Early-2018 Trend: Optimize, Increase Production

By North American Shale magazine staff | May 15, 2018

The first part of 2018 has been defined by the choice. According to global data and energy consulting firm Rystad Energy, shale operators are acting on their assets and deciding which represent the right balance of risk and return. The goal is to safeguard growth and remain cashflow positive. Assets or acreage blocks that impede either, Rystad said, are being sold or traded for core acreage.

While many operators are active in asset activity, some are boosting capital expenditures and increasing production. “U.S. onshore shale producers are also boosting capital expenditures by 20 percent and increasing production guidance,” the data firm said. After committing to $50 billion in 2017, operators are expected to infuse 20 percent more this year than last, Rystad said.

Highpoint Resources is deploying a 2018-’19 plan that will make the DJ Basin-focused operator free cash flow positive in the second half of next year. Formed through a merger of Bill Barrett Corp. and Fifth Creek Energy, the new company believes its new production plans will help it drive substantial returns to shareholders in the coming year.

In the biggest oilfields, even the producers keep getting bigger. Through a deal valued at $9.5 billion, Concho Resources will become the largest-by-volume oil producer in the Permian after it acquires RSP Permian Inc. Once complete, Concho will hold more than 640,000 net acres and roughly 267 mboepd. The rig count will remain the same following the add-on, and Concho believes it will continue to operate within cashflow. With the expansion, the Midland-based company will trail only EOG Resources and Apache Corp. in enterprise value.

Eagle Ford
SM Energy has gone all-in on the Midland Basin and Eagle Ford. For $500 million, the Denver-based E&P sold its Powder River Basin assets to Northwoods Operating LLC. Money from the sale will be used to pay down debt. Shortly after announcing the sale of its Powder River Basin assets, SM Energy officially exited the Williston Basin through the sale of its remaining assets in Divide County, North Dakota. The asset sale, which included assets in Upton County, Texas, brought in $292.3 million. The company is now focused on the Midland and Eagle Ford plays.

Venado Oil and Gas LLC continues to see an attractive market opportunity throughout the Eagle Ford. After partnering on its first Eagle Ford venture two years ago with KKR, the Austin-based firm has agreed to acquire Cabot Oil & Gas Corp.’s non-operated assets for $770 million. The asset purchase from Cabot will give Venado interests in 112,000 net acres and more than 43,000 barrels of oil equivalent per day from the Eagle Ford.

TPG Pace Energy and Enervest believes the Eagle Ford is worth a $2.6 billion investment. The pair is backing former Occidental Petroleum CEO Steve Chazen in a newly formed exploration and production company that will operate the Eagle Ford assets of EnerVest. Chazen said the assets are oily, have strong margins and low differentials. The acreage can offer five- to six-month paybacks, he also said, “which are about one-third of a typical Delaware Basin Wolfcamp well.” Through Magnolia Oil and Gas, the company should have at least a 10-year inventory of locations with the majority in Karnes County, Texas.

Tellurian updated investors and industry in March on its plans to add upstream development assets through its subsidiary Driftwood Holdings. The plan is to acquire 15 trillion cubic feet of natural gas, Meg Gentle, president and CEO said. The natural gas production will help to build a pipeline network the company is planning as part of its liquified natural gas production interests. “We are looking primarily in the Haynesville shale area speaking with many producers, but we have no transaction close to completion at this point,” Gentle said.

With oil production on the rise, gas flaring increases are not far behind in the Bakken. Through the approval of two projects, the North Dakota Public Service Commission is helping to reduce the amount of associated gas that is flared. The ND PSC approved a gas processing plant and a pipeline upgrade that will help process gas near the heart of the Bakken and move it east. Valued at $251 million, the projects are crucial to the play, according to the commissioners at the PSC.

Smart Sand Inc. is making moves in the Bakken. For $15.5 million, the Texas frack sand supplier has bought assets and a transload terminal in the Bakken. Earlier this year, Smart Sand expanded operations at a Wisconsin mine used to supply the Williston Basin. Less than one week after announcing its plans in Van Hook, North Dakota, Smart Sand formed a multi-year take-or-pay contract for sand with a large exploration and production company. "We continue to believe that, over the long term, many customers want a sand service company that can not only provide high quality sand, but also offer efficient and cost-effective solutions for delivering that sand to the wellhead," CEO Charles Young said.

SK E&P America Inc., a subsidiary of the second largest business group in South Korea, will soon be a SCOOP/STACK operator. By mid-2018, SK Group is expected to hold the assets of private oil and gas firm Longfellow Nemeha LLC. “This transaction leverages our operational expertise in the region and represents a significant step towards realizing SK’s vision of being a top-tier operator in the lower 48 Mid-continent regions,” said Taewon Kim, president of SK E&P America. Longfellow Nemaha’s Kingfisher and Garfield assets include 81,000 gross acres with more than 60,000 acres that Longfellow holds a 75 percent working interest. To date, the company has drilled 104 horizontal wells, 60 drilling pads that are roughly five acres each, 72 miles of 10-inch saltwater disposal pipeline and 4 SWD wells.