The Permian’s Delaware Basin has switched its spotlight back on as recent deals have attracted money and talent to the play.

On May 12, Carrizo Oil & Gas Inc. said it has entered a farm-out agreement in the basin and plans to begin an operated drilling program later this year. The participant was not disclosed.

Emerald Oil Inc. said May 11 that it also has entered into an agreement with undisclosed sellers to acquire core Delaware Basin acreage in Lea and Eddy counties, N.M., for $75.2 million cash.

Jonathan D. Wolff, analyst at Jefferies, said Carrizo continues to grow its assets and generate value without straining the balance sheet.

To fund the Delaware Basin activity, Carrizo has allocated $30 million to its 2015 drilling and completion capex plan, increasing it toward $470 million to $490 million. The company’s 2015 land and seismic capex plan remains unchanged at $35 million.

Wolff said the deal was largely anticipated and should be well received by the market.

Carrizo plans to drill three horizontal wells during 2015 but, due to the timing of completion and hookup for the wells, it doesn’t expect material production from the play in 2015.

Carrizo said it will be the operator of the wells and expects to have an average working interest of at least 80% in them. As part of the acreage acquisition cost, Carrizo will carry its partner on the wells.

Carrizo’s agreement with a larger operator gives it the right to earn about 2,800 net acres in eastern Culberson County, Texas. The deal brings the company’s acreage position in the play to more than 20,000 net acres and offsets Carrizo’s existing position there. That gives the company the ability to build a contiguous nine-section unit where it has the potential to drill about 30 long-lateral wells on 305-m (1,000-ft) spacing in the Upper Wolfcamp zone.

Wolff said that Carrizo’s deal “superficially” amounts to 2,800 net acres but has the potential to add meaningful value in a number of ways.

He estimates the company could efficiently drill up to 48 Wolfcamp A wells at 2,286-m (7,500-ft) laterals and 200-m (660-ft) interlateral spacing on a contiguous position.

In addition, the acreage could be prospective for the Wolfcamp B, which would represent upside to inventory.

“We also note that, while the wells are gassier, other operators have had some success drilling higher-rate Wolfcamp D wells in the area,” he said.

It’s also likely Carrizo can continue to do more farm-outs with the same partner going forward—building its northern Delaware Basin position well beyond its current acreage.

S.P. “Chip” Johnson IV, Carrizo’s president and CEO, said the company has watched the Delaware Basin for a few years and will drill its first operated well later this year.

In New Mexico, Emerald picked up 10,746 net acres with 80% working interest, 100% operated in Lea and Eddy counties. Emerald said it will have access to multistacked oil-weighted pay zones prospective for the Avalon Shale; first, second and third Bone Spring sand; and Wolfcamp Shale.

Emerald plans to drill five net Delaware wells for the remainder of 2015 at up to $38 million.

The company paid about $7,000 per acre.

Delaware debut

Ring Energy Inc. is making its debut in the Delaware Basin with the addition of acreage that will nearly double its production in West Texas.

Ring said May 26 it signed an agreement with Finley Resources Inc. to acquire 14,000 net acres in Culberson and Reeves counties, Texas, for $75 million.

Ring will be the operator of the properties and have an approximate 98% working interest and average net revenue interest in excess of 78%.

Current net daily production from the properties is about 1,300 boe/d, about 80% oil. The initial proved developed producing reserve is an estimated 4.7 million net boe with a PV-10 value of about $128.5 million, according to Cawley, Gillespie and Associates.

The acquisition will nearly double Ring’s daily production and should drive nice additional revenues and cash flow, said Jason Wangler, analyst at Wunderlich Securities Inc., in a report.

Pro forma for the acquisition, Ring will have more than 2,750 boe/d of current net daily production from its Permian Basin assets and more than 45,000 gross (32,000 net) acres in the region. The company currently has acreage in the Permian’s Central Basin Platform, primarily in Gaines and Andrews counties.

Management is currently evaluating drilling locations on the acquired acreage and plans to announce its findings after closing the transaction.

Jeff Grampp, senior research analyst, Northland Capital Markets, said in a report that drilling locations will be vertical, targeting stacked pay intervals at 915 m to more than 1,830 m (3,000 ft to more than 6,000 ft). This should result in “relatively inexpensive well costs, fairly similar to development of its existing Andrews County acreage.”

