Denver-based independent SM Energy Co. on Tuesday raised its second quarter and full-year production guidance on better-than-expected well performance in the Permian Basin as well as the Austin Chalk formation in South Texas.
Output to date in 2Q2019 has exceeded expectations, leading SM to raise guidance by 3.5%, or by 0.4 million boe at the midpoint.
"Higher than expected production volumes in the Permian reflect strong early performance from a number of new wells including the Wolfcamp D and Dean tests, as well as completion timing,” CEO Jay Ottoson said. “In South Texas, production is benefiting from our newly designed development wells, as well as a better-than-expected decline rate at a recently completed Austin Chalk test.”
“Strong” 30-day peak initial production (IP) rates were recorded for the Deal and Wolfcamp D wells in intervals in the RockStar area of the Permian Midland sub-basin. Dean produced 1,550 boe/d over a month’s time, while the Wolfcamp produced 1,400 boe/d.
The Dean test, 92% oil, was done on a 10,350-foot lateral, while the Wolfcamp D test, 80% oil, was pulled from a 7,920-foot lateral.
Solid results also were reported at the Watson State test in South Texas within the Austin Chalk, where the well had a 30-day peak IP of nearly 3,200 boe. Production was 55% liquids from a 12,875-foot lateral.
Achieving better well performance “while maintaining capital discipline further supports our goal to be free cash flow positive in the second half of this year,” Ottoson said. Increased drilling activity across Howard County in West Texas reflects “the high return potential of the area and has resulted in substantial activity around SM operations.”
Second quarter production guidance was revised higher to 12-12.2 million boe, or 132,000-134,000 boe/d, from previous guidance of 11.5-11.9 million boe, or 126,000-131,000 boe/d.
Full year guidance has been increased slightly to 45.4-48.4 million boe, or 124,000-132,600 boe/d, from 45-48 million boe, or 123,000-131,500 boe/d.
The production guidance “incorporates an estimate of the effects of shut-in volumes associated with offset operator completion activity weighted to the second half of 2019,” management noted.
In March SM said a package of completed wells in the Permian were impacted when a third-party natural gas processing facility declared a force majeure and went offline. High winds in West Texas in mid-March also caused electrical outages, which interrupted artificial lift installations on several wells, resulting in some temporary production shut-ins.