HighPoint Resources Corporation (ticker: HPR) reported a net income loss of $24.9 million, or $(0.20) per share for the first quarter of 2018. HighPoint produced 1.91 MMBoe in the quarter, which was at the midpoint of its guidance range of 1.8-2.0 MMBoe.
Wattenberg
For Q1 2018, the NE Wattenberg produced 20,845 BOEPD (59% oil), representing 47% growth over the first quarter of 2017. The NE Wattenberg oil price differential averaged $2.42 per barrel less than WTI.
Drilling and completion cycle times improved by 7% to approximately 16 days, driven by a 14% improvement in completion times (frac and drill out days). During the quarter, HighPoint averaged 4.2 days per well to frac a five-well DSU that included over 400 frac stages being completed.
Hereford
Pro forma production sales volumes for the first quarter of 2018 averaged approximately 3,820 BOEPD (76% oil) and the oil price differential averaged $2.08 per barrel less than WTI.
HighPoint said drilling operations were initiated in April on DSU 11-63-14, which includes ten XRL wells. The wells should be placed on initial flowback during the third quarter of 2018.
Additionally, a full-time completion crew began operating in April, and completion operations began on previously drilled, but not completed, XRL wells. The wells will incorporate optimized completions, including controlled flowback methods, and are should be placed on initial flowback during the second quarter of 2018.
The focus of the 2018 development program will be on full DSU development to maximize drilling and completion efficiencies, the company said.
CapEx
Capital expenditures for the first quarter of 2018 totaled $112.1 million and the company operated two drilling rigs during the quarter. Capital projects included spudding 20 extended reach lateral (XRL) wells in the NE Wattenberg and placing 22 XRL wells on initial flowback.
HighPoint said capital expenditures included $98.1 million for D&C operations, $0.5 million for leaseholds and $13.5 million for infrastructure and corporate assets.
Current operations
The company is currently operating three drilling rigs in the DJ Basin with two rigs in the NE Wattenberg and one rig in Hereford. HighPoint expects that the three-rig program will drill approximately 120-125 gross XRL wells in 2018. Two completion crews will be utilized in 2018 and the company said it has the ability to add a third completion crew, as necessary, based on the timing of well completions.
HighPoint anticipates that it will adjust the drilling program in the third quarter to include two rigs in Hereford and one rig in the NE Wattenberg.
Guidance
Overall, the company’s 2018 and 2019 operating guidance remains unchanged. However, HighPoint did outline some Q2 expectations:
- Capital expenditures of $500-$550 million, unchanged
- Second quarter capital expenditures are expected to total $135-$145 million
- Pro forma production of 11.0-11.5 MMBoe, unchanged
- Second quarter production sales volumes are expected to approximate 2.4-2.5 MMBoe, which represents an approximate 11% sequential increase from the first quarter of 2018
- Second quarter production is expected to be weighted approximately 60% oil
- Lease operating expense of $28-$32 million, unchanged
- General and administrative expenses of $36-$40 million, unchanged
- Gathering, transportation and processing costs of $5-$10 million, unchanged
- Unused commitment for firm natural gas transportation charges of $18-$19 million, unchanged
Conference call Q&A excerpts
Q: You have eight DUCs up in Hereford, as you bring them on with the flowback, do you expect to see a similar kind trait for those wells kind of taking 90 or so days to kind of reach peak rate?
And as you move to a second rig there, will both rigs basically be focused on effectively pad drilling or do you have some acreage capture or anything like that that you’ll be working on up in that area?
CEO R. Scot Woodall: The way we’re modeling is about 90 days to get to a kind of peak production, and obviously this is going to be our first attempt at this. And so, I’m sure we will tweak as we go, but that’s currently the way we’re modeling it.
I think we just plan on putting the rigs and drilling the entire drilling spacing unit, and actually, the way that the plants lined out is the drilling spacing units are side by side and we just continue to move across the acreage position, and we’re starting kind of right in the heart of the Hereford Field, right where the Summit gas plant is, and so it minimizes infrastructure spending as well.
Q: I want to hit on the CapEx for the quarter… Was that more than you all originally planned or was the timing shifted for the first quarter, can you maybe talk about that a bit?
Woodall: It really was a timing deal. And so, the way we budget things is, we set a capital budget, and we think we’re going to spend it evenly throughout all four quarters. And an opportunity arose in Q1 where we could buy five used compressors at really a great deal. And so, as you know, we use these compressors to run our gas lift operations, and so we ended up buying all five of them in Q1 because it was just a great price and a great transaction for us.
And typically we will spread those purchases out over four quarters. So, the actual facilities or infrastructure budget is going to be the same for the year. We just kind of spent the majority of it in Q1, and it was just kind of one of those deals that you just – it was too good to pass up, and we just try to go ahead and pull the trigger and do it.
Q: Two questions on the Hereford asset, is there something you’ll need to see before you bring up that second rig?
And then, two, I know EOG is drilling kind of over the border in Wyoming. Have you all participated in any of those wells and how does that compare to your acreage at Hereford?
Woodall: I think we’re comfortable with the technical assessment of the Hereford Field. And so, we are striving as quick as we can to put the second rig up there because we think the rate of returns are very strong. And so, really it’s just more of a logistical deal of getting permits and spacing and all those kind of things that just will take us a couple more months before we’re able to execute on that.
In regards to the EOG drilling and the things going on in Wyoming, yeah, historically we have participated in some of the EOG development, and like I say, three to five wells perhaps a year. So we do obviously have access to information on those wells, how they’re completed and how they’re performing. And they’re great wells.
And so, we do expect the Hereford to perform very similar to the Fairway field, because the geology is very consistent as you map the two areas across. If you look at the early short lateral results back in 2009-2010, the Hereford Field short laterals compared very favorable to the Fairway field’s short laterals.
And if you look at the first seven wells or so, Fifth Creek did the two modeling laterals and newer completion technologies on their 30-day IPs compared very favorable to the Fairway field. So, we think it’s going to be very similar, and the performance will be very similar and obviously we’ll continue to tweak things with our completion techniques and all.
But we’re excited about it all, and I think it was a great accomplishment to get a frac fleet up there and a drilling rig up there and in early April and we’re all anxious to see those results.
