WPX Energy Inc.'s remarkable results from natural gas drilling in the Piceance Basin will play second fiddle to oil targets this year as the Tulsa producer attempts to right its financial performance, the CEO said Tuesday.
The Tulsa explorer, an offshoot of Williams, develops oil and gas reserves primarily in North Dakota's Williston Basin, Colorado's Piceance Basin and in the San Juan Basin of New Mexico.
Total production levels for 2014 are expected to remain flat from 2013, but the decline mostly would come from pullback in gas drilling. Domestic oil volumes are expected to jump nearly 40% this year. The midpoint of 2014 capital expenditures (capex) is set at $1.47 billion, 20% higher than in 2013, with most (85%) allocated to the Williston, Piceance and the San Juan's Gallup oil development.
"Increased oil volumes, efficient development of our resource base and enhanced balance sheet flexibility will help drive increased cash flows and better overall results," said newly installed CEO Jim Bender. Ralph Hill, who took the helm when Williams spun the company in 2012, stepped down in December following pressure from hedge fund investor Taconic Capital Advisors LP, which questioned the company's strategic direction (see Shale Daily, Dec. 19, 2013).
"We have increased our hedge positions as commodity prices improved and continue to evaluate all aspects of our operations to drive cost reductions," Bender said Tuesday. WPX still is pursuing some asset sales and may form a master limited partnership.
"We know we have a lot of work ahead of us in 2014," said Bender. "We're committed to taking actions that will improve our financial and operating performance."
Fourth quarter and full-year 2013 results aren't to be published until Feb. 27, but through the first nine months, capex totaled $843 million, with $295 million spent in the third quarter. Last year's total capital outlay should come in at about $1.2 billion.
Although oil volumes will jump this year, and the Piceance would deliver 6% higher growth, the production gains are going to be offset by the decline in long-lived gas assets and the impact of lower ethane recovery rates on natural gas liquids (NGL) volumes, said Bender.
However, if WPX hits its objectives, it "will help us meet our strategic goals, enhance our ability to drive shareholder value and eliminate the funding gap in our current capital plan."
Sixty-two wells (gross) are planned in the Williston, about 25% more than in 2013. Another 29 oil wells are scheduled to drill in the Gallup formation, almost double 2013 activity. About 285 gas wells (gross) are planned in the Piceance, including 10 in the Niobrara formation.
The capital investments should lead to a December exit rate of 1,310 MMcfe/d, which is 5% higher than in 2013. Oil and liquids by themselves would account for about one-quarter of the total production this year.
All told, 376 operated wells are scheduled, with on average 15-16 rigs in operation.
"Compared with 2013, this represents a two-rig increase in the Piceance for a total of nine rigs, an increase of one rig in the Williston for a total of five, and an increase of one rig in the San Juan Gallup for a total of two," management said.
The Williston is getting the bulk of the spend, with $140-150 million in the first quarter and $580-600 million for the year. Piceance spending is set at $100-110 million in 1Q2014, with $475-495 million in 2014. The Gallup is to receive $35-40 million in the first three months, with $155-180 million in 2014.
In the Appalachian Basin, spending this year is set at $20-30 million, up by $5-10 million in 2013. Powder River Basin and legacy leaseholds also should see $10-15 million in investments, with up from $5 million in 1Q2014.
Most of the rigs this year (six-plus) are to target the Piceance Valley, with one or possibly two in the Piceance Highlands. The Niobrara for the year should average one rig. The Williston would see four to five rigs in operation, with Gallup at one-two rigs.
For the year, 376 operated wells (gross) are expected to be drilled on a total of 15-16 rigs. Compared with 2013, the rig count would increase by two in the Piceance for a total of nine rigs, with one more rig in the Williston to five and one additional rig in the Gallup, for a total of two.
This year WPX wants to double its Niobrara delineation, with up to 10 gas wells planned. Combined with previous activity in the formation, close to 80% of the Piceance Valley acreage then would be delineated.
Because of the high reservoir pressures experienced in Niobrara gas drilling program, WPX plans to bring in a "higher-rated rig" in the second quarter to continue its delineation activity.
In its first year of production, WPX's initial Niobrara gas discovery well, considered one of the best ever by the industry, produced more than 2.2 Bcf (see Shale Daily, April 9, 2013). The well now is producing at a rate of 3 MMcf/d, the producer said.
The second horizontal Niobrara well completed at the end of September produced 0.7 Bcf in its first four months and is currently producing 4.6 MMcf/d (see Shale Daily, Oct. 28, 2013). However, a third well drilled last August is to be sidetracked or re-drilled "due to a casing issue in the lateral section that occurred before completion operations commenced."
Two other Niobrara wells were drilled in 4Q2013. The first, a vertical test 12 miles east of the discovery well in the heart of the Rulison field, reached a total depth of 13,797 feet and penetrated the entire Niobrara section, according to WPX. It now has begun testing and completion of "multiple benches of the Niobrara in this well," where reservoir pressure initially was measured at 13,800 pounds per square inch (psi).
A fourth horizontal that's three miles north of the discovery reached a vertical depth of 11,000 feet and pressure of 10,400 psi. However, on "higher than anticipated surface operating pressures" drilling was stopped at 1,000 feet and casing was installed. Following only four fracture stages, the well peaked at 6.4 MMcf/d from the lateral at 8,200 psi, and WPX now plans to "ultimately achieve 5,000-foot laterals in the area north of the discovery well, which had a peak rate of 16 MMcf/d from a 4,600-foot lateral at a flowing pressure of 7,300 psi."
For 2014, WPX is using a commodity price point of view of $4.00/Mcf; $90.00/bbl for crude oil; and $41.59/bbl of NGL.The mixture of NGL output is forecast to be 37% ethane, 28% propane, 8% isobutane, 7% normal butane and 20% natural gasoline.