Denver-based independent SM Energy Co. said a package of wells in the Permian Basin have been drilled and completed within budget, but a third-party natural gas processing facility offline because of a force majeure has impacted sales.
SM said gas sales in the Permian remained impacted because of a slower-than-expected return of the third-party gas processing plant to full capacity. It did not identify the plant. High winds in West Texas during the week of March 12 also caused electrical outages, which interrupted artificial lift installations on several wells, resulting in some temporary production shut-ins.
Earlier this month, natural gas spot prices in West Texas gained sharply for several days before dropping back down in the past few days. RBN Energy LLC analyst Jason Ferguson at the time attributed the stronger West Texas prices to a drop in gas production associated with power outages “that impacted some processing plants” in the Permian.
Meanwhile, SM said its 25-well Merlin Maximus development in the Permian was off to a strong start, with one well intentionally shut in to monitor subsurface pressure. The wells in the RockStar operating area in the heart of the Permian, are on production as scheduled.
"While it is very early data, all wells are meeting or exceeding production expectations," management said in an operational update Thursday.
Nine of the wells target the Lower Spraberry formation, while 11 were drilled into the Wolfcamp A interval and five targeted the Wolfcamp B. The wells were drilled across a 1.1-by-2 mile development area, with average lateral lengths of 10,300 feet. Additionally, produced water from the wells was being fed into the company's new water management system to transport either to SM's operated disposal wells or for recycling/reuse in future completions.
"This is a tremendous project that includes co-development of three intervals while applying and testing some of the latest science and technologies for landing zones and completions," said CEO Jay Ottoson. "Success in the co-development of multiple intervals with larger development pads sets the stage for continued improvement in capital efficiency in the Permian Basin as we seek to optimize returns."
Despite the setbacks, SM reaffirmed its production guidance of 10,500-10,900 boe for 1Q2019.