Management also sees potential to expand around this new position and create another core growth area, he said.

“While the lack of near-term horizontal potential may make the acquisition appear less exciting, we still view the move as a strong positive given favorable terms and strategic fit with Ring’s core competency of vertical development,” he said.

Permian stacks up

RKI Exploration & Production LLC is not immune to the effects of the commodity price downturn, but the E&P has positioned itself to ride it out.

Specifically, that position is a contiguous one, concentrated on 90,000 acres of the Permian Basin, mostly in Eddy County, N.M., and Loving and Reeves counties, Texas. Privately owned RKI likes liquids, and this acreage offers liquids-rich stacked pay opportunities, Ronnie K. Irani, the company’s founder, president and CEO, told attendees at Hart Energy’s DUG Permian Basin Conference & Exhibition in May.

“We’ve stayed intentionally under the radar and just gone about our business, which is about drilling and finding oil and gas reserves,” Irani said.

Irani reminded the audience that not all drilling is horizontal.

“We’ve drilled 118 vertical Delaware [Basin] wells,” Irani said. “I’ll submit to you that the vertical Delaware economics are as good as anything you’ll hear today [at the conference].”

RKI is active in four plays in the Permian, including its current favorite, Wolfcamp. The company has also drilled in the Bone Spring, Avalon Shale and Delaware Basin.

“In the Delaware, you drill vertical wells,” he said. “It’s a very thick section, it’s multilayered, and vertical wells work best at this point. We drill them on 40-acre spacing. It’s oily and great economics, so we’ll continue to do that.”

RKI’s operations are focused on the Powder River Basin in Wyoming and the Permian. Before prices crashed, the company operated 11 rigs—five in the Powder and six in the Permian. Now it is down to four, including three in the Permian.

“Part of the reason for slowing down was not knowing what was ahead of us as we headed into the dip in oil prices,” Irani said. “We’re currently at four, looking at adding one in each of the basins in the next month or so and by year-end. We plan to get up to six in the Delaware and at least three in the Powder. We feel like it’s picking back up again.”

RKI relies on oil and liquids for between 70% and 75% of its production in both basins. To keep the wells flourishing, the company has relied on technology.

While allowing that costs have come down in the oil patch, Irani pointed to the combination of innovations like pad drilling efficiencies, drilling optimization and zipper fracks that has reduced the price of drilling a well from $9.7 million to $6.8 million in the Wolfcamp.

Generator technology improves rig engine response times

New generator system allows drilling contractors and E&Ps to hybridize power generation of their drilling rigs.

Josh Prueher, FlexGen Power Systems

Think of pulling up to a stoplight and seeing a school bus or 18-wheeler in the right lane. The natural instinct is to move to the other lane because that bus will start slowly and take a while to get up to speed.

Drilling rigs have a similar power problem. When they begin drilling into the ground or are tripping in or out of the hole, drilling operations require a large amount of power during a short amount of time. Current generator sets can’t ramp up that fast, resulting in either a slow response time or the need for additional generators. As a result, operators have to have more engines or drastically oversize the engines they have to handle those large transient loads. This increases fuel and maintenance costs while at the same time increasing emissions.

The technology behind the FlexGen Power Systems’ Solid State Generator eliminates those problems by plugging directly into the drive house of a diesel, dual-fuel or gas rig to smartly monitor the voltage and frequency on the rig and works to dynamically manage power loads, allowing drastic improvements in engine response times.

Using solid-state generator technology reduces overall capex for power generation and power distribution by reducing the number of generators operators need to meet their existing power demands. Moreover, by operating generator sets at their higher average loads and turning generators off while using energy storage to power the loads, companies can see significant fuel savings. By eliminating load transients and running generators only at their optimal settings, users can reduce hazardous emissions and maintenance requirements. Finally, by eliminating voltage and frequency variability along with power factor correction, customers can realize improved power quality and performance.

FlexGen Solid State Generator technology has been operating on drilling rigs since September 2014, and the company reported that the technology has cut fuel costs by 15% to 25% and maintenance costs by 35% to 45% while also reducing rig blackouts and drilling time.