The Permian Basin has a long history of oil production. Since the mid-1960s the basin has produced about 1 MMbbl/d of oil. With the advent of horizontal drilling and hydraulic fracturing, production has jumped to slightly more than 2 MMbbl/d in 2016. That has attracted a lot of industry interest and a high level of merger and acquisition activity.

The Permian has the highest number of operating rigs among U.S. shale plays, according to the Feb. 19, 2016, rotary rig count. The 165 rigs are less than half the number of rigs (362 units) operating a year earlier. However, production remains high because of the new technology and well designs operators are using.

The U.S. Energy Information Administration in its February 2016 Permian Region Drilling Productivity Report noted that new-well oil and gas production per rig continues to increase slightly, while the drilling rig count keeps declining.

As Tim Leach, chairman, CEO and president of Concho Resources, said in a press release for the company’s fourth-quarter 2015 report, “Concho achieved record operating performance in 2015. This performance demonstrates our ability to adapt to challenging conditions and generate greater capital productivity across our assets while strengthening our portfolio. Looking ahead to 2016, we plan to execute a disciplined capital program focused on capturing operational efficiencies and optimizing development.”

Concho is one of several companies that have had continued success in the Midland and Delaware basins in West Texas and eastern New Mexico, including EOG Resources and Chevron.

At first glance little has changed in Permian Basin completion practices, particularly in a commodity price environment that places an emphasis on reduced costs. Although completions are primarily done with slick water, stage spacing of 76 m (250 ft),
and plug and perf, there are some new processes that are being introduced, according to the Hart Energy Market Intelligence Series.

Experimental work is being done on refracturing wells. There is a continued decrease in zipper fracks as a percentage of the marketplace. That share fell to 42% of wells among those surveyed—a significant drop over the last 90 days from the 56% reported in the last Permian Basin downhole survey, the report stated.

Zipper fracks are a proxy for batch completions, and this suggests that the backlog of drilled-but-uncompleted (DUC) wells continues rising in the Permian. The basic story is that completions continue but at a much slower rate and are done one well at a time, the report continued. Proppant use remains high at 7.9 million pounds per lateral on average, down incrementally from the 9 million pound average 90 days ago, the report continued.

Balancing capital spending, cash flow
In its Feb. 24 fourth-quarter 2015 report, Concho emphasized that it will scale its capital spending with cash flow due to persistently low commodity prices. The company expects to spend from $1.1 billion to $1.3 billion in 2016, with about 90% for drilling and completion activity. Production for 2016 is expected to be flat-todown about 5% compared to 2015. The 2016 production outlook is primarily driven by the reduction in activity year-over-year (yoy), shifting to pad drilling and the timing of completion activity. Concho’s 2016 capital plan does not include acquisitions.

“Our improving operational efficiency and high-quality drilling inventory provide increasing confidence that we can do more with less. For 2017, we believe we can continue to balance capital spending and cash flow and deliver double-digit production growth based on the current commodity price outlook,” Leach said.

During the fourth quarter, Concho averaged 12 rigs compared to 15 rigs a year earlier. Concho started drilling or participating in 67 gross wells (41 operated) and completed 62 gross wells during fourth-quarter 2015.

In the Delaware Basin during the fourth quarter Concho drilled 28 wells, including nine wells in the Avalon Shale, 10 wells in the Bone Spring Sands and nine wells in the Wolfcamp. Specifically in the southern Delaware, the company posted a 20% reduction in drilling days and a 40% reduction in stimulation costs per lateral foot, both yoy.

The company currently has six horizontal rigs in the northern Delaware Basin and two horizontal rigs in the southern Delaware Basin. The company currently has one horizontal rig in the Midland Basin, and it has one horizontal rig on the New Mexico Shelf.

Concho targets the Avalon Shale and Wolfcamp in the northern Delaware Basin. The target is the upper Wolfcamp in the southern Delaware Basin. In the Midland Basin, Concho has consistently strong results in the Wolfcamp as well as successful delineation wells in the Lower Spraberry.

Will Giraud, Concho’s executive vice president and chief commercial officer, speaking at Hart Energy’s Executive Oil Conference in November 2015, said, “The theme for all the teams for 2016 is ‘better laterals, faster drilling times, cheaper overall.’”

Average well costs are $2.5 million to $3.5 million, and the company has pushed drilling costs per lateral foot down 11% yoy.

“The Permian is the place—it’s the last oil basin standing, the last place you can put together a material position, the last place you can drill with today’s prices and make money, the last place with tremendous resource yet to be discovered and the last place you can still get step changes in efficiency,” he said.

