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Athlon Production Beats Guidance as Wolfcamp Wells Howl

Fort Worth, TX-based Athlon Energy Inc., which targets the Permian Basin, had record production during the first quarter of 16,987 boe/d, up from 9,959 boe/d during the year-ago quarter, a 71% increase. Meanwhile, recent Wolfcamp Shale wells are turning in better-than-expected results.

First quarter production surpassed the high end of company guidance and was made up of 61% oil, 21% natural gas liquids and 18% natural gas. Including recently announced acquisitions and the quarter's production performance, Athlon now expects daily production for the full year to average 23,000-24,250 boe/d.

Athlon shares closed up nearly 4% Wednesday at $40.94 after hitting a new all-time high of $42.42 intraday during heavy trading on the New York Stock Exchange. Athlon shares have enjoyed a mostly steady climb since mid-January, when they closed as low as $27.65. The company's initial public offering was last year (see Shale Daily, June 7, 2013).

Earlier this month, Athlon said it was buying 23,500 net acres in Texas counties Martin, Upton, Andrews and Glasscock for $873 million in cash, giving it greater scale in the core of the Wolfcamp (see Shale Daily, April 9).

Athlon's second horizontal well in Glasscock County, Lawson #2703H, with 100% working interest (WI), was recently completed using a 30-stage hybrid fracture stimulation over a perforated lateral length of 7,618 feet in the Wolfcamp A zone. The well achieved a peak three-phase 24-hour initial production (IP) rate of 1,069 boe/d (81% oil) and a peak three-phase 30-day rate of 983 boe/d (76% oil).

The company's first horizontal well in Howard County, Abel 18 #3H (100% WI), was completed using a 31-stage hybrid fracture stimulation over a perforated lateral length of 7,822 feet in the Wolfcamp A zone. The well achieved a peak three-phase 24-hour IP rate of 1,364 boe/d (89% oil) and a peak three-phase 30-day rate of 1,063 boe/d (85% oil). Both the production rate and percentage oil on the Abel 18 #3H are tracking above Athlon's previously disclosed Howard County horizontal Wolfcamp type curve estimated ultimate recovery (EUR) of 625,000 boe (67% oil) for a 7,500 feet lateral.

Analysts at Tudor, Pickering, Holt & Co. (TPH) said Athlon "remains a top small cap pick." The first horizontal Howard well "far exceeded" TPH expectations. While more production data is needed to make a full assessment, if the well performs to TPH's basin decline curves, it could surpass 800,000 boe EUR, analysts said in a note Wednesday.

"The Abel 18 #3H confirms management's technical assessment of the tremendous resource potential that our Howard County acreage position offers for both high-rate-of-return vertical and horizontal development," said CEO Bob Reeves. "The company is looking forward to our initial dedicated horizontal rig in Howard arriving in the first quarter of 2015, as we move from the evaluation to the execution phase."

Athlon's second Howard County horizontal well, Williams 17 #3H (96% WI), was successfully drilled and completed using a 31-stage hybrid fracture stimulation over a perforated lateral length of 7,688 feet in the Wolfcamp A zone. The well was recently placed on production with encouraging early results, the company said.

The horizontal rig has drilled and cased the Tubb 39 #5H (100% WI) targeting the Wolfcamp A, which represents the company's seventh overall horizontal well and third horizontal well in Howard County. Athlon is moving the rig to Glasscock County to drill multiple wells to protect lease boundaries from competitive development by operators directly offsetting Athlon acreage, it said.

The company raised its capital budget for drilling this year to $700 million and allotted an additional $25 million for leasing, infrastructure and capital workovers. Plans are to maintain an existing eight-rig vertical fleet for the rest of the year. However, vertical spending is expected to increase as a result of recent acquisitions. The company expects to reallocate a vertical rig to the acquired properties, where it would drill deeper wells with thicker stacked pay columns, resulting in higher expenditures as compared to the original budget.

The company expects its second horizontal rig to arrive in Midland County in April and would assume a third horizontal rig in Martin County at closing of the acquisitions in June. Additionally, Athlon now plans to add a fourth horizontal rig in Upton County by early fourth quarter and incur drilling expenditures on three wells in 2014 without a meaningful production contribution until the first quarter of 2015. In total, Athlon expects to drill nine incremental gross operated horizontal wells this year.

Athlon's borrowing base was increased by lenders to $1 billion from $525 million. The pro forma liquidity position as of March 31 was $956.5 million, which the company said is "sufficient" to meet cash requirements.

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