[Editor's note: A version of this story appears in the September 2018 edition of Oil and Gas Investor. Subscribe to the magazine here.]

In many respects, South Texas endured a particularly hot summer this year, with temperatures frequently reaching 100 degrees and more, while the nation grappled with contentious immigration and trade challenges along the U.S.-Mexico border. And the pursuit of deep, overpressured dry gas in the Eagle Ford Shale was heating up there too. Producers are enjoying fairly economic natural gas prices compared to the Houston Ship Channel and Henry Hub benchmarks, given their proximity to pipelines connected to emerging markets in Mexico.

That fits in just fine with the new strategy underway at Laredo Energy VI LP, which is backed by private equity from Avista Capital Partners.

In February 2017, Avista brought in Michael J. Wieland as president and CEO of the Houston-based private independent to evaluate the company’s strategy and devise a new plan. Should it drill conventional, shallow South Texas gas formations such as the Olmos and Escondido, or drill deeper to the unconventional Eagle Ford Shale, and in particular the lower Eagle Ford? The Eagle Ford lies across Laredo’s entire position, which is 100% in Webb County.

Following his arrival, Wieland led Laredo through a corporate reorganization and strategic review. The company undertook a comprehensive geologic and geophysical assessment of its leasehold, having in hand reprocessed 3-D data across the entire 72,000 (approximate) gross contiguous acres. The team had worked the region for more than a decade in prior Laredo iterations, so it could leverage extensive relationships and local knowledge to maintain and optimize its position.

By late 2017, a focus had emerged, and Laredo initiated a drilling program. The program targeted the lower Eagle Ford, which on Laredo’s acreage is at subsea vertical depths of 9,700 to 12,700 feet, and where the formation exhibits significant overpressure. By June of this year, the transition began to bear fruit, as Laredo announced three successful wells: one tested 14.2 million cubic feet a day (MMcf/d); a second tested 10.8 MMcf/d; and a third tested 10.4 MMcf/d.

Night falls over Laredo Energy's recently drilled Reuthinger 13H in Webb County, Texas.

Wieland brought to Laredo more than 20 years’ experience in oil and gas. On the operations side, he was senior vice president for corporate development and CFO for privately held Stonegate Production Co., also an Eagle Ford-focused company, and vice president of corporate development and finance at Carrizo Oil & Gas Inc., where he worked with Carrizo’s chairman, Steve Webster, founder of Avista (and a director of Laredo).

Before that, Wieland was a director for Barclays’ energy investment banking team and also held several positions at Banc of America Securities and Deutsche Bank Securities. He is a chemical engineer graduate of the University of Texas at Austin with an MBA from Rice University.

We visited with Wieland to learn more about his vision for Laredo and the Eagle Ford.

Investor: What was the nature of your initial assignment to transition Laredo?

Wieland: I was hired to work out significant challenges confronting the company, and Avista was looking for a fresh approach and solid execution. So first, we retooled the organization and effected a corporate and financial restructuring. We brought in modern dry gas expertise, specifically operating experience in East Texas and the Haynesville Shale. The addition of that expertise was critical.

Our geoscience team went back to the basics and looked at the subsurface from a new perspective with the assistance of industry consultants. We worked through the asset as if we were a new company starting from scratch: We rebuilt every map in the company, but, thankfully, we have a comprehensive set of data to work with.

The company had made significant progress modifying its approach to its unconventional target in the lower Eagle Ford and was ready to drill. Then I had to convince the investors to go along with this and support our delineation program.

Investor: Given that Laredo’s production is 100% dry gas, what are your thoughts and worries about the gas price situation? We’re well below $3 now.

Wieland: I don’t share the negative sentiment about gas prices, and that is primarily driven by where our asset is being in proximity to the market is how you win the game. We sell our gas into Howard Energy Partners’ gathering systems, and we’re receiving Houston Ship Channel pricing plus about a nickel today. So that’s 8 to 10 cents over Nymex. It’s a premium market today.

