When Energy XXI CEO John Schiller visited one of the company’s platforms in the Gulf of Mexico not too long ago, he noticed something different.

One of his production foremen had started tracking daily costs on the platform—a task common on the drilling side but not here.

Speaking during Barclays Energy Power Conference in September, Schiller mentioned how the foreman and others were paying closer attention to equipment costs, such as valves, and how it affects revenue at the field level.

“We’re going to go below our guidance in terms of our operating expenses,” Schiller said. “I think that’s a good indication of the change in the culture and how we are looking at things.”

The change in behavior is now a sign of the times as budget scrutiny travels from executive suites at corporate headquarters to the field. Commodity price instability has forced oil and gas companies to become more aware of money spent and the return on such investments as they work to maintain or grow production on lower operating costs while building reserves.

“Our strategy for fiscal year 16 and beyond is to focus on base production,” Schiller said during the conference, which was broadcast online.

The major Gulf of Mexico player, which has acreage in 258 blocks and proved reserves of 212 million barrels of oil equivalent, plans to reduce its capital spending in 2016 by 78% to between $130 million and $150 million.

“We’re taking things down significantly,” he said, noting the company feels comfortable with the 2016 numbers.

Production guidance for 2016 also shows Energy XXI aims to keep production in line with fiscal year 2015, targeting between 54,000 and 59,000 boe/d. Schiller said the company has shifted from looking for drilling locations to concentrating on how to grow its base production, including utilizing acid workovers, optimizing gas lifts and reducing downtime.

But the company’s focus will be on low-risk recompletions, something it has had success with, particularly at South Pass 78. This year, Energy XXI has nine recompletions online and one recompletion underway, with plans for one thru-tubing recompletion in 2016 at the block. Net daily production is about 5,450 boe/d at South Pass 78.

So far, the company has identified 140 recompletion opportunities in the GoM. Most are in the West Delta, Ship Shoal, South Timbalier and South Pass areas. Schiller said the company has singled out 22 behind pipe opportunities this year and 29 for next year.

“Those have always been the bread and butter of our business,” he said, pointing out the attractiveness of GoM stacked pays. In many instances, the company has already spent money on gravel-pack completions. “All we’re really doing in one zone is going below 50,000 barrels of oil a day—which is the economic limit—and then we’re coming back, setting a plug and sliding the sleeve.”

For less than $100,000, he said, such operations can bring back a 400,000 and 500,000 bbl/d zone.

“Over the next few years, we’ve got enough of those opportunities,” he added. “We can do a lot with our production just doing the recompletion opportunities.”

Growing reserves remains on the agenda. Schiller mentioned properties acquired from its deal with ExxonMobil and in the Main Pass Field area as having potential.

“We’re talking big fields underneath salt domes and on the edge of salt domes that have really never been drilled below 15,000 feet,” Schiller said.

His presentation pointed out that more than 1,200 shallow wells near salt domes have been drilled, but only 20 wells were below 17,000 feet.

“There are a lot of traps underneath here that have never been explored well within the producing horizons. We’re not talking about ultradeep stuff,” Schiller explained. “We’re talking 15,000-20,000 feet, and you’re going below fields that have made 500-600 million barrels. So you know you have hydrocarbons. You know you have a source there, but the key is finding the sands in a place where they trap against the salt.”

He described the opportunities as neither high-risk nor high-dollar, but reliant on 3-D seismic data. The company reportedly has an extensive seismic database that includes 16,800 sq miles of 3-D seismic data, 780 sq miles of WAZ 3-D seismic data and 155 sq miles of FAN 3-D data.

The focus on production and reserves comes with budget and fluctuating commodity prices in mind.

Energy XXI has reduced its lease operating expenses by 30% since first quarter and lowered its general and administrative costs by 32% since it merged with EPL Oil & Gas in 2014, according to Schiller’s presentation.

Breakeven costs have also fallen, and the company aims to reduce it further—from $52 to between $42-$44/bbl—looking to cut lifting costs, including for gathering and transportation, along with cash interest costs.

Key to Energy XXI’s survival, Schiller said, is the company’s large oilfields, which means “we don’t fight the extravagant declines that people like to associate with the Gulf of Mexico.”

“We’ve got a lot of oil in the ground, and we keep increasing that recovery factor,” he said.

Velda Addison can be reached at vaddison@hartenergy.com.

Offshore