Maintaining Permian operations
In the Permian Basin, Chevron focused on development drilling of shale and tight resources in the Midland and Delaware basins focused on horizontal wells with multistage fracture stimulation. The company holds about 500,000 net acres in the Midland Basin and 1 million net acres in the Delaware Basin. The company drilled 147 wells and participated in 180 nonoperated wells in the basins in 2015, according to its Form 10-K filed Feb. 25, 2016.

In 2014 Chevron drilled 176 company-operated wells and participated in 206 nonoperated wells during 2014. These activities used vertical as well as horizontal pad drilling and multistage fracture stimulation.

These operated and nonoperated development activities have defined multiple liquids-rich stacked plays. As a result, significant potentially recoverable oil equivalent resources have been added, and additional exploration opportunities have been identified, according to Chevron.

Cutting costs from company operations
EOG Resources added 26,000 net acres to its Delaware Basin position in third-quarter 2015 through three acquisitions in Loving County, Texas, and Lea County, N.M., for $368 million.

The company completed 12 wells in fourth-quarter 2015 with average 30-day IP rates of 1,495 bbl/d of oil, 300 bbl/d of NGL and 71 Mcm/d (2.5 MMcf/d) of natural gas. EOG plans to complete 75 net wells in the basin in 2016 compared to 74 net wells in 2015.

For the Delaware Basin Wolfcamp, EOG added 950 net drilling locations and increased its net resource potential estimate more than 60% to 1.3 Bboe. In the Second Bone Spring Sand oil play, the company added 1,250 net drilling locations in this high-quality crude oil play.

EOG has taken on the challenge of reducing costs. One method the company has used is high-density fracturing, which clusters fractures within about 91.5 m (300 ft) of the wellbore. In 2010, EOG’s fracturing created about 540 events per 305 m (1,000 ft). In 2015, about 4,030 fracturing events were created along the same distance.

More acquisitions, divestments
On Feb. 11 Energen Corp. reported that in 2016 it was selling the remainder of its San Juan Basin assets along with noncore assets in the Delaware Basin, which would allow it to focus on its best assets in the Midland and Delaware basins.

The sale would leave the company with about 4,440 net drilling locations. In 2016 the company plans to complete 47 horizontal wells in the Midland Basin, including 46 wells that were DUC at year-end 2015.

A new company, Luxe Energy, entered the Delaware Basin with the acquisition of 18,000 net acres from Endeavor Energy Resources LP and Finley Resources Inc. for an undisclosed sum, according to a Jan. 21 press release from Luxe Energy LLC.

Luxe’s purchase includes certain undeveloped acreage along with producing oil and gas properties located in Reeves and Ward counties, Texas. Current net production is about 1,000 boe/d.

“This is our first step, with the support of Natural Gas Partners, to build an inventory of highly meaningful and economic well locations,” said A. Lance Langford, Luxe CEO and president, in a statement.

WPX Energy Inc. bought the Permian assets of RKI Exploration & Production LLC in August 2015 for $2.75 billion. The company has been divesting other assets to cover the cost of the acquisition. On Jan. 1, 2016, WPX said it signed an agreement to sell its San Juan Basin gathering system for $309 million to ISQ Global Infrastructure Fund, which is managed by I Squared Capital. The deal is expected to close in first-quarter 2016.

WPX also is shopping its Piceance Basin assets of about 200,000 acres and 11,000 drilling locations. In November 2015 WPX divested a North Dakota gathering system and Powder River Basin coalbed methane assets.

Parsley Energy Inc. said Dec. 9, 2015, it entered an agreement to purchase Midland Basin assets for $148.5 million and also will sell equity in the company.

Parsley will acquire undeveloped acreage and producing oil and gas properties adjacent to its operating areas in Upton, Reagan and Glasscock counties, Texas, from PCORE Exploration & Production LLC, a portfolio company of Natural Gas Partners. Parsley will get 238 net horizontal drilling locations across 5,274 net surface acres.

Fewer rigs, higher production
RSP Permian Inc. said it closed its deal Nov. 18, 2015, to acquire 4,100 net acres in the Midland Basin, according to a November 2015 press release. The company purchased an estimated 86 net horizontal locations from Wolfberry Partners Resources LLC with about 15,000 net effective horizontal acres of drilling space at average lateral lengths of 2,469 m (8,100 ft). RSP has completed acquisitions of 10,700 net acres for $450 million since August.

Steve Gray, RSP Permian CEO, said Nov. 2, 2015, that because of weak oil prices, “we have elected to drop from four operated horizontal rigs to three rigs this month and plan to moderate our completion pace to maintain our capital discipline [and] liquidity position and prudently manage our outspend going into 2016.”

Despite the decrease in rigs, RSP increased its 2015 production guidance due to stronger results in the year’s first three quarters, the impact of other acquisitions, and anticipated drilling and completion for the remainder of the year.