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Harvey Pressures Permian Operations for Callon, Oxy

Permian Basin independent Callon Petroleum Co. has revised down its third quarter and full-year production guidance in part on issues related to Hurricane Harvey, which came ashore hundreds of miles away. Occidental Petroleum Corp. (Oxy) also has reduced its Permian guidance.

Natchez, MS-based Callon expects to produce 22,450-22,600 boe/d in 3Q2017 versus an earlier forecast of 23,000-25,000 boe/d. The revision is related in part to a “heightened level of nonproductive time” to complete wells compared to activity in the second quarter.

Harvey wreaked havoc because of:

●     Shortages of diesel fuel for drilling and completion equipment, which caused operational delays;

●     Oil pipeline curtailments that limited production optimization on recently completed wells; and

●     Elevated natural gas gathering line pressures that required intermittent flaring and created increased backpressure on producing wells.  

Callon also has revised its full-year 2017 production guidance to 22,000-23,000 Boe/d from a forecast in August of 22,500-25,500 boe/d to reflect “elevated operational inefficiencies across several key oil service functions” that are expected to last through the end of the year.

Callon expects to ramp up about three fewer wells net this year. It also reduced annualized production by 200 boe/d because of deferrals in nonoperated activity, including 650 boe/d in 4Q2017.

The producer estimated a 20% decline in efficiency during 3Q2017 “across all vendors involved with completion operations” from 2Q2017.

“As a result, cycle times for wells were extended and associated production contributions were delayed. Moreover, these increased cycle times also lengthened the amount of production downtime from offsetting wells that were shut-in for the completion operation and, hence, delayed the timing of returning wells to production.”

More than 2,500 boe/d net of Callon’s established production from offsetting wells was affected by completion operations in the third quarter.

"The Callon team has been working closely with all of its oil service partners to work through the challenges presented by an increasingly robust level of industry activity,” CEO Joe Gatto said. “We firmly believe this is a transitory issue for us and our fellow operators, and we expect to return to previous levels of efficiency as we strengthen working relationships with new oil service personnel and additional capacity relieves near term service pressures.

“Importantly, we have experienced some level of improvement on recent pads and don't expect these short-term issues to have any meaningful impact on our operating plan and outlook for 2018.”
Lease operating expenses also have fallen over the year because of “proactive investments in infrastructure that will benefit us even more over the long-term development of our asset base,” Gatto said.

Meanwhile, Houston-based Occidental Petroleum Corp. (Oxy), whose U.S. onshore efforts are concentrated in the Permian, said production was reduced overall by about 1,000 boe/d during 3Q2017 because of third-party disruptions related to the hurricane, which impacted natural gas processing and natural gas liquids (NGL) delivery. Permian enhanced oil recovery was impacted only minimally.

Most of the producers impacted by Harvey work in the Eagle Ford Shale in South Texas, near the hurricane’s landfall. However, pipeline and processing issues related to Harvey affected operations hundreds of miles from the Gulf Coast.

Noble Energy Inc. and Encana Corp. in September each reported minimal impacts from Harvey in either the Permian and Eagle Ford Shale operations. However, Chesapeake Energy Corp. revised down its full-year 2017 production guidance by roughly 2% in part because of Harvey.

Oxy’s chemicals and midstream operations on the Gulf Coast, like its peers, also were affected by Harvey, slicing into pre-tax income by $70 million total.

“Compared to prior storms, the increased global connectedness of the U.S. energy industry caused Harvey and Irma to have a greater impact on markets outside of the U.S.,” said IHS Markit’s Kurt Barrow, executive director of oil markets, midstream and downstream. “The energy abundance created by tight oil and shale gas means the U.S. is now a major exporter” for crude, refined products, petrochemicals, NGLs and increasingly liquefied natural gas.

“As a result, importers of U.S. energy were also affected by these U.S. hurricanes as never before,” Barrow said.

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