WildHorse Resource Development Corp., which primarily operates in the East Texas portion of the Eagle Ford Shale, is building an oil and produced water gathering system for its operations that could be completed by mid-2019.
“The construction of an in-field oil and produced water gathering system will be the first phase in developing a midstream opportunity, which can further improve our already superior realizations,” CEO Jay Graham said. “With an in-field oil gathering system, we can reduce trucking by delivering our barrels from the wellhead to a central point in the field. In addition, the oil and produced water gathering system will lower our lease operating expense on a boe basis and allows us to facilitate completions using recycled water.”
The initial phase of construction for the system would include about 50 miles of oil gathering pipeline and 55 miles of water gathering pipeline, which would use the same rights of way when available. Estimated cost for constructing the system is $50 million, with $35 million for the oil gathering system and central terminal, as well as $15 million for the produced water system.
The proposed water gathering line is expected to cut in half the company’s produced water transportation and disposal costs, which equates to an estimated 25 cents/per boe improvement in lease operating expenses. The oil gathering system, once completed and providing additional takeaway, could deliver around a $1.00/bbl improvement in realized oil pricing, management said.
The Houston-based producer, which expanded its East Texas portfolio last year, in the next few months plans to launch the second phase of midstream infrastructure projects, which are to include a third-party long-haul pipeline to the Gulf Coast that would connect to a central terminal and oil gathering system.
The long-haul pipeline by a third party would allow the company to transport 100% of its oil volumes to Gulf Coast markets for potential export. A proposal could be unveiled within the next few months, management said.
In addition, an in-field sand mine by WildHorse, which would serve its East Texas well development, “is set to come online earlier than expected, which further improves economics benefitted by the midstream projects as well,” Graham said.
The sand mine, scheduled to begin service early next year, now could begin first sand loadings as early as Nov. 1 with operational capacity by Nov. 30.
The sand mine has annual capacity of up to 2 million tons, more than enough to supply WildHorse’s estimated sand demand, which this year is expected to be around 1.2 million tons. With the mine, the company expects to save $400,00-600,000 per well and improve internal rates of return by up to 16%. The project still is expected to cost within original guidance of $65-70 million.