The Midland—Oxy’s Second Growth Engine—Already Purring

Occidental Petroleum’s Thaimar Ramirez likes to refer to the Midland Basin as the playground of the Permian. Certainly since the acquisition of Permian Basin E&P CrownRock LP in August, Oxy’s teams and CrownRock’s have been playing well together.

Ramirez, president and general manager of Oxy’s Midland Basin Business Unit, offered a peek under the hood of the rapidly improving Midland engine the company is fine tuning.

She also detailed the extremely rapid integration between Oxy and CrownRock. Within hours of closing the $12 billion deal, Oxy and CrownRock tackled a water management challenge. Ramirez said the company reduced costs by $10 million “by looking at two fields and connecting [them] with just a lay flat line.”

“So that was an immediate win right there, but it's going really well and we look forward to more of this,” she said at Hart Energy’s Executive Oil Conference & Expo in Midland, Texas.

Long a Delaware Basin powerhouse, Ramirez said Oxy’s view of the Midland Basin centers on three principles: high operating cash margins, growth and net zero oil.

The “Midland Basin can be that growth engine not only through primary but also the tertiary development,” she said.

Because of its geographic location, the basin also creates an opportunity to accelerate the company’s low carbon oil efforts through EOR. “So the infrastructure potential access to CO₂, that's going to be an advantage compared to other basins,” she said.

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In the playground

Ramirez has been fascinated by the evolution from short horizontal wells to longer and longer laterals. She’s also watched the improvement of completion designs, well spacing and finding ways to make benches considered uneconomical work.

With CrownRock’s assets, that playground has “created a lot of relevance to bring some new assets into our portfolio,” she said.

In the Midland Basin, Ramirez said it’s normal for the company to drill 3-mile laterals. Horizontals often stretch 12,500 ft to 15,000 ft.

“And we have done some that are exceeding 18,000 [ft] as well. So when it goes a little bit greater than 15,000 [ft], then we worry a little bit because of the lift,” she said. “We continue to explore that. But also the opportunity that CrownRock brings to the table is to extend to 3-mile laterals on that acreage position as well.”

Oxy also continues to tinker with fit-for-purpose completion designs—the company doesn’t have a one-design-fits-all methodology. Occidental looks at rock and fluid properties and geomechanics to extract the most resource possible.

On the physical side of the transaction, Oxy added 47,000 surface acres—a 25% increase. The deal added more than 200,000 boe/d to boost production by 350%. And Oxy is now running nine gross rigs—a 125% increase for the company.

Water management also improved. Oxy now has the ability to recycle and dispose 1.3 MMbbl/d of water.

“So when you look at the Tier 1 inventory that was added by the CrownRock [deal], it's significant and it gives us more balance portfolio for the unconventional space,” she said.

But CrownRock brought more to the table than more rock and rigs. Along with Oxy’s own data sets, CrownRock’s team had a trove of data from thousands of wells, including highly detailed production and completion data.

“What we're doing is using a lot of the machine learning and advanced workflows that we have to come up with what is the best way to develop these formations? Some of the things that we do is now have a very fast cycle to a feedback loop where we see immediately what is the production results, understand the tradeoffs.”

That includes well design and well spacing, which intertwine to maximize recovery without diminishing returns, she said.

“That feedback loop has gotten much better, and that has increased agility for us to quickly pivot or to quickly change our design in the future, the trials that we do as well,” she said. “So we have a team dedicated to just looking at designs and the execution side and then the feedback loop.”

A band of overachievers

Ramirez seemed to marvel over how Oxy and CrownRock’s teams are essentially cut from the same overachiever cloth.

“Some of the things that’s happened is third quarter production. They exceeded by 5,000 boe per day, and they exceeded our guidance, and we disclosed that in the last earnings call,” she said. “For the fourth quarter, we’re going to actually raise the guidance by 9,000 boe per day.”

Oxy is embarking on a number of different avenues to improve its operations in the Midland. One key area is finding creative ways to continue to flattening base decline.

“And the other thing that's happening is landing in better geological horizons,” she said. “So the landing zone, even within one horizon, further optimizing, that has been key for us.”

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The Midland team has also been searching for “nonrecurring opportunities, so that's added some additional barrels that didn't add any costs, but it did add some time.”

“So the team made some time commitments to be able to find those additional barrels that was really, really good for us and added quite a bit of value,” she said. “So when you look at the legacy team, actually they exceeded quarterly production that had been—the last record was five years ago. So this has been fascinating to see how the two teams are overachieving.”

Versus the Delaware

Ramirez spent five years working in the Delaware Basin before shifting to the Midland.

During her time in Texas and New Mexico, she saw development from the subsurface to field development, planning, inventory growth, reserve book and surface operations.

While the Midland Basin has the potential to become another growth engine for Oxy, there are differences between the company’s Delaware mainstay, as well as promising areas of exploration.

“The Delaware is deeper, thicker, but also has a tremendous amount of volumes that come from an average well versus the Midland Basin. I call them the low flow rocks compared to the Delaware,” she said. “…An average well in the Delaware Basin roughly doubles the volume of an average well in the Midland Basin, particularly if you're comparing with a Wolfcamp Formation [well].”

Ramirez said she realized immediately that in the Midland, cost is key. Cost matters regardless of areas being drilled and developed, she said, but in the Midland it’s a particularly important lever for cash margins.

“You have to really, really take a deep dive on the balance between more volumes and is that volume really acceleration or reserves addition versus the cost? So the biggest lever will be the cost in formations like in the Midland Basin and the Wolfcamp when you compare [it] to the Delaware.

Testing the perimeter

Oxy will also continue to test benches, including the Barnett Shale and the Emma Barnett Field, where several wells drilled on the South Curtis and Johnson ranches in Midland and Martin counties, Texas, have reached depths of about 11,200 ft.

The company’s appraisal program is exploring areas to organically grow inventory.

Still, in the Midland Basin next year, and particularly on the CrownRock assets, she said about 85% of activity will be primary development.

“That's where the team does the best. And we want to keep those efficiencies and provide that return to our shareholders,” she said.

But the company will still be exploring other zones with about 15% of Oxy’s program exploring other intervals.

“So we have identified about nine horizons in the Midland Basin from which it's a combination of primary and secondary benches,” she said. “When you look at the Delaware Basin…the program actually is increasing into more secondary benches. So we're looking into from ‘23 to ‘24, going from 20% secondary benches to now 40% secondary benches.”