WPX’s Entry into the Permian Basin
Last year, WPX announced a game-changing transaction to acquire assets in the core of the oil-rich Permian Basin. The purchase of RKI Exploration & Production, LLC, is transforming WPX as a company and puts us in the sweet spot of oil production in the continental United States.
WPX’s position is in the Permian’s Delaware Basin represents an estimated 1.1 billion barrels of equivalent net resource potential. The Delaware has numerous stacked pay reservoirs in a column that’s almost two miles deep with layers of rock stacked up, in plain speak, like a pile of pancakes.
When WPX acquired RKI, the area came with existing production from 10 of 12 prospective benches in the Delaware Basin that include the Wolfcamp, Bone Spring, Avalon and Delaware Sands intervals.
WPX expects these intervals to experience the greatest rate of advancement for months and years to come.
“The first thing is the geology,” said Clay Gaspar, WPX’s senior vice president and chief operating officer. “If you don’t have the rocks and you don’t have the oil and gas in the right place, nothing else matters.”
But WPX wasn’t looking to acquire a fully developed, well-honed machine. It wanted something to build upon.
“We wanted to enter an area where we could add incremental value, apply our operational and marketing skills and deliver differential value,” Gaspar said. “We have some high-class neighbors in a high-class neighborhood.
“My conviction regarding the quality and scale of the Delaware has only grown stronger eight months into our ownership in the basin,” Gaspar added.
The Permian’s stacked layers of rock have been producing since the 1920s. Now, industry technology has advanced so we can produce hydrocarbons from multiple intervals from a single location.
“It’s very advantageous not just to have good rocks but multiple horizons within one area,” Gaspar said. “If you have one zone, it’s very black and white. But with this play in the Permian, I have a high degree of confidence that many of the zones will work out. “
Privately-held RKI entered the basin to develop the shallower Delaware Mountain Group sands and developed a highly economic vertical drilling program said Robert Revella, WPX’s vice president of geosciences.
“While RKI was focused on the Delaware sands, the industry was moving toward drilling horizontal Wolfcamp and Bone Spring wells in the central part of the basin,” Revella said.
“RKI had positive results from testing and delineating their acreage position after other operators were reporting significant results in the Avalon, Bone Spring and Wolfcamp zones.”
WPX leadership also appreciated other qualities that made the Permian attractive: existing gas gathering and water infrastructure, the ability to operate on private land, and the history of local support for industry.
The Permian complex is comprised of several basins, or regions, including the Midland and Delaware.
WPX is focusing on the Delaware Basin, marked by vertical shales, siltstone and sands in layers, stacked on top of each other in 16 formations.
“The stratigraphic column of the Delaware Basin is rich with productive formations,” Revella said. “On our position, we see a 9,200-foot hydrocarbon-charged column with production already established from 10 benches or zones.”
Those include the Bell, Cherry and Brushy Canyon sands of the Delaware Mountain group, the upper and lower Avalon Shale, the second and third Bone Spring formations, and the Wolfcamp X-Y, A and C.
WPX has identified two of those areas – Wolfcamp and Bone Spring in Loving County, Texas – as the most economic in a challenged commodity price environment.
Getting started in the basin
WPX hired Matt Hinson to serve as vice president of the Permian asset. Hinson’s previous experience working in the STACK play in the Anadarko Basin gives us a competitive advantage going into the basin. He’s focused on building the right team, providing a fresh perspective and hitting the ground running.
Brad Musgrove, reservoir engineering manager, said WPX is identifying and testing areas that will produce hydrocarbons for long-term value.
“Our job is to discover how we optimize what we have among all these pay areas, then developing the right sequencing so we make sure we’re not interrupting a different layer,” he said.
WPX drilled eight Wolfcamp A wells (gross) in the Delaware Basin in the first quarter, reducing drilling times by 10 percent vs. a year ago to an average of 34.8 days per well. The company’s vision is to reach 20 days per well in the Wolfcamp.
Delaware production averaged 17.4 Mboe per day in the first quarter, up 6 percent vs. the sequential quarter. Notably, WPX’s oil production increased 32 percent vs. the sequential quarter.
Subsequent to the close of the first quarter, WPX completed the Lindsay 2-4H well in the Wolfcamp A that achieved a rate of 2,060 Boed at a flowing casing pressure of 3,700 PSI during initial production.
The 2-4H follows another Lindsay Wolfcamp A well – the 16-2H – completed in February that posted 30-day production averaging 1,342 Boed at a flowing casing pressure of 3,960 PSI. Both of the Lindsay wells represent early-time production records for WPX’s 1-mile Wolfcamp wells using 1,500-pound completions.
WPX’s first completion in the Delaware using 2,000 pounds of sand per foot – the Haley 36-1H – now has cumulative production of 121 Mboe through 120 days. The well is averaging 73 percent oil. Production at the end of April was 868 Boed.
The company plans to deploy up to three rigs in the basin this year and has flexibility to adjust the activity level based on commodity prices.
We’re working to reduce costs in various disciplines – we lowered the day rates by 25 percent by renegotiating with rig vendors to ensure we were at market, said Tom Hellman, vice president of drilling and completions.
“We’re also in the process of moving some of our existing rig contracts out to the Permian – it’s a great deal for us because we save about $6 million in standby charges,” said Hellman. “And these rigs have the innovation and technology that is as good as what we have been working with.”
WPX has already reduced D&C costs by more than $1 million per well, with the goal of reaching a target cost of $5 million per well by the end of this year, including facilities and artificial lift.
Working to advance and improve completions also is getting a lot of attention.
“We’re going from 1,000 pounds-per-foot to 2,000 pounds-per-foot completions. We’ve already trialed 1,500 pounds-per-foot wells,” Hellman said. “We want to go to the limit and see what happens. We’re also going to veer away from using gel, which is a little aggressive. You get a higher pump rate with slick water.”
This process using slick water will support the larger completions, and the team is confident in taking a bold approach due to its cumulative experience. WPX also is evaluating the potential to drill up to six two-mile laterals in 2016.
“Sometimes in our industry we tend to take baby steps to find the answer. But because our leadership team has done this so many times, and we know the direction of where we’re going, we decided to jump on the other side of diminishing returns and see where it gets us,” Gaspar said.
Even though the industry is managing through lower commodity prices, WPX’s ability to ramp up when the economics are more favorable is key.
“Being able to scale up and press on the accelerator and quickly move capital to extract value is critical,” Gaspar said.
“As odd as it sounds, low oil prices have helped us accelerate change. We’ve upgraded our portfolio, strengthened our staff with world class talent, and we’re changing our processes rapidly.
“Because we have fewer rigs drilling and fewer wells to work on for the time being, we can focus a lot on process and organizational things that are so critical to success.”