, and gives Peak the capital momentum to accelerate oil drilling in the Powder.
“One of the things we bring to the table is a very strong operating team—a lot of integrity, experience and, frankly, they’re all dedicated to the entity,” Vaughn said.
The Peak team was among the leaders in testing Powder River’s multiple stacked benches with horizontal drilling techniques. Vaughn knew much about the target formations: He started his career in Midwest, Wyoming, in 1968, drilling vertical wells in the Muddy and Minnelusa formations.
Peak’s original thesis was to drill horizontal wells targeting the Shannon Formation on the fringes of the legacy Hartzog Draw Field in Campbell County, Wyoming, Vaughn told Hart Energy in June.
Epsilon said it sees upside in nearly all the stacked zones, including the Teapot, Parkman, Sussex, Shannon, Niobrara, Turner and Mowry reservoirs. Epsilon estimates 326 net viable locations across 4,000 ft of reservoir targets.
Peak holds the most upside in the Niobrara and Mowry shales, the most repeatable targets across the sprawling basin.
During an Aug. 14 earnings call, Epsilon CEO Jason Stabell said the company’s near-term drilling will focus on the shallower Parkman bench, “a semi-conventional reservoir with half-cycle economics that rival anything in our existing portfolio.”
“We estimate 14 net Parkman 2-mile laterals on the position with opportunities to add incremental interest via pooling and leasing,” Stabell said.
Epsilon is adding a sizable Powder River asset near other major producers, including EOG Resources and Devon Energy.
The area is a hotspot for drilling activity, targeting the Parkman, Turner, Niobrara and Mowry formations.
Horizontal drilling around Peak’s acreage has focused on the Parkman, Turner, Niobrara and Mowry benches. (Source: Epsilon Energy)
For a small company, Peak has drilled some big wells. Take the four-well Iberlin Fed pad, located on the century-old Iberlin Ranch in Campbell County.
Iberlin Fed included four 2-mile laterals targeting the Shannon, Turner, Niobrara and Mowry formations.
Epsilon highlighted three of Peak’s top Powder River wells:
Stoddard Fed 1-21MH, targeting the deep Mowry Shale, which came online in January 2015 with a 3,304-ft lateral. Peak production was 787 boe/d, with a 12-month average of 45 boe/lateral ft (29% liquids);
Iberlin Fed 1-31-30TH, targeting the Turner Formation, which came online in May 2022 with an 8,318-ft lateral. Peak production was 1,014 boe/d, with a 12-month average of 29 boe/lateral ft (80% liquids); and
Bridle Bit Fed 2-19-18TH, targeting the Turner Formation, which came online in September 2019 with a 9,217-ft lateral. Peak production was 1,413 boe/d, with a 12-month average of 49 boe/lateral ft (20% liquids).
Peak’s portfolio is heaviest in Campbell County, but around 30% of the priority inventory Epsilon has identified “is currently affected by a drilling moratorium in Converse County, Wyoming.”
A federal court ruling last year halted new permits for a massive 5,000-well drilling project in the Powder River’s core, citing flawed groundwater modeling data. Industry and state officials are hoping for a resolution under the Trump administration.
Epsilon could issue additional consideration to Peak and Yorktown “subject to the ability to access” the affected Converse County acreage, per the announcement.
Epsilon expects Powder River drilling “to develop into a meaningful percentage” of its capex over time, Stabell said. The company continues to play in the non-op market in the Marcellus Shale, the Permian Basin, the Midcontinent and in Canada.
Last year, Epsilon expanded through four asset acquisitions, including producing and undeveloped interests in Ector County, Texas, and significant acreage positions in Alberta, Canada, with a $7 million drilling carry commitment. In 2023, the company acquired interests in wellbores in Eddy County, New Mexico, and additional acreage in Ector County, Texas.
And while the non-operated model can generate substantial returns, it comes with limitations.
“One of the problems to be non-operated is the only way you can control your growth is via acquisitions,” Vaughn said.
Otherwise, the company is essentially waiting for revenue checks or AFEs (authorizations for expenditure) from the operator before any new activity moves forward.
“We’re giving them an operating entity that’ll provide the growth forward,” Vaughn said. “We think it’s going to be a good fit.”
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