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QEP’s Williston Production Down, But Promising Refracks Begin

QEP Resources Inc. is blaming a trio of factors for lower production this year from the Williston Basin year-to-date, but the company is moving forward by testing a refracturing (refracking) program similar to one that has yielded success in the Haynesville Shale.

The problems in the Williston compelled the Denver-based company to lower its 2017 production guidance for oil, natural gas and natural gas liquids (NGL), even after it closed on an asset sale in Wyoming's Pinedale Anticline and nears completing an acquisition in the Permian Basin.

The producer said Monday three factors impacted the Williston’s output: higher than expected decline in from a group of pilot wells in the South Antelope focus area; a mechanical issue associated with three South Antelope wells completed in 2Q2017; and lower than anticipated nonoperated production volumes.

Beginning early this year, the producer said a group of pilot wells in South Antelope, designed to test spacing density and productivity of the second and third benches of the Three Forks formation, had greater than expected declines in production. During the third quarter, the company concluded that production from the wells was likely being sourced from overlying horizons, rather than the Three Forks benches.

"Based on the performance of these wells and additional log, core and reservoir analysis, the company believes it has refined the productive boundaries of the deeper benches of the Three Forks, which will guide future development plans," QEP said. The issue is likely to impact the full-year oil production forecast for 2017 by 600,000 bbl.

The mechanical issue with the three South Antelope wells began in the second quarter, and the company had to concurrently shut in offsetting wells for an extended period of time while the three wells were repaired. Although the wells and their offsets have since been returned to production and are now producing at or above the rates originally forecast, the company said it expects full-year oil production to be impacted by 300,000 bbl.

A decrease in nonoperated activity in the Williston also has been seen, which should lead to the loss of another 300,000 bbl.

Despite the setbacks, QEP has begun testing a refrack program in the Williston similar to one that proved successful in the Haynesville. The company said it has already completed four refracks in 2017 and plans to complete nine more before year's end. The refracks are expected to partially offset other production losses by contributing 300,000 bbl of oil to full-year production.

In the Permian, QEP said shifts in timing related to the evolution of its tank-style completion methods is expected to cause a one-month delay in placing some wells into production this year, but the company reaffirmed its 2017 capital expenditures (capex) budget in the basin. Full-year crude oil production from the Permian for 2017 still is expected to decline by 600,000 bbl.

QEP has revised its full-year oil production guidance for 2017 to 19.5-20 million bbl from previous guidance of 21-22 million bbl. Guidance for natural gas production was revised down to 165-170 Bcf from 182.5-192.5 Bcf. NGL output guidance was cut to 5.25-5.75 million bbl from 5.75-6.25 million bbl. Capex for 2017, excluding property acquisitions, was unchanged; it remains $1.05-1.1 billion.

"Assuming crude oil prices of $50/bbl and natural gas prices of $3.00/MMBtu, we expect our 2018 capital investments will more closely align to our 2018 forecasted cash flows while delivering an oil production growth rate in the mid-teens compared with our updated 2017 guidance," said CEO Charles Stanley. "Shifting our focus to the development of our core Permian Basin assets will enable us to drive high-return oil growth in 2018 and beyond.

"In addition, we continue to evaluate steps to further simplify our portfolio through the monetization of non-core assets, which will provide additional liquidity to help support future growth."

QEP said the long-anticipated sale of a subsidiary's natural gas assets in Wyoming, including all of its assets in the Pinedale Anticline, closed last week. The sale in late July was valued at $777.5 million when it was announced in late July. Meanwhile, the company expects to close in October on a $732 million deal to acquire 13,800 net acres in the Permian's Midland sub-basin.

To reflect its divestiture in the Pinedale, QEP removed 200,000 bbl of oil, 17 Bcf of natural gas and 300,000 bbl of NGLs from its full-year production guidance for 2017. But the company said the pending Permian acquisition is expected to have a minimal effect on the guidance.

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