Denver-based Centennial Resource Development Inc. continues to bolt on acreage in its Permian Basin bastion, as volumes rose and costs declined in the third quarter.

The exploration and production (E&P) operator issued its latest results on Tuesday, boasting a 71% increase year/year and 15% sequential increase in crude oil production. Oil equivalent output was up 81% from a year ago and 9% higher than the second quarter.

“Centennial delivered another quarter of solid operating results driven by strong well performance and cost control,” CEO Mark Papa said during a conference call Tuesday to discuss results. “Our operations team continues to generate some of the best wells in the Permian Basin while maintaining one of the lowest unit cost profiles among Permian E&Ps. Furthermore, we remain on track to achieve our 2018 production targets, while maintaining capital budget discipline.”

Since the start of the fourth quarter, Centennial also has bolted on 2,900 net acres in the Delaware sub-basin adjacent to positions in Reeves County, TX, and Lea County, NM. The sellers were not disclosed.

“Consistent with our strategy of targeting tactical bolt-on acquisitions, these transactions are adjacent to our existing positions and increase our working interests,” Papa said. “The Reeves County acquisition represents the addition of high quality acreage and offsets Centennial’s recent Highlander and Doc Gardner wells, which each averaged over 1,800 b/d of oil during their initial 30 days on production.”

In Lea County, Centennial acquired 820 net acres in two separate transactions for $26 million total.

“Through our acquisitions and organic leasing efforts year-to-date, we have more than fully replenished the inventory expected to be drilled this year,” Papa said. “This will be key for the company going forward.”

Between July and September, average crude oil production increased 71% to 36,027 b/d, with oil volumes accounting for 57% of total boe. Average total equivalent production increased 81% from 3Q2017.

Centennial reported a number of strong wells across multiple intervals of the Delaware sub-basin in West Texas, including two in Reeves County within the Upper Wolfcamp A formation. The Highlander U49H, drilled with a 7,300-foot lateral, achieved an initial 30-day production (IP) rate of 2,339 boe/d. Doc Gardner A U23H, drilled with a 12,200-foot lateral, had an IP of 2,327 boe/d.

“Consistent with our strategy of driving efficiencies and increasing economic returns, our average completed lateral length during the quarter increased 33% to approximately 7,700 feet compared to the prior year period,” Papa said. “The Doc Gardner, a very prolific well, represents our longest lateral drilled to date and has produced approximately 100,000 bbl of oil during its first 60 days on production.”

Centennial also worked the Miramar acreage in Reeves County to test Wolfcamp intervals. In Lea County, Bone Spring intervals were the target.

“We continue to see improved well productivity from our Lea County asset since integrating it into our portfolio a little over a year ago,” Papa said.

Total capital expenditures were up from the second quarter at $273.6 million, with drilling and completion costs taking the bulk at $222.4 million and infrastructure costs of $51.2 million.

“As expected, drilling and completion capital expenditures increased sequentially as a result of the increased number of completions on higher working interest wells with longer laterals compared to the prior quarter,” Papa said. “Overall, we continue to be quite pleased with the capital cost control our operations team has demonstrated this year and remain confident on delivering full-year total capital expenditures within our guidance range.”

“Through firm transportation and firm sales agreements, we have contracted capacity on numerous pipelines for 100% of Centennial's expected growth in gas,” COO Sean Smith said during the conference call. “Notably, these contracts cover Centennial's gas both to the Waha hub and out of the Permian Basin into 2022,” nearly all material amounts of gas for the foreseeable future.”

The agreements also allow Centennial to recognize the economic uplift of its natural gas liquids, which represented 15% of total revenue in the quarter, Smith said. “ a revenue stream we expect to continue to capture going forward.”

For crude oil volumes, Centennial secured two separate firm sales agreements during 3Q2018 with BP plc and ExxonMobil Corp., which initially provide takeaway for more than 50,000 b/d gross for 2019, or almost 70% of estimated production.

Capacity is to increase to 75,000 b/d gross during 2020, “with gradual step ups in future years,” Smith said. “Additionally, these contracts allow Centennial to gain exposure to higher price indices among the Texas Gulf Coast as approximately half of our 2019 crude oil volumes will receive Gulf Coast-linked pricing, further shielding us from potential Midland/Cushing basis volatility.”

Centennial plans to cover its remaining future crude bbl transportation through firm sales agreements with major purchasers.

For the rest of this year, Centennial is continuing to sell crude under existing term sales agreements. So far, so good, Smith said. “We feel very comfortable in our ability to get our oil on pipe and sold into liquid markets.”

At the end of the quarter, Centennial had $59 million in cash on hand and $540 million of long-term debt. Centennial also completed its fall borrowing base redetermination process, which boosted the borrowing base by 25% to $1 billion from $800 million.

Net income increased 172% year/year in 3Q2018 to $39.3 million (15 cents/share) from $14.4 million (6 cents).