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Privates Anschutz, Samson Bullish on PRB’s Future

Executives from the two of the largest privately held exploration and production companies active in Wyoming's Powder River Basin (PRB) separately said they agree with assessments from publicly traded counterparts that the region is primed for dramatic growth through 2019.

In presentations at the EnerCom Conference in Denver on Tuesday, Anschutz Exploration Corp. CEO Joe DeDominic and Samson Resources II LLC CEO Joseph Mills said the PRB's stacked pay zones, generous lease terms and low production costs give the basin an advantage over other onshore areas for unconventional drilling.

"There's been a real surge recently, of a lot of public commentary and announcements about the PRB," DeDominic said, citing 2Q2018 earnings results presentations by, among others, EOG Resources Inc., Devon Energy Corp., Chesapeake Energy Corp. and Anadarko Petroleum Corp. "The takeaway is that they're all increasing their activity, adding to their rig counts.

"It's really setting the stage for a ramp-up in activity. By our estimate between the publics and the privates, we foresee at least a 50% increase in activity in the basin in the next six months, potentially more beyond that."

Mills said he likes to call 2Q2018 "the PRB quarter." There are “lots of announcements, a lot of positive news from the big publics," he said. "Chesapeake, with their Utica sale, talked about how the PRB will be their leading growth basin for oil production. EOG came out with a pretty meaningful announcement regarding the Mowry and Niobrara [formations], the unconventional potential. We're excited about, and we agree, with a lot of their assessments. We're well situated relative to our counterparts. Obviously, their drilling activity is only benefiting us."

Citing various sources, by Anschutz's estimate Anadarko holds the largest position in the PRB at 450,000 net acres, followed by Anschutz with 406,000. EOG has about 400,000 net acres, while Devon has 398,000 and Chesapeake rounds out the top five at 275,000 net acres. The presentation Mills puts Samson in sixth place at about 150,000 net acres.

"There's a lot of movement right now," DeDominic said. "Some of the other companies are expanding or consolidating. We continue to have ongoing discussions with multiple operators about trading. Everyone wants to increase their working interest, increase what you operate, get out of the nonoperated piece. This is standard practice and we've seen this in other basins as well."

DeDominic added that there was a lot of acreage both held by production and term in the PRB.

"It is a lot of federal leases, but new federal leases have 10-year terms," DeDominic said. "So, you have time. We've picked up a number of leases in the last couple of years with the lease sales -- we have eight, nine years left on those. You have time to make good decisions. You don't need to rush and drill wells. There are no continuous drilling clauses or Pugh Clauses, in most cases. You can be thoughtful about how you plan out your program."

Denver-based Anschutz and Tulsa-based Samson each are running two-rig drilling programs, with one Samson rig deployed in Wyoming's Green River Basin (GRB). By year's end, Anschutz plans to complete the last four of 12 wells targeting the Turner formation, while Samson plans to complete a combined 20-25 gross wells in the PRB and GRB.

DeDominic said after conducting extensive research in the PRB, Anschutz had determined the optimal spacing to drill was four wells per drilling spacing unit (DSU).

"We continue to see good well results out of here," DeDominic said, adding that the overall takeaway from the PRB is "a lot of oil, a high oil percentage, 80-84% historical. We're still seeing that out of the horizontals and multiple targets across the entire basin."

Mills said operators in the PRB "have leapfrogged over a lot of the development issues that you've seen in other places," such as Oklahoma’s two stacked reservoir targets, the SCOOP (South Central Oklahoma Oil Province) and STACK (Sooner Trend of the Anadarko Basin, mostly Canadian and Kingfisher counties) plays.

"Three or four years ago, particularly in the Sussex [formation] and some of the shallow plays, they were being developed with single-section laterals," Mills said. "We have all leapfrogged over that. Everything now is being permitted as a two-section lateral -- 10,000-foot laterals. Our view is that on any one DSU, you could see as few as 10 and as many as 26 wells drilled per DSU, based on the various zones, because a lot of these zones will stack over large areas."

While shallow, conventional formations like the Parkman and Sussex could take only two wells per DSU to develop, Mills said the conventional Shannon and Frontier formations could take three to four wells per DSU. "It's the Niobrara and the Mowry that's probably going to have the biggest concentration," Mills said. "We believe it will take up to eight wells to develop those DSUs, so that's why you'll see as many as 26 wellbores per DSU. This is perfect for pad development."

According to DeDominic, Anschutz hasn't seen any operational issues in the PRB.

"We have no real issues that we see in the basin at all," DeDominic said, with “plenty” of rigs, completion crews and water to hydraulically fracture wells. “There's sufficient disposal of your produced water, your flowback water. Takeaway is not an issue today.

"We've actually hooked up to oil and gas pipelines every well we've completed in the past 12 months. We're not trucking any oil out of our new wells -- they're all flowing down lines. Our netback has been extremely good. It's been averaging about $1.50-1.60, which is extremely competitive compared to other basins."

DeDominic said the company hasn't seen any inflation costs, either. "We've gone out for longer-term contracts in our rigs, essentially flat to maybe a 5% increase. Completions, we re-bid our spread. We actually saw a reduction, so we have lower frack costs with that, and we're working all the ancillary and additional services -- water handling, disposal.

"We're seeing a reduction in cost across the board, plus the learning curve is rapidly impacting our decreases in cost."

Mills said Samson is excited about the PRB because of its future potential. "You've got multiple stacked pays, a 5,000-foot column of hydrocarbon or oil-charged sands...It is an over-pressured basin, so it means your deliverability will be higher. We think all of those things work in over favor.

"The other thing we like is that we have a large, contiguous block which will be optimal for extended lateral development. We also have a pretty sizeable 3-D seismic database, so that gives us an edge on our development plans there."

Mills added that while the PRB is a legacy basin that has been productive for 50 years, it remains immature in terms of unconventional development. "It's even more immature when it comes to modern completion design in this basin," he said.

"With the downturn in 2015 and 2016, the rig count went down to one single rig in the PRB, whereas today we've got 20. Given the renewed focus on [the basin], we think that rig count will probably jump to 30 and probably even 40 -- 30 sometime either late this year or early next year, and 40 sometime late in 2019."

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