The overall economics of the dry gas window in the Eagle Ford are very competitive compared to not only other gas plays, but oil plays also. In addition to premium pricing, operating costs are low given limited water production and no need to process the gas. Finding and development costs are competitive with the Haynesville. Lastly, the Eagle Ford gas window is still in the early innings, and there are significant economies of scale to come.

Investor: Talk about the Laredo asset. What is the plan for 2018?

Wieland: We currently produce about 56 MMcf a day net, or 110 MMcf a day gross, from 149 producing wells. Most of those are legacy wells, but our three recent lower Eagle Ford completions contribute about a quarter of that production. By the end of this year, we will have drilled eight lower Eagle Ford wells and likely have brought online six to seven of them. (Three of them are already online, those we mentioned in our recent press release.) The budget is approximately $35 million for the year. We think production will be at least 20% higher by year-end, but we’re building off a smaller number—we only need to bring on a couple wells for that to happen.

Investor: What was the connection between your time at Stonegate, Carrizo and now? All three companies were active in the Eagle Ford.

Wieland: Laredo is backed by Avista Capital. Steve Webster is a founder of Avista, and he’s on the Laredo board. So, Steve and the Avista team are the connection for me. I was at Carrizo Oil & Gas for four years, where Steve was on the board; so I frequently interacted with Steve and other members of the Avista team. After Carrizo, I joined Stonegate as CFO, where I helped to navigate the company through the difficult times of the oil price downturn in 2015 to 2016 and ultimately sell its assets.

Investor: You have such a singular strategy, to drill nothing but dry gas in the lower Eagle Ford?

Wieland: Part of the story here is that our acreage position has several productive target zones. Laredo had over 140 producing wells when I joined—without a single well producing primarily from the lower Eagle Ford. However, over the past few years, offset operators including Lewis Energy and SilverBow Resources [Inc.] have focused on the lower Eagle Ford, thereby contributing a significant amount of public production data in our region. In addition, our refreshed technical view gave us confidence that the lower Eagle Ford on our position should perform comparably or better with modern completion techniques to offset wells with similar subsurface characteristics and depth. Putting these pieces together, we quickly realized the potential of the lower Eagle Ford and put 100% of our focus there.

Our initial intent was to test the lower Eagle Ford at its various depths across the extent of our lease position. The first three delineation wells have all been producing for several months, and we are very happy with those results; we currently have two DUCs [drilled uncompleted wells] and we continue to drill another well. Those wells will complete our delineation effort, having tested the lower Eagle Ford at true vertical depths of approximately 10,000 feet to over 12,500 feet (subsea).

Investor: After delineation is done, what do you plan next?

Wieland: Going forward, the next order of business would be to look at well spacing as we head into 2019. We’ll be drilling well pairs and later, moving to three- or four-well pads. I don’t anticipate we’ll get aggressive on spacing. We are deeper than the folks around us and we have experienced significant overpressure in the lower Eagle Ford, so we expect to see higher recovery factors at these greater depths. We are going to start to pair up our wells with 1,000-foot spacing between wells.

Investor: Who else is in your neighborhood? What well spacing have they been drilling?

Wieland: Our nearest competitors in the dry gas window are Lewis Energy, Escondido Resources, SilverBow Resources, Pursuit Oil & Gas, Vitruvian Exploration IV. … Some of the more active drillers have tested spacing of 800 feet.

Investor: Your press release about your three wells didn’t mention EURs.

Wieland: We haven’t released that, but we can talk about what our expectations are. It varies as you go from shallower to deeper, but we are expecting 2.1 to 2.3 Bcf per 1,000 feet in the shallower part of our position. As you go deeper, that could be above 2.5 Bcf per thousand. The three wells we’ve drilled so far seem to be better or in line with those expectations.

Investor: Would you reconsider going after the upper Eagle Ford, or the Chalk?

