WPX expanding to nine-rig drilling program
WPX Energy said today it plans to operate an average of two more drilling rigs in western Colorado’s Piceance Basin this year, boosting its local total to nine at a time when little other drilling is occurring in the region.
The move could increase its annual Piceance capital expenditure by about $100 million, to nearly a half-billion dollars. About $75 million alone will go toward the drilling of up to 10 additional exploratory wells in the Niobrara formation, where initial WPX wells have been highly productive.
Most other companies have suspended their Piceance drilling due to low natural gas prices and in many cases the desire to drill for more oil and liquids in other areas. In December, Encana USA, which a month earlier was operating five Piceance rigs, said it was taking a break from local drilling.
According to both WPX and analysts following the company, its Piceance holdings are such a sizable part of its overall revenue that it’s important for the company to keep up local gas production.
“The Piceance is an absolutely critical part of our business,” WPX spokesman Kelly Swan reiterated today.
The company says it expects to grow its local production of gas and associated liquids by 6 percent this year, and drill up to 285 wells in the Piceance during the year. Local capital spending could run from $475 million to $495 million.
Part of this year’s work will involve trying to assess the size of WPX’s Niobrara gas assets by doing what’s called delineation drilling in various parts of the company’s oil and gas acreage in the Colorado River Valley. This year’s work is aimed at letting it finish delineating 80 percent of that acreage.
WPX and other companies have largely been producing out of a shallower sandstone formation in the basin. What WPX is calling a discovery well it drilled near Parachute in 2013 produced more than 2.2 billion cubic feet of natural gas in a year’s time, which is more than many typical local wells produce in 30 years. A second well it drilled in September produced 0.7 bcf in four months.
Both wells involved drilling down and then horizontally into the formation, unlike most local wells that go vertically through the producing sandstone formation. The $75 million expense involved in drilling up to 10 more Niobrara wells relates to the added cost of horizontal drilling into a deep, high-pressure formation and the exploratory nature of the Niobrara program.
“There’s a learning curve involved and we’re excited about the potential,” Swan said.
By comparison, WPX’s other Piceance work benefits from economies of scale and efficiencies due to having drilled some 4,300 local wells, which make continued drilling worthwhile even with lower gas prices, Swan said. While prices have ticked up some due to short-term home-heating demand resulting from a cold winter, he said the longer-term outlook is for a flattening of prices.
Nevertheless, in the Piceance, he said, “we’re up about $100 million in spending. We’re going to be up two rigs. … It’s definitely positive news for the Western Slope.”