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Chaparral Production Guidance Higher as STACK Delivers

Citing strong well results in Oklahoma’s Sooner Trend of the Anadarko Basin, mostly in Canadian and Kingfisher counties, i.e. STACK, Chaparral Energy Inc. has increased its full-year production guidance.

Chaparral grew its STACK production to 15,663 boe/d in the third quarter, marking a 53% year/year increase from 3Q2017 and a 19% sequential increase.

“Our STACK wells on average continued to outperform type curve expectations and drove considerable STACK production growth of almost 20% quarter-over-quarter,” CEO Earl Reynolds said.

Excluding production from divested enhanced oil recovery assets, third quarter production grew on average by 11% year/year to 21,342 boe/d, of which 61% was liquids and 39% natural gas.

Given its strong well results, Chaparral boosted its full-year STACK guidance by 7% to 14,250-14,750 boe/d and increased total production guidance by 5% to between 20,250 and 20,750 boe/d. Fourth quarter STACK production is forecast at 16,250-17,250 boe/d, while total production is expected to be 21,250-22,250 boe/d.

The Oklahoma company’s drilling program for the first nine months was focused on developing Canadian and Garfield county acreage, “which continue to deliver strong internal rates-of-return ranging from 55% to more than 100%,” management said.

Overall during the third quarter, Chaparral operated three drilling rigs in Canadian, Kingfisher and Garfield counties. The company brought 12 gross STACK wells on production, four in Canadian County and eight in Garfield County, five of which were part of its joint venture (JV) drilling program with Bayou City Energy.

Also during the quarter, Chaparral brought online its first partial section spacing test in Canadian County within the Merge Miss formation. The three-well Denali pad “has exceeded expectations,” producing at an average three-phase, 30-day initial production (IP) rate of more than 1,200 boe/d per well, 75% liquids.

“Based on these results, we believe our Canadian County Merge Miss acreage could have as many as eight to nine wells per section,” Reynolds said.

The company plans to conduct more spacing tests, which in the near-term include a Kingfisher County partial section, five-well test scheduled to come online during the fourth quarter and an 11-well spacing test in Canadian County. The 11-well spacing test, which includes a nine-well Merge Miss full section test and a two-well Woodford partial section test, is slated to come online in early 2019, Reynolds said.

In Garfield County, recent notable wells include the Pear 2106, which produced at a three-phase, 30-day IP rate of 1,351 boe/d, 87% liquids, and the Platter 2007, a JV well, which recorded 729 boe/d on the same basis, 83% liquids.

Meanwhile, results from Chaparral’s Meramec and Osage programs in Oklahoma continued to exceed type curve expectations, and management said about 50% of its Garfield County position has been derisked in at least two distinct drillable targets in the Meramec and Osage. Chaparral also said it has effectively derisked more than 80% of its Merge Miss position in Canadian County.

“The company continues to optimize the development of its STACK acreage and plans to test different pad sizes and spacing throughout 2019,” Reynolds said. “As a result of Chaparral’s strategic well optimization and spacing test activities, the company expects some variability in its quarter-over-quarter STACK production growth profile moving forward.”

Citing the increased production, Chaparral lowered its full-year lease operating expenses/boe guidance by 6% to $7.25-7.65. The sale of higher cost, noncore properties and sustainable saltwater disposal cost reductions also contributed to the lower guidance.

Chaparral realized $29.7 million in proceeds from assets sales during the third quarter, including the sale of a portion of its saltwater disposal infrastructure for $8.3 million. It also closed on various other assets, resulting in cash proceeds of $21.4 million.

The divesitures bring the year-to-date total cash proceeds to $36.3 million and account for about 1.4 MBoe/d of associated net production. Chaparral expects additional asset sales in the fourth quarter and anticipates proceeds to be in line with its previously stated 2018 asset sale guidance of $50-60 million.

Chaparral filed for bankruptcy protection in May 2016 and used Chapter 11 as an opportunity to shed $1.2 billion in debt and begin its reorganization. The company emerged from bankruptcy in April 2017.

Chaparral reported a net loss of $12.1 million (minus 27 cents/share) during the third quarter of 2018, compared with a net loss of $19.1 million (minus 42 cents) in 3Q2017. The loss was driven by a $16.8 million derivatives loss.

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