With an average production rate of almost 10 MMcf/d in the first quarter, a discovery well in the Piceance Basin may produce in the first few months what a typical well in the Niobrara formation has done over 25 to 30 years, WPX energy CEO Ralph Hill said Thursday.
The one gas discovery well alone “has the potential to more than double” proved, probable and possible (3P) reserves, he said during an earnings conference call. “The discovery well in the Piceance Basin registered an average production rate of almost 10 MMcf/d in the first quarter, despite being choked back substantially,” Hill said. “It has already exceeded more than 1 Bcf in cumulative production.”
A second horizontal is under way in the Niobrara, with three more expected this year.
Echoing comments by other gas-weighted operators, Hill said the Tulsa, OK-based explorer is “encouraged by the stronger prices that started late in the quarter” (see related stories). “WPX is ideally suited to capitalize on gas if the improved pricing is sustained. We have the track record, properties, permits, infrastructure and access to rigs to ramp up quickly, especially in the Piceance.”
WPX participated in 115 gross (92 net) U.S. wells in the the first three months of 2013, which were completed and readied for sales. Most of the wells were in the Piceance Basin, with 74 gross (71 net) wells, on five rigs running for most of the quarter.
The operator is sitting on estimated 10,000 remaining undrilled 3P locations in its Piceance “cornerstone asset,” which could substantially increase its proved reserves numbers, which totaled 4.5 Tcfe at the end of 2012.
“With increased natural gas prices, we think a more representative measure of our portfolio is our alternate reserves scenario showing 5.3 Tcf of domestic proved reserves, calculated using 2011 pricing featuring $3.68 natural gas which is below current prices,” Hill said.
In the Williston Basin, 12 gross (nine net) wells were completed in the first three months with four rigs deployed. “A shift to multi-well development pads, along with new completion efficiencies, is driving lower costs,” down 10-20% with the improvements,” management said. Three Williston wells were drilled simultaneously in less than seven days using a “zipper frac” hydraulic fracturing application. “Previously, it would have taken 15 days to complete the three wells individually.”
In the Appalachian Basin, Marcellus Shale production increased in 1Q2013 by 40% to 74 MMcf/d. The March exit rate was about 82 MMcf/d. WPX also completed seven gross (six net) wells in the basin from January through March; it has one rig deployed in Westmoreland County, PA. In Susquehanna County, PA, infrastructure resolutions also are ongoing.
Results in the first three months of this year were in line with the company’s guidance, Hill said. “Domestic oil production is up. Appalachian production is incrementally higher and poised to keep growing with the infrastructure progress that’s finally beginning. We’re also creating value through cost savings…And we’re seeing the benefit of our new Willow Creek contract. That resulted in nearly $11 million of savings on Piceance gathering and processing expenses in the first quarter.”
Overall, U.S. and and international oil and gas production fell 10% from a year ago to 1.268 Bcfe/d. Total gas output declined 10% to 1,021 MMcf/d, with San Juan Basin down 10%, Powder River Basin off 7%, and in the Piceance, gas output fell 4%. Only in the Marcellus Shale was gas production higher year/year, up 4%.
The gas declines followed WPX’s decision to reduce development in the lower price environment. “For example, on average, it takes approximately seven drilling rigs to maintain a flat natural gas production rate in the Piceance Basin,” management said. “At lower gas prices, WPX deployed an average of five rigs in the Piceance in the latter half of 2012 and first quarter of 2013.”
Earnings were well below the year-ago report, with net losses from continuing operations totaling $116 million (minus 58 cents/share), versus a loss of $41 million (minus 21 cents) in the year-ago period. Excluding unrealized mark-to-market losses, continuing operations lost $51 million (minus 25 cents/share), versus a year-ago loss of $7 million (minus 4 cents).
Net realized average prices for natural gas, including hedges, were $2.90/Mcf, down 17% from $3.48 in 1Q2012. Year/year, average oil prices were $89.77/bbl, up 6%, while NGLs fetched $28.21/bbl, down 16%.
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