Energen Corporation says that it will incur in the 3rd quarter of 2010 a non-cash write-off of unproved capitalized leasehold associated with the remainder of its Alabama shale leasehold. The non-cash charge will total $14.4 million after-tax ($23.2 pre-tax), or 20 cents per diluted share.

The decision came after the company determined that the flow rates from a shallow Conasauga interval and from a multi-stage completion in the Chattanooga shale were insufficient to support economic development. In the Conasauga interval found at depths of 3,000 to 4,000 feet, initial flow rates decreased quickly to non-economic levels; no meaningful flow was generated from the Chattanooga shale formation that was tested across a horizontal length of 3,000 feet at a vertical depth of approximately 7,500 feet.

This write-off removes from the balance sheet all capitalized unproved leasehold costs associated with Energen's Alabama shales exploration. In the second quarter, Energen wrote off $10 million after-tax, or 14 cents per diluted share, of leasehold associated with the deep, mushwad, Conasauga shale.

"Our efforts did not yield the results we had hoped for," said James McManus, Energen's Chairman and Chief Executive Officer. "Ultimately, we believe the shales we tested are of poor reservoir quality and, as a result, will not support economic production.

"Because of the way in which we pursued the Conasauga and Chattanooga opportunities in Alabama, we were able to get an essentially 'free' look at these intriguing shales," McManus said. Energen recorded a $55 million after-tax gain in 2006 following the sale of one-half of its then-200,000 acre lease position to Chesapeake Energy Corporation. Energen's subsequent investment in leasehold, drilling, and completion approximates the gain.

"Success was never guaranteed, and I believe we pursued the opportunities presented by Alabama shales in our characteristic, risk-minimizing fashion," McManus said.

Tags: Energen Corporation