WPX tapping ‘massive’ gas opportunity
WPX Energy has been increasing well densities and decreasing the cost of drilling in Rio Blanco County, boosting the promise of a growing development program there in future years.
The company has completed a pilot program in its Ryan Gulch area and determined that drilling one well every 10 acres will be optimal in most if not all of that area, Bryan Guderian, WPX senior vice president of operations, said recently during a conference call following release of the company’s quarterly earnings report.
At such a density, the company has estimated it could potentially be involved in drilling as many as 4,300 wells on 35,000 acres it controls in Ryan Gulch and on other acreage controlled by a company it is partnering with there. That means there’s “opportunity for some pretty massive growth” in that area, he said.
Ten-acre drilling has become standard in Garfield County as companies have determined it to be necessary to adequately drain natural gas from the sandstone formations being targeted. In Rio Blanco County, which has seen less gas development so far, WPX mostly has been doing 20-acre drilling.
It’s also typically necessary in the higher-elevation Rio Blanco County terrain for WPX to have to drill 12,000 feet to reach the producing formation, versus maybe 8,000 feet in what the company calls its valley program in Garfield County, said spokesman Kelly Swan. That requires more drilling days and increases the cost of its highland drilling, something that takes on increased significance when natural gas prices are low as they have been in recent years.
However, Guderian said WPX has made “remarkable strides” over the past five years in reducing those costs even while drilling increasingly productive wells.
The company says its Ryan Gulch wells are showing higher productivity than its valley wells, and yielding higher amounts of natural gas liquids that can boost a well’s profitability.
Meanwhile, from 2008-13 the company has decreased drilling times in Ryan Gulch by 55 percent, having recently drilled a well there in just eight and a half days. It reduced well costs there over the same time frame by 44 percent, including a 20 percent reduction in just the last year. Guderian said WPX is reaching the point where its highlands program costs are nearly competitive with those of its valley drilling.
He said WPX continues “to stretch the efficiency envelope” in its drilling in western Colorado’s Piceance Basin. It’s currently directionally drilling 36 wells from one pad, a new record for the company. Encana has drilled the most wells from a single pad — 52 — in the Piceance.
WPX currently is doing most of the drilling occurring locally, and recently revealed plans to add two additional rigs this year in the Piceance, upping its local total to nine and increasing its local capital spending this year by as much as $100 million, potentially reaching $495 million.
About $75 million of that will go to drilling up to 10 more exploratory wells in the deeper Niobrara formation, where initial horizontal drilling has resulted in hugely productive wells.
Additional wells are being drilled to better delineate the extent of the Niobrara gas resources within WPX’s acreage, and WPX plans to drill one of those wells in Ryan Gulch.
The Niobrara wells present challenges for WPX, such as the need to bring in a rig capable of handling the higher gas pressures being encountered. Deep horizontal wells that go down and then sideways are more expensive to drill and produce from, and WPX is working on reducing costs as it learns lessons from its early wells.
“The focus will be to transition this exploratory play to commercial development quickly and prudently, and the potential remains very exciting for us,” Guderian said.
Altogether last year in the Piceance, WPX undertook drilling on 210 wells. It expects to drill as many as 285 local wells this year and increase its Piceance production rate for gas and associated liquids by 6 percent.
Last year’s Piceance production averaged 727 million cubic feet equivalent per day, out of about a total 1 billion cubic feet equivalent per day from all the company’s primary areas of focus, demonstrating the overall importance of WPX’s Piceance drilling to the company. Those numbers fold in liquids production, which in the case of the Piceance averages about 17,300 barrels of natural gas liquids a day.
WPX last week reported a net loss of nearly $1.2 billion, compared to a $223 million loss the prior year. The company attributed most of that loss to what it calls non-cash impairment charges arising from declining natural gas prices on its Appalachian properties.
The company benefited from a 15 percent decrease in gas gathering, processing and transportation costs last year, including a $41 million savings from renegotiated gathering contracts in the Piceance Basin.
WPX Interim President and Chief Executive Officer Jim Bender said last week that the company has undertaken a detailed study of costs so it can take whatever actions are needed to better align them with its operations.