Dallas-based RSP Permian Inc. grew second quarter production by 43% from year-ago levels and 15% from the first quarter. Encouraging drilling results in the Permian Basin of West Texas prompted the company to lift its 2014 production estimate and raise capital spending.

Production volumes for the quarter averaged 10,714 boe/d, or a total of 975,000 boe (71% crude oil, 17% natural gas liquids and 12% natural gas). The company updated its 2014 production outlook to 11,500-12,000 boe/d and increased expected total capital expenditures to $425 million.

“We have delivered two quarters of strong operating performance and growth since our IPO,” said CEO Steve Gray. “We are continuing to grow our horizontal drilling program with the addition of three horizontal rigs since this time last year, and we plan to add two more horizontal rigs by the end of the first quarter of 2015 for a total of six horizontal rigs. In addition, our recent agreement to acquire properties in Glasscock County [TX] adds a substantial inventory of horizontal and vertical locations in a top tier area in the Midland Basin and creates critical mass in a new primary operating area for RSP” (see Shale Daily, July 25).

During the second quarter, RSP drilled 17 horizontal wells (10 operated) and completed 16 horizontal wells (six operated). Of the six operated completed wells, RSP has one well targeting the Lower Spraberry, one well targeting the Wolfcamp A, three wells targeting the Wolfcamp B, and one well targeting the Wolfcamp D (Cline Shale). The average lateral length of those wells was 5,904 feet, and excluding the Wolfcamp D well, was 6,178 feet.

The 30-day initial production (IP) rate of all wells completed during the quarter was 675 boe/d (82% oil) or 112 boe/d per 1,000 feet of lateral. The average 30-day IP rate was 774 boe/d (82% oil) or 126 boe/d per 1,000 feet of lateral excluding the Wolfcamp D (Cline) well, which performed below average due to issues associated with hitting a fault during drilling operations. RSP has said it is in the final stages of a 3D seismic acquisition process that will provide data to optimize wellbore placement in the Wolfcamp D as well as other zones on its acreage.

During a second quarter earnings conference call, Gray said the company has plenty of running room. “In just several months since our IPO, we have made over $300 million of acquisitions and increased our horizontal inventory by 50% to a total of 1,760 locations, up from 1,169 at the time of the IPO,” he said. “This increase results from both acquisitions and from our evaluation of our well results and technical evaluation of our properties, which has led us to increase our…estimated well density or decrease our well spacing in some specific formations. Our recent horizontal wells have brought encouraging results.”

The company’s operated horizontal rigs are currently working in Midland County (one rig), Ector County (one rig), Martin County (one rig) and Andrews County (one rig). The three operated vertical rigs are working in Midland (two rigs) and Martin Counties (one rig). RSP said it expects to add a fifth horizontal rig in the fourth quarter and a sixth horizontal rig by the end of the first quarter of 2015. In addition, the company intends to maintain one vertical rig drilling on the properties acquired in Glasscock County upon closing of the Glasscock acquisitions.

The company is currently in the drilling or completion phase on 13 operated horizontal wells targeting four horizontal zones in four counties on its leasehold (Andrews, Ector, Dawson and Midland): three Middle Spraberry, five Lower Spraberry, one Wolfcamp A, and four Wolfcamp B.

RSP recently finished the drilling and completion of its first two horizontal wells in the Spanish Trail leasehold area off a two-well pad targeting the Wolfcamp B and Lower Spraberry. It also recently finished the drilling of another two-well pad in the Spanish Trail leasehold targeting the Lower and Middle Spraberry, and these two wells are the company’s longest two horizontals to date with each measuring 9,900 feet. Additionally, RSP finished drilling and completing its first two horizontal wells in Dawson County targeting the upper Wolfcamp and Lower Spraberry formations, which are in early flowback with results expected in the third quarter.

Gray cautioned that while RSP’s production will grow, that growth will be a bit lumpy due to the nature of its multi-horizon and multi-well pad development drilling and completion operations. This “…results in a significant amount of production being put online at one time. In addition, these completions often interfere with existing production as we shut in offset wells while hydraulically fracking our horizontal wells,” Gray said. Consequently some quarters may be a little higher than expected and some quarters may be a little lower, but the bottom line is we’re confident in our annual production range.”

RSP’s updated 2014 capital expenditures budget is about $425 million, excluding acquisitions, and includes $400 million for drilling and completion activities and $25 million for infrastructure and other projects. The company spent about $95 million in the second quarter, which included $89 million for drilling, completion and capitalized workovers.

The company reported net income of $8.2 million (11 cents/share) compared with $7.9 million in the year-ago quarter, which was before the company’s issuance of shares in its initial public offering.