QEP Resources Inc. (NYSE: QEP) reported April 29 a first-quarter net loss of $55.6 million, or $0.32 per diluted share, in a release of its financial and operating results.
Highlights:
- Enhanced well completions improved economics in core plays;
- 85% increase in 120-day cumulative production in the Williston Basin;
- 50% increase in 90-day cumulative production at Pinedale;
- New Lower Mesaverde horizontal well produced almost 1.1 Bcfe in the first 80 days online; and
- Reiterated 2015 capital budget and increased production guidance.
Williston Basin
Williston Basin net production averaged about 47 thousand barrels of oil equivalent per day (Mboe/d), 89% liquids, during first-quarter 2015, a 13% decrease over fourth-quarter 2014, and a 51% increase over first-quarter 2014.
Production in the Williston Basin, during first-quarter 2015 was impacted by a deliberate slowdown in completions and increased shut-in times for offset fracks. The company completed and turned to sales 16 gross-operated wells during the quarter (average working interest 80%), nine of which were in South Antelope. The company also participated in 22 gross outside-operated Bakken/Three Forks wells that were completed and turned to sales during the quarter (average working interest 8%).
QEP completed three operated wells in the quarter utilizing cemented liners with plug and perf completion technology to further evaluate optimum stimulation design. The wells were completed over 50 stages utilizing about 1,000 pounds of proppant per lateral foot. Production results from the plug and perf wells are still being evaluated. However, early results indicate a modest improvement over prior offset sliding sleeve completions.
QEP continues to make drilling efficiency improvements and during the first quarter set a new drilling record of 10.5 days from spud to total depth of about 20,500 feet.
Results from the new enhanced well completion design introduced in the Williston Basin during the second half of 2014 continue to exceed expectations. The company initially switched from pumping about 350 pounds of proppant per lateral foot to about 825 pounds of proppant per lateral foot over about 33 stages.
In more recent wells, QEP has been pumping about 1,000 pounds of proppant per lateral foot over about 50 stages. Comparing performance from the two families of new completion designs, increasing the proppant volume, but keeping the stage count constant at roughly 33 stages, resulted in an average increase in cumulative production of about 37 Mboe in the first 120 days online.
Combining larger proppant volumes with more stages (an average of 50) resulted in an average increase in cumulative production of about 75 Mboe in the first 120 days online compared to our original completion design, an 85% improvement to over 160 Mboe. The company expects gross completed well costs in the Williston Basin, incorporating the enhanced completion design and a mixture of sliding sleeve and plug and perf technology, to average $9.5 million during 2015.
During the quarter the company continued work on a pilot program to evaluate high-density infill development drilling on its South Antelope acreage. The company drilled and completed a total of four pilot wells spaced at 400- and 600-foot intervals, between existing producing wells, in the middle Bakken and first bench of the Three Forks. The company also drilled its first well in the second bench of the Three Forks. Flowback on these infill wells began in April and initial production results are encouraging, the company said.
At the end of the first quarter, QEP had 40 gross operated wells waiting on completion (average working interest 75%) in the Williston Basin and four operated rigs running, including three rigs on South Antelope and one rig on the Fort Berthold Indian Reservation. In addition, the company had interests in seven gross outside-operated wells being drilled (average working interest 3%) and 17 gross outside-operated wells waiting on completion (average working interest 5%) at the end of the first quarter.
Permian Basin
Permian Basin daily production during the first quarter 2015 averaged 9 Mboe/d, 85% liquids. QEP completed and turned to sales seven vertical and four horizontal wells in the first quarter 2015. Three of the horizontal operated wells, composed of one Wolfcamp B, and two Wolfcamp D, had an average maximum daily production rate of 1,021 boe/d and a maximum average 30-day production rate of 711 boe/d. The fourth operated horizontal Wolfcamp B well was still in the early stages of cleaning up as of quarter end.
