Extraction Oil & Gas Inc., which launched as a public exploration and production company last fall, reported a surge in output from its Colorado operations during the first quarter, where enhanced drilling techniques are expected to deliver double-digit growth this year.

The Denver-based independent, whose operations are concentrated in the Denver-Julesburg (DJ) Basin, also continues to test its oil and gas flowlines in Colorado, where a fatal house explosion in April has been linked to a severed gasline. Gov. John Hickenlooper on May 2 ordered operators to inspect and pressure test existing flowlines located up to 1,000 feet from occupied buildings within 30 days and to test abandoned lines within 60 days.

Senior Vice President Eric Jacobsen, who handles Extraction operations, said Wednesday during the regular quarterly conference call the company took immediate steps to comply.

“As far as Extraction's response to Firestone, our actions were swift and decisive,” Jacobsen said. “Within three days after the governor's order, we had already tested successfully all of our 178 flowlines within 500 feet of occupied structures, and we will be completed testing the remainder of the flowlines within 1,000 feet of occupied structures prior to June 30.”

Anadarko Petroleum Corp., which owned the well linked to the severed gasline, has shut in close to 3,000 vertical wells in the DJ. Great Western Oil and Gas Co. followed suit, shutting in 61 wells pending inspections.

Extraction has been “in very close communication with a number of the communities and local governments as well as the state on the path forward,” Jacobsen said. “All of our wells in Broomfield and Boulder have been tested and successfully passed...

“We remain committed to plugging and abandoning 41 wells in Broomfield as part of our development plan going forward there...We are testing and successfully passing everything and our permitting efforts will continue to move forward.”

Operations-wise, the Firestone incident has had no impact to date on permitting or activity in Colorado. Extraction in March said it expected average output this year to increase by about 17% at the midpoint versus 2016. But output in 2017 may beat original expectations.

Average net sales exceeded the high end of guidance by 3% at 33,383 boe/d in the first quarter, a 35% increase year/year but down 13% sequentially.

Twenty-five operated wells in the DJ were turned to sales in 1Q2017 with average lateral lengths of 7,000 feet, and the company completed 47 net wells with average laterals of about 7,000 feet.

“As it stands today, the growth we had been forecasting for the future is now here in the present,” CEO Mark Erickson said. “We are currently producing in excess of 40,000 boe/d, with over 50% being oil, and production continues to climb.”

Enhanced completions have led to encouraging results at some new well pads, said President Matt Owens.

“As we have said previously, we expect to see a very slight uplift in initial production, with the largest impact coming from a flatter decline profile,” Owens said. “Early results are in line with our expectations as many of the wells continue to clean up under our restricted choke reservoir maintenance program.”

Extraction began flowing back initial pads for the Windsor program in the Niobrara formation early this year using the latest completion designs, he said. Efficiencies also continue to improve.

“During the quarter we completed 54 wells with 2,273 total fracture stages while pumping approximately 765 million pounds of proppant and remained within overall budgeted drilling and completion costs,” Owens said. “We set an Extraction record by pumping 23 fracture stages and over 9.2 million pounds of proppant in one day with one fracture fleet.

“We also set multiple records on the drilling side. We drilled a 2.5 mile well spud to total depth in under 3.1 days and a two-mile well in just 2.2 days.”

Toward the end of the first quarter, 23 net wells came online on two pads in Windsor, including 16 wells targeting the Niobrara and eight targeting the Codell formation.

The company reached total depth on 47 gross (38 net) wells during the first quarter with average lateral lengths of 7,900 feet, and it completed 54 gross (47 net) wells with average laterals of 7,000 feet. Also turned online were 26 gross (25 net) wells with average laterals of 7,000 feet.

During the second quarter net sales volumes are expected to average 42,000-45,000 boe/d, a 30% sequential increase at the midpoint. Crude oil production should average 21,000-22,000 b/d, which would be 60% higher than in 1Q2017 at the midpoint. For the full-year Extraction reaffirmed a previous forecast for net sales volumes to average 48,000-54,000 boe/d, with oil production of about 23,000-26,000 b/d.

“Our operations remain on track for our large expected production ramp that has already begun, and our second quarter guidance shows this,” Erickson said. “While we expect our second quarter production to grow about 30% sequentially, we continue to expect the largest sequential growth this year to occur in the third quarter.

“Our wells produce a much higher percentage of oil at the beginning of their lifecycle as indicated by our early results demonstrating average oil cuts around 85% oil along with our oil production guidance, which represents double the growth rate of our total equivalent production growth.”

Extraction reversed from losses in the year-ago period, with net income in 1Q2017 of $8.7 million (3 cents/share) from a net loss of $45.5 million in 1Q2016. Aggregate drilling, completion, leasehold and midstream capital expenditures totaled $233 million in 1Q2017.

Oil, natural gas and natural gas liquids sales revenue totaled $89.6 million in 1Q2017, a 99% increase from year-ago revenue of $45.1 million. Revenue decreased 5% sequentially, driven by a 13% decrease in average daily production, which the company said was partially offset by tighter crude oil differentials and improved commodity prices.