Permian Basin pure-plays Laredo Petroleum Inc. and Centennial Resource Development Inc. each reported production impacts from the freezing weather wrought by Winter Storm Uri during February, but the storm also resulted in a sharp uptick in revenue from selling more oil and gas.
Tulsa,OK-based Laredo reported Permian volumes were down year/year at 78,989 boe/d from 86,532 boe/d, in part because of the freeze that slammed Texas during February.
The executive team held firm, though, on keeping costs down and efficiencies up, Laredo CEO Jason Pigott said during the quarterly conference call.
“We maintained a disciplined approach to personnel expenses, continued to drive well costs lower, substantially outperformed our assumptions for lease operating expenses and quickly and safely overcame disruptions that arose from adverse weather in the Permian Basin,” Pigott said.
Transitioning development to Howard County in West Texas “is driving an inflection point in the company’s capital efficiency, and we are continuing to optimize our land position and development plan to facilitate further improvements.”
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Winter storms in the Permian temporarily disrupted production activity, as well as drilling and completions operations. The total impact to production was 5,700 boe/d, with 1,700 b/d of oil impacted.
Oil volumes fell year/year to 2.18 million bbl from 2.66 million bbl, with natural gas liquids (NGL) at 2.3 million bbl from 2.47 million bbl. Natural gas declined year/year to 15.63 Bcf from 16.51.
However, realized commodity prices were much stronger than in 1Q2020. Oil prices increased to $58.48/bbl from $45.16, while NGL prices improved to $17.96/bbl from $4.68. Realized natural gas prices averaged $2.12/Mcf, versus 26 cents in 1Q2020.
Oil production overall was positively impacted from 4Q2020 by Laredo’s first package of wells in Howard County. The 15-well Gilbert/Passow assets were the primary driver of 11% sequential growth. Late in 1Q2021, Laredo also completed the second package in Howard County, the 12-well Trentino/Whitmire assets.
Laredo in May was operating two drilling rigs and one completions crew in Howard County and was expecting to complete the 13-well Davis package by the end of June.
Regarding its environmental, social and governance (ESG) initiatives, Laredo in February committed to significant reductions in the Permian to its greenhouse gas intensity and methane emissions, setting a goal to eliminate routine flaring by 2025.
During 1Q2021, Laredo flared/vented 0.22% of produced natural gas, down from 1.52% in 1Q2020 and 0.71% for full-year 2020.
The board also has integrated targets to reduce flaring and reportable spills into the executive compensation program, linking 15% of the short-term incentive program payout to these metrics.
Laredo’s net losses were $76,201 (minus $6.33/share) in 1Q2021 in part on a bad derivatives bet. Profits in 1Q2020 were $74,646 ($6.43/share). Revenue increased year/year to $250,230 from $204,992. Net cash from operations dell to $71,151 million from $109,589.
Meanwhile, Denver-based Centennial, whose operations are based in the Permian Delaware sub-basin, said total production averaged 54,202 boe/d, versus 71,820 boe/d in 1Q2020. Uri also was blamed on the shortfall, with average output from 4Q2020 down 9% and oil volumes declining 6%.
Volumes were “impacted by a lack of completion activity during the prior quarter as well as production downtime” from Uri, CFO George Glyphis told investors during the quarterly conference call.
Uri and related power outages during February shut down most of Centennial’s production over seven days.
“We expect that first quarter levels will be a low point for the year as production rebounds in the second quarter,” Glyphis said.
Uri proved beneficial to the bottom line, however, from higher natural gas, NGL and oil prices. Revenue totaled the $192.4 million in 1Q2021, 30% higher sequentially.
Realized oil prices were $52.62/bbl, up $12 from 4Q2020, which drove a 19% increase in revenue. NGL prices averaged $29.78/bbl, nearly 70% higher sequentially. And natural gas revenue “essentially doubled,” to $35.5 million, Glyphis said, “despite a 7% production decline.”
CEO Sean R. Smith said Centennial “has now transitioned to a sustainable free cash flow generating company. At current strip pricing, we expect to continue to repay borrowings on our credit facility and organically delever the balance sheet through year-end.”
In addition to its impact on production, severe winter weather also affected some revenue and cost items. Revenue from natural gas sales increased 100%. However, while gas revenue improved, Centennial incurred higher than expected lease operating expenses, or around $4.93/boe, because of elevated electricity costs. Higher gas prices also drove an increase in gathering, processing and transportation expenses.
Still, the higher gas revenue “more than offset increased operating costs during the quarter,” Smith said.
Centennial operated a two-rig drilling program with one completion crew during 1Q2021. “During the quarter, we reduced our spud-to-rig release times by 11% compared to the prior-year period, while increasing our average lateral length by 17%,” said Smith. “As a result, our operations team achieved an average gross well cost of $795/lateral foot for the quarter.”
Centennial reported net losses in 1Q2021 of $34.6 million (minus 12 cents/share), down from year-ago net losses of $548 million (minus $1.99).
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