At the end of the first quarter, the company had three operated rigs in the Permian Basin: one drilling vertical Atokaberry wells and two drilling horizontal targets in the Spraberry Shale and Wolfcamp D. The company had six gross operated horizontal wells waiting on completion (average working interest of 65%) at end of the first quarter.
Pinedale Anticline
During the first quarter 2015, QEP's Pinedale net production averaged 242 million cubic feet equivalent per day (MMcfe/d), 13% liquids. QEP recovered ethane for all of 2014, and began rejecting ethane at Pinedale in the first quarter of 2015. While ethane rejection resulted in 7-8% less natural gas-equivalent sales volumes during the quarter, it had a negligible impact on gross revenues as ethane is still sold as part of the natural gas stream.
At the end of the first quarter, the company had three rigs operating at Pinedale. The company completed and turned to sales 20 gross Pinedale wells in the quarter, including one well QEP operates, but in which QEP owns only a small overriding royalty interest. At the end of the first quarter, the company had 46 gross Pinedale wells with QEP working interests drilled, cased and waiting on completion (average working interest 61%).
All Pinedale wells turned to sales during the first quarter were completed utilizing a new fracture stimulation design that was tested in late 2014. The enhanced completion design, which does not increase completed well costs, continues to yield positive results with an average increase in 90-day average cumulative production of over 50% compared with the previous completion design. QEP expects Pinedale gross completed well cost to average $3.5 million during 2015.
The company currently expects to complete about 90-95 gross wells during the remainder of 2015, including approximately seven wells for which QEP is the designated operator, but owns only a small overriding royalty interest.
Uinta Basin
During the first quarter 2015, Uinta Basin net production averaged 77 MMcfe/d, 29% liquids, of which 44 MMcfe/d, 18% liquids, was from the Red Wash Lower Mesaverde play. QEP recovered ethane from Uinta Basin gas production throughout 2014 and rejected ethane for the first quarter 2015.
QEP's continued focus on drilling and completion optimization is yielding encouraging results in the Lower Mesaverde play. The company's most recent horizontal well, which was completed in first-quarter of 2015, has achieved almost 1.1 Bcfe of gross cumulative production after 80 days online (post-processing, assumes ethane rejection).
Since the start of the horizontal program in 2013, the company has made steady progress in reducing drill times and improving production performance while reducing well cost.
The most recent well was drilled and completed at a gross cost of about $9.6 million and utilized improved drilling and completion designs which greatly improved well economics. The company has a deep inventory of potential well locations in the Lower Mesaverde play and the strong recent results serve to further de-risk this multi-Tcfe resource.
At the end of the first quarter, QEP had one rig active in the Uinta Basin drilling an eight well vertical pad in the Lower Mesaverde play.
Cheif Executive Comments
"Our strong first quarter operational performance, coupled with our premier E&P asset portfolio and solid financial position, demonstrates the flexibility we have built into our business to manage through the current volatile commodity price environment," said Chuck Stanley, chairman, president and CEO of QEP Resources, in a statement.
Stanley said as the company had forecasted, production volumes declined in the first quarter of 2015, driven by a deliberate slowdown in activities in response to lower commodity prices.
"We have significantly decelerated drilling activity to manage through the commodity price trough and we are continuing to actively manage the timing of well completions to take advantage of the contango in forward crude oil and natural gas prices," he said.
He said these actions should allow the company to capture additional service cost savings, preserve liquidity and be profitable in the long-term.
With the slowdown in activity, he said the company has redoubled itsfocus on driving greater efficiencies in our operations as evidenced by outstanding results from enhanced completion designs in the Williston Basin and Pinedale, which are greatly improving well productivity and overall economics.
"We are also very excited about the strong performance of our most recent Lower Mesaverde horizontal well and its implications on the economic viability of our multi-Tcfe liquids-rich natural gas play in the Uinta Basin, which, in addition to high-density development in the Williston Basin, could add significantly to our inventory of future development locations," he said.
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