Wieland Lower Eagle Ford well spacing is the next question for us, but I do think we need to go back and look at the upper Eagle Ford, and spend some time thinking about how to incorporate it into our program, and how you space those wells relative to the lower Eagle Ford. Our competitors are looking at that as well, and we’re keeping an eye on them. We think if we apply what we have recently learned, the upper Eagle Ford could perform quite a bit better than in past years. We will look at drilling in the upper in 2019.

The Austin Chalk is very thick—typically over 500 feet—in this area, and so we’re looking at testing it in mid- to late ’19—it’s down the list of priorities for now.

If all we had to work with was the lower Eagle Ford, we would continue to be excited about the assets’ potential; however, we think with the upper Eagle Ford and the Austin Chalk down the road, this overall Eagle Ford/Chalk asset could truly be world class.

Investor: What are your completions like for the lower Eagle Ford?

Wieland: We’re pumping white sand completions and haven’t been looking at any in-basin sand at this point. We’re planning our laterals at 7,000 to 7,500 feet for the delineation wells. Our acreage is set up where an average lateral could be as long as 9,000 feet, but as we are delineating, we don’t feel the need to go longer yet. We utilize 200-foot stages and 25-foot cluster spacing. We target 2,000 pounds per foot. We’re not trying to push the limits yet. As we move forward, we will refine our design. Other producers near us have been more aggressive than that, and we’ll look at them and make decisions as we go.

Investor: Is it difficult to stay in zone with these laterals? What is your view on flowback strategy?

Wieland: We have been hyper-focused on this aspect and so far have had good results staying in zone. Our team recognizes it is critical that we stay in zone. Our recently reprocessed 3-D seismic data and offset well logs contribute to our process. While we want to drill these wells as fast and inexpensively as possible, we need to stay in the target window—that’s what leads to a good well. I find this is a team sport: Your geology, drilling, engineering, geosteering teams and consultants must be working together constructively every hour you’re drilling. We’re very proud of our team and its success in this area.

We’re definitely on the conservative side as it relates to choke management. Laredo had some history of pulling wells too hard in the past, so we’ve set the targets to open up these wells gradually—usually less than 20 psi a day. Also, we have initial plateau rate targets of 10 to 12 MMcf/d. What we’re seeking with our conservative approach to flowback is predictability and protecting reservoir integrity.

Investor: What about your takeaway position; any concerns there?

Wieland: We have 100% firm takeaway, so no issues. Howard Energy gathers our gas, and our gas is sold currently into the Kinder Morgan line. In the future, we’ll have access to Howard Energy Partners’ Nueva Era Pipeline that goes under the river from Webb County down to Monterey. When Nueva Era is operational, we will have access to two export pipelines. We’re in a good place.

Investor: Do you think the increase in Permian gas will have an impact on Laredo’s market?

Wieland: There may be no better position to be in right now in natural gas than producing lowest-cost gas on the eastern Mexican border. Our transport costs will always be cheaper than competitive gas from the Permian or Haynesville. There is a lot of undrilled acreage here in the South Texas Eagle Ford play, and it happens to be right next door to Mexican and LNG export markets, as well as the Gulf Coast petrochemical complex. We have many pipeline options already in the ground, so we aren’t waiting on infrastructure. And down the road, we still have work-around to the major sales points.

Investor: What’s your outlook for Laredo today, now that the big revamp is done?

Wieland: We’ve got a ways to go, because we have a big position with several productive targets. But now, I really like the combination of having both conventional and unconventional expertise here—they kind of oppose each other, play off each other and ultimately complement each other. Having both perspectives gives us options and makes us more competitive. The upper Eagle Ford and the Chalk are certainly secondary targets, and then we have the conventional Olmos and Escondido as well.

So we’re starting to reap the benefits of it and have a lot to be excited about in the future.

Leslie Haines can be reached at lhaines@hartenergy.com.

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