Stacked Pay Potential Lures Oil Companies To Delaware Basin

FORT WORTH, Texas— For WPX Energy (NYSE: WPX) CEO Richard Muncrief, the Delaware Basin holds world-class rock, and the company is just “scratching the surface” on some of the multi-stacked oil pay zones such as the Wolfcamp X/Y.

More than two-thirds of WPX Energy’s 94,000 acres are believed to be in the “core of the core.” The company, which entered the Permian Basin in 2015 with its $2.3 billion-plus acquisition of RKI Exploration, is bullish on the sub-basin with focus currently on the Upper and Lower Wolfcamp A—both of which are proven productive.

“We’ve been very encouraged. As we look across our acreage we see there is prospective across our entire core 60,000 acres in the [New Mexico-Texas] state line area,” Muncrief said during Hart Energy’s recent DUG Permian Basin conference. “The thing that has been a real eye opener for me is how much oil is in place.”

WPX estimates that there are about 60 million barrels of oil in place in the Wolfcamp A per 640-ft section, something he said gets the company excited about future development of the area.

They’re not the only ones.

Development in the Delaware was the talk of the conference as analysts and others spoke highly of the sub-basin’s multi-zone stacked pay potential—from the Brushy Canyon and Avalon to the Bone Spring and Wolfcamp and down to the Strawn, Atoka, Barnett, Mississippi Lime and Woodford. Hopes are high for the Delaware and the rest of the Permian Basin, and companies are eager to get in on the action as IRRs rise and operators improve techniques as they learn more about the basin’s geology.

“When analysts say how good the Delaware is, I can tell you it’s good,” said Muncrief. “Our challenge will be to continue to evolve and continue to get better.”

Since taken over RKI’s Delaware assets in Wolfcamp A, Muncrief said well costs have fallen by 43% and F&D costs have dropped by 69% as EURs have risen by 85%. WPX is presently drilling 1-mile laterals, but the company aims to work up to 7,500- to 10,0000-ft laterals, which are common where WPX operates in the Bakken. The future could also hold increased proppant use. The average is currently about 1,500 lb/ft, but the company is testing upwards of 2,000 lb/ft.

So far, the wells—using slickwater—are trending near WPX’s vision well: 1,000 Mboe EUR and $5 D&C.

“For a 1-mile lateral at $50 oil you’re seeing returns in the 60-65% range,” Muncrief said, referring to the year-end estimates. The Delaware delivers returns and can compete with the Bakken among others today. “As we start drilling longer laterals, I’m quite confident the Delaware is going to shake out on top. It’s great to have a No. 2 and No. 3 player like the Bakken and San Juan,” the company’s other two operating areas.

Matador Resources Co. is also among the Delaware players. The Dallas-based company has assets in Haynesville/Cotton Valley and the Eagle Ford, but about 97% of its estimated $325 million capex for 2016 is going to the Delaware.

Attracted by the Delaware’s thickness, Matador Resources President Matt Hairford said the company has tested about 15 targets between the top of the Brushy Canyon to the Woodford.

“It’s just a very rich opportunity set,” he said.

This year, Matador plans to drill and bring on production:

• 18 wells in Loving County, targeting the Lower Wolfcamp A, Wolfcamp X/Y and 2^nd Bone Springs;
• 17 wells in Rustler Breaks, including eight Wolfcamp A-X/Y and nine Wolfcamp B wells; and
• Five wells in the Ranger/Arrowhead area, including two 2^nd bone Spring and three 3^rd Bone Spring wells.

Farther north, in Twin Lakes, Matador plans to drill two wells—a vertical test through the Wolfcamp D to collect about 400-ft of core, which will help determine where to drill a horizontal well, and a Strawn vertical well. Hairford said the Twin Lakes area is “more exploratory in nature” but the company is encouraged by what is has seen so far.

But he cautioned that focus should not only be on drilling multiple zones to yield good rates of returns. Preserving value is also crucial. He used a Wolfcamp B well at Rustler Breaks with up to 15 potential locations to illustrate his point. Starting at Brushy Canyon, assuming 180-acre spacing, the company moves through the Avalon, 1^st through 3^rd Bone Spring and into Wolfcamp A-X/Y and Wolfcamp B.

“By drilling that single well, you’re adding reserves, you’re adding PDP (proved developed producing) reserves for that well,” Hairford said. “That’s a great way to preserve value.”

In addition, drilling costs reductions could be achieved with multi-well batch drilling, he added. For example, drilling five wells to the east and five wells to the west off a single pad, Matador’s drilling team estimates the company could save $400,000 per well, or $4 million saved on a single pad, he said.

Reducing drilling time could lead to further savings.

In the Wolfcamp, Matador lowered its spud to rig release time from 43 days to 18.

“Those efficiencies are important at any time. … Every ten days saved is half a million dollars,” Hairford said.

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Velda Addison can be reached at vaddison@hartenergy.com.