4,221 BOEPD from Delaware well, triples Permian production
WPX Energy (ticker: WPX) announced third quarter results last week, showing a net loss of $153 million, or ($0.39) per share. After adjusting for special charges, WPX reported a loss of $40 million, or ($0.10) per share.
WPX produced an average of 112 MBOEPD, up 6% sequentially. Liquids production was 78,100 BPD, a new record for the company. Full year oil production guidance has been raised to a range of 59-62 MBOPD, up from 57-60 MBOPD. WPX expects 2018 production to range from 132-143 MBOEPD, representing an increase of 23% from 2017 at the midpoint.
WPX produced 41.6 MBOEPD from its Delaware Basin properties in Q3, up 12% compared to Q2.
WPX has nearly tripled its Permian oil production since the company entered the Permian in 2015. The company brought 15 wells to sales in Q3, primarily targeting the Wolfcamp A. Several of these wells have had very strong initial production rates. One of the wells in WPX’s Lindsay pad, for example, reported a 24-hour IP of 4,221 BOEPD. WPX expects to see further efficiency gains in 2018, with drilling output per rig increasing. In 2017, the company is expected to drill 515,000 lateral feet using seven rigs.
In 2018, plans call for six to seven rigs drilling 625,000 lateral feet, 20% higher drilling with a flat rig count.
WPX completed its JV deal with Howard Energy Partners during Q3. The company said that the work of the JV is seeing significant progress. The company received $300 million in cash from Howard in October, plus another $49 million in capital reimbursements for infrastructure spending by WPX. Nearly 75% of the planned 50-mile crude oil gathering system has been installed, and is currently carrying 20 MBOPD. The JV is also building the first of two cryogenic trains at a new Reeves County gas processing plant.
WPX has also been experiencing success in its Williston Basin acreage. The company has raised its type curve by 18%, to 1,000 MBOE. Recent wells have significantly outperformed this increased type curve, with the company’s Mandan North well reaching a 24-hour IP of 4,464 BOEPD.
San Juan Basin transaction keeps oil assets
WPX has also announced the sale of its legacy San Juan Basin natural gas assets to private equity-backed LOGOS Resources for a total of $169 million. According to PLS, this position amounts to a net 134,000 net acres, mostly in New Mexico, with 80 MMcfe/d of production and 318 Bcfe of producing proved reserves. There are an estimated 660 drilling opportunities in the acreage, with further upside from vertical drilling into multiple zones. This sale does not include WPX’s San Juan oil assets, which the company will continue to develop.
Q&A from today’s Q3 earnings call
Q: Could you talk a little bit about cadence in the Delaware in 2018, specifically, how are you going to target the area up in Eddy versus down in Culberson, Reeves, Loving?
WPX: Cadence will be dictated by our completion crews and their ability to work through. So, stages per day, number of frac crews, we’re finalizing that right now. Now, the direction of those crews is something that’s – it’s a very, very interesting internal debate. So, as you can imagine, there’s geologic challenges or opportunities, there’s landing zones, there’s different geographic areas. Now, we have a motivation to really take a look at some of the midstream opportunities we have and take that into consideration. And so, there’s a lot that goes into it. I would say that our focus is the Stateline area. It’s our most mature well-delineated, best understood area. And you’ll see a disproportionate share of our rigs focused there.
Second, the central Reeves stuff that we’ve picked up from Panther is on a per foot basis, really some of the best stuff, we have. It competes very, very well, even though most of those will be one-mile laterals, so it’d be an interesting balance. Up into Eddy County, we’ll continue to mature that land position a little bit. We’re watching our neighbors very closely. We’ll do a little bit of work up there, but it’ll fall in behind the other two on priority.
Q: Are you going to continue mostly on Wolfcamp As? I know you’ve tested some Ds. And you’ve in fact, I think, what – I meant, drilled in, what, eight zones, or what have you all have said. Could you talk about sort of developmental versus exploration activity?
WPX: Last year, we really want to make sure we allocated some dollars to understand the different landing zones. And as you mentioned, we tested eight different horizons, all of which were successful. Now, the Ds is an example, a little bit higher gas cut than some of the other opportunities. So, we’ll push that back probably a little bit further behind the Wolfcamp As; the Wolfcamp X-Ys; some of the other zones, Bs Cs and even up in the Bone Spring. I think we need a little bit more – some production time on those wells to really understand shape of the curve, how do their economics really compete.
I can tell you I’m very encouraged, but we know that we have the X/Y and the A as kind of our premier standard go-to. To me, that’s the bar that the other zones really have to surpass. I expect that some will. But for 2018, it’s time to get to work, turn that inventory into cash flow. And at the same time, we’ll continue doing some of the science in the background, really understanding the other zones that we have now producing.
Q: Could you perhaps talk about your philosophy on multi-basin exposure? And perhaps talk about the advantages of being in the Bakken, given the service environment?
WPX: We’ve had a lot of investors ask us whether with our wonderful Delaware position, if we shouldn’t be a pure play Delaware – now, I think that is a very valid question and one that, we, as an organization, and we as a board, continue to pressure test. But I can tell you that at times like we just went through in the last quarter, having optionality from a basin perspective really paid off.
For instance, our impacts from the hurricane were basically – we saw a little bit on the gas and NGL side, but other than that, from an oil perspective, was almost non-existent. And that was primarily, because not just that we’re in multi-basins, but it’s the quality of the acreage in those three basins we’re in, it’s just a differentiator. So, I think that over time, there’s no doubt our inventory in the Gallup is half of what it is in the Bakken. And our Bakken inventory is maybe 10% of what we have in the Delaware, or something like that. So, I think over time as Clay and Kevin have talked about, you’re going to see more and more of our capital continue to funnel into the Delaware.
But at the end of the day, it comes down to returns. The returns are so critical for us certainly over the next few years. And our Bakken acreage is one thing you need to remember. It’s not like most people’s Bakken acreage. Very few people that have got the quality of acreage that we have with the oil cut and the immaturity from a development perspective.
And Clay talked about and showed you the examples of that North Sunday Island. And you drill 20 wells like that in year. We’re very, very excited about the quality of that asset. So, the multi-basins have paid us nice dividends over the last couple of years. And so, I don’t see change in that near term.
