LONG-TERM SOLUTIONS ALREADY UNDER WAY
The Permian Basin is well known for prolific energy production. That makes it one busy place. There's intense demand for contractors, services, equipment and innovative solutions for infrastructure.
A common challenge for nearly every producer is maximizing gas capture, which reduces flaring. The challenges are driven by activity levels, available capacity at processing plants and in pipes, and big IP rates that surprised even the best geologists as new oil wells came online.
WPX is – and has been – at the forefront of implementing solutions to tackle this head on. In fact, our plans go back two years starting with the blueprints for building our own brand new gas processing plant that is now in the midst of a "grand opening" per se.
Along the way, we've also taken ownership interests in new pipes that support takeaway capacity for both oil and gas. These are some of the pieces we've been assembling to create a responsible environmental approach in the Permian Basin.
We also allocated another $30 million in capital for the second half of 2018 to increase the size of flowback equipment and other facilities at the wellhead.
In the meantime, as these solutions are being implemented, our near-term flaring has been temporarily high, to the tune of 10% of our gas volumes in 1Q 2018 and 6% in 2Q 2018. Here's a full report explaining those percentages and why they will be dramatically lower by year-end 2018.
BACKGROUND ON TEMPORARY FLARING RATES
- Recurring interruptions at a third-party gas processing plant which are influenced by the terms of a service contract we inherited when we entered the Permian in 2015.
- We were previously awaiting the startup of our own brand new gas processing plant, which is part of a joint venture we have in the Permian that we formed last year. This plant is now online. Construction was taking place in the first half of 2018.
- Better than expected well results in the first half of this year – with IP (initial production) rates exceeding our geological analysis.
- The need for bigger localized support facilities at the wellhead to handle higher than expected volumes.
- Pad development – completing a large number of wells (7-8) at the same time on the same pad.
- Lack of infrastructure in a few areas outside of our main development area where we needed to drill to meet our drilling obligations under the terms of lease agreements.
REMEDIES PROGRESSING QUICKLY
- First & foremost, the startup of our own gas plant. This is an immediate solution to flaring. Our gas volumes are now flowing through the plant, which has an initial 200 MMcf/d cryogenic gas processing train, with plans to add a second in 2019. This plant was in the works even before we formed the joint venture. We discussed the timetable for the plant’s startup in our 2Q release and during our 2Q webcast.
- Increased capital investment in facilities and infrastructure, per our 2Q capital guidance. This provides more muscle to the ongoing work that was already occurring to accommodate gas volumes. In his 2Q webcast remarks, our CFO pinpointed this figure at $30 million more during the balance of 2018.
- Studying the possibility of changing the cadence of how we bring wells online, such as 4-5 at a time on a pad instead of 6-8. This ultimately doesn’t change the number of wells we expect to complete, just the order or sequence in which we complete them.
- Continued shift to full field development in centralized areas vs. one-off commitments that were required to hold acreage in a series of acquisitions we’ve done in the basin over the past 3 years.
THE BOTTOM LINE MOVING FORWARD
- We care about how we operate, environmentally and financially. WPX has received more than 40 awards for being socially conscious, using best practices, environmental protection, ethics and collaboration on land usage.
- We have outlined steps we take around methane management controls and operations design, which can be seen here, and are a member of industry’s environmental partnership initiative.
- Financially, we’ve invested millions of dollars to install gathering pipe, compressors, the new processing plant and a 20% equity position in a big pipe (Whitewater/Agua Blanca) that supports takeaway capacity from our new gas plant. So obviously, we have a revenue incentive to capture and sell all the natural gas we can.
- The challenges we’ve experienced are short-term. We have immediate and ongoing long-term solutions
- We expect our flaring rates to drop dramatically by year-end 2018
OUR PRESIDENT'S PERSPECTIVE
“We're expanding our infrastructure to scale up water recycling, reduce flaring and generally handle the larger than expected well rates," says Clay Gaspar.
SEE THE FULL TRANSCRIPT
Note: The transcript is from our recent 2Q webcast. All comments regarding our efforts to increase gas capture in the Permian Basin are highlighted in yellow for ease of reference. There are remarks throughout the document, including an expansive discussion on pg. 22-23.