Permian Basin Activity Highlights: December 2016

Low oil and gas prices and profit potential spurred companies to spend more than $20 billion so far this year for Permian Basin acreage—with no signs of slowing in 2017.

An IHS Markit report noted that the Permian Basin currently has five or more pay zones and well economics that can generate high enough returns to be widely economic at oil prices around $45 per barrel (bbl) or less.

“From an M&A perspective, the Permian Basin is hotter than the Fourth of July in Midland,” Andrew Byrne, director of energy company and transaction research at IHS Markit, said in the report. “The Permian area is now considered the top U.S. onshore liquids region, and this popularity is driving an increase in deal flow in the area.”

Byrne said the increase of A&D activity in the Permian has been quite dramatic. As a percentage of total U.S. deals, Permian deals have risen to 40% year-to-date from 7% in 2011, he said.

“At 40% of total U.S. deal values, the Permian is now the premier M&A target in the U.S.,” he added.

For example, RSP Permian Inc. (NYSE: RSPP) recently dropped $2.4 billion for the acquisition of Delaware Basin acreage.

On Oct. 13, RSP said it acquired 41,000 net acres in Loving and Winkler counties, Texas, from Silver Hill Energy Partners. The company expects to complete the transaction in first-quarter 2017.

In the Midland Basin, SM Energy Co. (NYSE: SM) said Oct. 18 it purchased 35,700 net acres from QStar LLC, which more than doubled SM’s Permian Basin position. The transaction is expected to close December.

RELATED: SM Energy Offering 11% Of Shares For Midland Bolt-On, Capital

Other recent notable deals in the Permian include:

• In October, Occidental Petroleum Corp. (NYSE: OXY) spent $2 billion on the acquisition of 35,000 net Delaware Basin acres from multiple undisclosed parties. The deal, which includes other Permian interests, doubled the company’s holdings in the basin.
• In November, Noble Energy Inc. (NYSE: NBL) increased its Delaware Basin holdings by about 18%, adding another 150 well locations in Reeves. Analysts estimate the transaction value at $300 million to $350 million.

Apache Corp.’s (NYSE: APA) discovery of the Alpine High Play, centered in Reeves County, Texas, within the Delaware Basin has also ignited interest in the region.

As a result of the discovery, Apache estimates its acreage holds an in-place hydrocarbon resource of 75 trillion cubic feet (Tcf) of gas and 3 billion bbl of oil in Barnett and Woodford shales, with additional oil potential in the shallower Bone Spring, Wolfcamp and Pennsylvanian.

The discovery lies within Apache’s position of more than 300,000 contiguous net acres the company secured at about $1,300 per acre, according to a press release.

In comparison, Raymond James analysts estimate that RSP Permian is paying about $43,610 per acre in its recent Delaware Basin acquisition.

1. Callon Petroleum: 12/12/16

Callon Petroleum Co.’s (NYSE: CPE) operating company completed a Wolfcamp discovery in Howard County, Texas (RRC Dist. 8).

The well was drilled horizontally to 16,538 feet on a 479.5-acre Midland Basin lease in Section 31, Block 33, T3N, T&P RR Co Survey, A-349.

The #1H A Silver City Unit pumped 2,241 bbl of 38.1-degree-gravity oil, 1.309 MMcf of gas and 1,577 bbl of water per day. Production is from a fracture-treated zone at 9,067 feet to 16,430 feet. The lateral bottomed about two miles to the northwest in Section 19.

Additional information is currently not available from the Natchez, Miss.-based operator.

2. Concho Resources: 12/9/16

COG Operating LLC reported results from two Delaware Basin-Wolfbone discoveries in Lea County, N.M.

COG Operating is a subsidiary of Midland, Texas-based Concho Resources Inc. (NYSE: CXO).

Located in Section 29-24s-35e, the #2H Viking Helmet State Com well flowed 1,993 bbl of oil, 2.255 MMcf of gas and 1,750 bbl of water per day. The well was tested on a 34/64-inch choke from acidized and fracture-stimulated perforations at 12,407 feet to 19,380 feet with a flowing tubing pressure 1,325 pounds per square inch (psi).

The 19,480-foot horizontal well was drilled out of a 12,800-foot vertical pilot hole. The leg bottomed about 1.5 miles to the south in Section 32 at a true vertical depth of 12,457 feet.

Within two miles to the southwest, the #2H Fascinator Fee Com well initially flowed 1,031 bbl of crude, 1.149 MMcf of gas and 2,798 bbl of water per day from acidized and fractured perforations at 12,665 feet to 19,710 feet. Gauged on a 20/64-inch choke, the flowing tubing pressure was 3,150 psi.

The lateral was drilled to 19,840 feet, 12,360 feet true vertical, in Section 30-24s-35e. The well bottomed within two miles to the north in Section 19.

3. Apache Corp.: 12/8/16

Apache plans to drill more wells at its Alpine High Play in the Delaware Basin portion of Reeves (RRC Dist. 8).

The #1H and 3H Alta well will be drilled to 16,000 feet from offsetting surface locations in Section 40, Block 13, H&GN RR Co Survey, A-4574, according to IHS Markit.

In adjacent Section 35, the #1 Grindelwald well will be directionally drilled and plugged. To the southeast will be #3H and #5H Weissmies wells.

The Houston-based company has also filed permits for #1H, #2H, #3H and #5H Cherokee State wells in Section 16, Block 57, T7S, T&P Survey, A-2699. All four horizontal tests will bottom to the north at proposed total depths of 16,000 feet.

