Excited for new completion design, Energen plans $795M to Permian

By Luke Geiver | February 14, 2017

Confident in its Gen3 completion methodology, Energen Corp. intends to ramp-up drilling and fracking activity in the Permian Basin this year. The higher density proppant loading and increased fracture stages per well that are part of the independent exploration and production company’s Gen3 design could push the company’s yearly production totals above its early year estimates.

Between its operations in the Delaware Basin and the Midland Basin, Energen will run 6 to 7 drilling rigs and complete 50 horizontal wells yet to be drilled and an additional 60 horizontal wells that have already been drilled. Although the Gen3 design has thus far proven to help reduce the decline curve of wells that use the completion approach, McManus said his team will never think they have found the optimal completion methodology. “There will always be a lot of experimentation,” he said. “We’ll push the envelope to see how far we can take it in terms of proppant loading and stage spacing,” adding that “anything that is on the cutting edge—we are going to look at it.”

According to the Birmingham, Alabama-based operator, there are no firm long-term drilling or pressure pumping contracts in place for the year, but, Energen expects to be running 7 frack crews throughout most of 2017. The Midland will receive $440 million this year, with the Delaware getting $345 million.

Although the company did not disclose any current plans to add bolt-on acreage, there will be money budgeted and held specifically for a potential acquisition of acreage in either the Delaware or the Midland.

Adding water gathering and disposal infrastructure in the Delaware will also be a priority for investment this year. James McManus, CEO, said the company spends a great deal of time and money on moving water to or from the well site. Energen is working to spud additional saltwater disposal wells while also tying in an older water gathering system with a new one within the Delaware. “In any kind of development scenario there, you are going to have to move a lot of water,” McManus said.

Like many operators focused on the Permian Basin’s many formations, Energen believes it can achieve initial rates of return at $45 per barrel oil prices. At $45/b, the company can achieve a 63 percent to 103 percent IRR on a 10,000 foot lateral drilled into the Wolfcamp of the Delaware Basin core if the well cost $7.9 million. In the Midland Basin, a $7.2 million well drilled in the Wolfcamp with a 10,000 foot lateral could generate a 30 to 47 percent IRR at $45/b.

For 2017 and 2018, Energen has hedged a significant portion of its total oil production volume. At $49.77/b NYMEX, Energen has hedged 6.1 mmbo through oil swaps. Another 4.8 mmbo has been place into a 3-way collar. Through the 3-way collar, the call price is $62.18/b, the put price is $45/b and the short put price is $35/b. When the NYMEX price of oil is above the call price, Energen receives the call price. When the NYMEX price is between the call price and the put price, the company will get the NYMEX price and when the NYMEX price is between the put price and the short put price, Energen will get the put price. If the NYMEX price is below the short put price, the company will get the NYMEX price plus the difference between the put price and the short put price.

Between the Midland and the Delaware, Energen has several thousand wells still left to be drilled. The Midland still has 1,237 remaining horizontal undeveloped wells locations. The Delaware offers more than 700 remaining locations. In the Delaware, in each of four Wolfcamp formations, Energen intends to place at least 6 wells per 640-acre drilling section.