Austin-based Jones Energy Inc. said more than half of its gross identified drilling locations are in its growing Merge play, which is now about 21,000 net acres in the Eastern Anadarko Basin; it “has transformed” the company’s asset base, Jones said.

“The Merge program kicked off in 2016 with our initial rig deployed to the field drilling a two-well pad. It is early days, but we feel confident that additional upside from our acquisition assumptions have already emerged with more potential landing points identified, offset operator density tests and early-time out performance from nearby wells,” said CEO Jonny Jones. “Solid results from offset operators and elevated activity in the region further validates our beliefs that Merge is one of the premiere U.S. onshore resource plays.”

The company produced 1.8 million boe in the fourth quarter and an estimated 7 million boe for the full year. Oil volumes comprised 23% of production for the fourth quarter and 24% for the full year. Natural gas liquids volumes accounted for 32% of fourth quarter production and full-year volumes. During the fourth quarter, liquids accounted for 56% of total production.

Production in the fourth quarter of 2016 was within guidance but was hurt by foul weather, completion delays and mechanical issues. About seven wells were carried into the first quarter for completion. Beginning the week of Jan. 8, operations were affected by severe ice storms, which caused power outages across the Panhandle region, taking about 140 wells offline for nine days, representing about 25% of total operated producing wells in the Western Anadarko. Jones Energy has since restored power and the wells are back online. The effects of the inclement weather have been accounted for in first quarter production guidance.

“During 2016 we also met and exceeded our goals, raising production guidance by 7% and improving our cost structure across the operated program, realizing significant cost savings from both operational efficiencies and bid reductions. This resulted in a 50% decrease in average Cleveland well costs since year-end 2014 with 4Q16 average Cleveland D&C [drilling and completion] cost of $2 million and average spud-to-spud time of 17 days, with a record of 14 days achieved earlier during the year,” CEO Jones said.

Year-end proved reserves were 105.2 million boe, of which 59% were classified as proved developed. Total proved oil reserves at year-end were 23.6 million bbl compared to year-end 2015 proved oil reserves of 25.4 million bbl. Reserves were determined utilizing a WTI oil price of $42.75/bbl and a Henry Hub spot market natural gas price of $2.46/MMBtu.

As of December 31, the Company had identified 2,716 gross drilling locations. These include 1,567 gross drilling locations in the Merge, of which the company has approximately 353 gross operated locations with an average working interest of 54%. The 353 gross operated locations are based on two benches in the Woodford, two benches in the Sycamore, and average well density of four wells per bench. Jones said it aims to continue growing the number of operated locations through organic leasing, pooling efforts and purchasing other acreage.

The company established an initial capital budget of $275 million for 2017, composed of $232 million D&C for capital expenditures and the remainder allocated to workovers, leasing and field maintenance. Of the total D&C budget, 47% is dedicated to ongoing drilling activity in the Merge.

Jones said it intends to build operational momentum in the Merge throughout 2017 by increasing the rig count from the current one-rig pace, deploying a second rig in July and a third likely to follow by the end of 2017. It expects to drill 26 gross (17 net) wells in the Merge during the year. In the Cleveland, the company plans to maintain its three-rig program for the year and expects to drill 56 gross (45 net) wells in 2017.

Average daily production during 2017 is expected to be 20,700 to 23,000 boe/d.