What Energen said at the Barclays CEO Energy Conference
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Energen Corp. (NYSE: EGN) highlighted the company’s progress in developing its oil and liquids properties in the Permian Basin as part of a long-term strategy of diversifying the company’s production and reserve base away from natural gas. These comments were made by management at an energy conference held for institutional investors in early September 2012.
Energen has been involved with the Permian Basin since the 1990s, and has been investing heavily here over the last few years. The company reported 54% of its proved reserves in this basin at the end of 2011 and will invest $950 million here in 2012 to develop resources.
Energen is targeting the Bone Spring and Wolfberry plays and will drill approximately 213 net wells in 2012. The company’s secondary targets include the Wolfcamp, Avalon and San Andreas plays.
Energen has 58,000 net acres in the Midland Basin that is prospective for the Wolfberry and plans to spend $450 million in capital here in 2012. The company estimates that the average vertical Wolfberry well will have an estimated ultimate recovery (EUR) of 155,000 barrels of oil equivalent (BOE) and cost $2.3 million to drill and complete. These wells are expected to generate a 33% pretax rate of return.
Third Bone Spring
Energen is also focused on the Third Bone Spring formation on 30,000 net acres in the Delaware Basin. The company said that a recent well drilled and completed here was the most productive well drilled to date in the play, with an initial production rate of 2,257 BOE per day.
Energen said that the average well will cost $6.9 million to drill and complete here and have a EUR of 475,000 BOE. The company will earn a 72% pretax rate of return on wells drilled into the Third Bone Spring.
One company that just started its Permian Basin development program is Gulfport Energy (NASDAQ: GPOR), which reported the results of the company’s first well here. The company said that the well had a peak production rate of 618 barrels of oil equivalent (BOE) per day and a 30-day average production rate of 486 BOE per day. Gulfport Energy drilled nine wells in the Permian Basin during the second quarter of 2012.
Another new entrant to the Permian Basin is Quicksilver Resources (NYSE: KWK), which has 105,000 net acres under lease here. The company recently reported the results of a well in Pecos County, Texas, with an initial production rate of 300 BOE per day. Although this might seem to be a disappointing production rate, Quicksilver Resources said that the well was drilled and completed with only a 1,500-foot lateral and six hydraulic fracturing stages. The company said that future wells here would be drilled with laterals from 6,000 to 7,500 feet and 20 hydraulic fracturing stages.
Occidental Petroleum (NYSE: OXY) is the largest operator in the Permian Basin with 3 million net acres under lease. The majority of the company’s production here involves enhanced oil recovery operations where Occidental Petroleum injects carbon dioxide into older wells to enhance and stimulate production. Occidental Petroleum reported total crude oil and natural gas liquids production of 177,000 barrels per day from the Permian Basin in the second quarter of 2012, and natural gas production of 269 million cubic feet per day.
Another large player in the Permian Basin is Apache Corp. (NYSE: APA), which has 1.6 million net acres under lease. The company reported April 2012 production of 101,000 BOE per day from its Permian properties, and expects to grow this production at a compound annual rate of 13% through 2016. Apache has budgeted $1.9 billion of spending here in 2012 and will operate an average of 32 rigs during the year.
Energen remains dedicated to the Permian Basin as the company looks to increase production of crude oil and other liquid hydrocarbons. This prolific basin has attracted many other operators with a similar strategy.
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