The offsetting surface locations are about 2.5 miles west of the recently completed #1H Mont Blanc well, which flowed 17.068 MMcf of gas and 24 bbl of oil per day from Woodford.

4. Mewbourne Oil: 12/7/16

Two Wolfcamp gas producers in Eddy County, N.M., were announced by Mewbourne Oil Co., based in Tyler, Texas.

The #1H Foreigner 33-4 W2JO Fee Com well was tested flowing 4.575 MMcf of gas, 430 bbl of 55.1-degree-gravity condensate and 2,433 bbl of water per day. Production is from fracture-treated perforations at 10,680 feet to 17,541 feet. The 17,575-foot well is in Section 33-23s-28e, and the lateral bottomed to the south in Section 4-24s-28e with a true vertical depth of 10,525 feet. Tested on a 26/64-inch choke, the flowing casing pressure was 2,950 psi.

Within one mile to the west, #1H Foreigner 33-4 W2LM Fee flowed 2.854 MMcf of gas, 305 bbl of 55.1-degree-gravity condensate and 2,490 bbl of water per day from 10,588 feet to 17,672 feet. The well was drilled to the south to 17,660 feet, 10,520 feet true vertical. It was tested on a 22/64-inch choke, and the flowing casing pressure was 3,775 psi.

5. Cimarex Energy: 12/6/16

Denver-based Cimarex Energy Co. (NYSE: XEC) completed three offsetting horizontal Wolfcamp wells in Culberson County, Texas (RRC Dist. 8), IHS Markit reported.

The Ford West Field ventures are on a 1,007-acre Delaware Basin lease in Section 34, Block 59, T2S, T&P RR Co Survey, A-5085.

The #2H Gato Del Sol 34 Unit flowed 1.992 MMcf of gas, 377 bbl of 47.6-degree-gravity oil and 2,104 bbl of water per day from fracture-stimulated perforations at 9,176 feet to 16,419 feet. Tested on a 32/64-inch choke, the flowing tubing pressure was 1,365 psi, and the shut-in tubing pressure was 4,510 psi. The well was drilled to 16,468 feet, and the lateral bottomed about two miles to the south in Section 39 at a true vertical depth of 9,077 feet.

A parallel lateral at the #3H Gato Del Sol 34 Unit runs west of #2H and flowed 1.931 MMcf of gas, 777 bbl of 46.6-degree-gravity oil and 2,616 bbl of water per day from fractured perforations at 8,980 feet to 16,155 feet. The well was drilled to 16,206 feet, 8,936 feet true vertical depth, and tested on a 34/64-inch choke with a flowing tubing pressure of 1,151 psi and a shut-in tubing pressure of 4,427 psi.

About one-quarter mile to the east of #2H and #3H, the south-trending #1H Gato Del Sol 34 Unit flowed 3.4 MMcf of gas and 700 bbl of condensate per day from perforations at 9,298 feet to 16,135 feet. Drilled out of an 8,680-foot pilot hole, the well was drilled to 16,255 feet and bottomed about one mile to the south at 8,965-foot true vertical.

6. Clayton Williams Energy: 11/16/16

A horizontal Hoefs T-K Field-Wolfcamp discovery was announced by Midland, Texas-based Clayton Williams Energy Inc. (NYSE: CWEI).

The Delaware Basin producer is in Reeves (RRC Dist. 8) on a 320-acre West Texas lease in Section 33, Block 51, T8S, T&P RR Co Survey, A-4502.

The #1H Collier 34-51 well is flowing 1.39 Mbbl of 41.3-degree-gravity oil, 1.414 MMcf of gas and 2,098 bbl of water per day. It was tested through fracture-treated perforations at 10,727 feet to 17,011 feet and was drilled to 17,162 feet, 1,606 feet true vertical depth. Tested on a 24/64-inch choke, the flowing tubing pressure was 2,420 psi. The bottomhole is more than one mile to the northeast in Section 34.

7. BHP Billiton Ltd. 11/15/2016

Two high-condensate Phantom Field gas wells in Loving (RRC Dist. 8) were announced by Melbourne, Australia-based BHP Billiton Ltd. (NYSE: BHP).

In Section 18, Block 55, T2S, T&P RR Co Survey, A-1309, the #1H State Forest 55-T2-18x19 well is flowing 3.114 MMcf of gas, 815 bbl of 49.1-degree-gravity condensate and 1,733 bbl of water per day. Production is from fracture-stimulated perforations at 10,856 feet to 18,301 feet in the Wolfcamp. The 18,495-foot well has a true vertical depth of 10,781 feet with a one-mile long, south trending lateral that bottomed in Section 19. Gauged on a 1-inch choke, the flowing tubing pressure was 1,262 psi and the shut-in tubing pressure was 3,400 psi.

To the northeast in Section 8, Block 55, T2S, T&P Survey, A-1193, the #1H State Pacific 55-T2-8x17 well is producing 3.174 MMcf of gas, 1,047 bbl of 48-degree-gravity condensate and 2,612 bbl of water per day. The discovery was drilled to 18,655 feet and the true vertical depth is 10,896 feet, with a horizontal leg that bottomed about 1.5 mile to the south in Section 17. The well was tested on a 1-inch choke and the flowing tubing pressure was 1,393 psi and the shut-in tubing pressure was 3,200 psi. Production is from Wolfcamp perforations at 11,056 feet to 18,450 feet.

Larry Prado, activity editor, can be reached at lprado@hartenergy.com.