In February of this year QEP announced strategic initiatives to transition to a pure-play Permian Basin company, reported fourth quarter and full year 2017 financial and operating results, and provided initial 2018 guidance and capital investment plan.
QEP’s Board of Directors has unanimously approved several strategic and financial initiatives to transition the Company to a pure-play Permian Basin company and to address the significant discount to net asset value reflected in the Company’s share price.
QEP had traditionally been a Haynesville, Williston Basin, and Pinedale Anticline operator. The Denver company is now attempting to reposition itself and significantly expand their potential drilling inventory in the Permian Basin.
In the Q4 of 2017 QEP finalized its exit from the Pinedale Anticline while also completing a $683.5 million purchase of 13,000 acres in the Permian Basin. The acquisition gave QEP the potential for 730 horizontal drilling locations targeting the Middle Spraberry, Spraberry Shale and Wolfcamp A and B intervals, with the footprint allowing for up to 10,000 foot-plus laterals at roughly 60% of those locations. The acquired assets currently produce 635 boe/d from 99 vertical wells, 71% weighted to oil.
QEP completed and turned to sales 24 gross-operated horizontal wells in the Q4 of 2017 (average working interest 100%), in two drilling spacing units (“DSU'”), one with eight wells and the other with 16 wells. Five wells in the eight well DSU targeted the Spraberry Shale and were completed having an average lateral length of 7,355 feet and achieving an average peak 24-hour IP rate of 185 Boed per 1,000 feet (86% oil). In the sixteen well DSU, three of the wells targeted the Wolfcamp A and five the Wolfcamp B. The Wolfcamp A wells were completed having a lateral length of 7,355 feet and achieved an average peak 24-hour IP rate of 164 boe/d per 1,000 feet (83% oil). The Wolfcamp B wells were completed with an average lateral length of 7,350 feet and achieved an average peak 24-hour IP rate of 133 boe/d per 1,000 feet (82% oil). None of the wells on either of the pads had reached 30-day peak rates at the end of the fourth quarter 2017.
At the end of the fourth quarter 2017, the Company had six operated rigs in the Permian Basin, 36 gross-operated horizontal wells waiting on completion (working interest 100%) and 11 gross-operated horizontal wells being drilled (average working interest 99%) and an additional 18 wells for which surface casing has been set (average working interest 95%) as of December 31, 2017.
Moving through 2018 QEP intends to market their North Dakota, Louisiana, and Haynesville assets to prove its focus as a Pure-Play Permian Basin Company. The board has approved $1.075 billion of capital investment for 2018, approximately 65% of which will be directed towards the Permian Basin. “Obviously it’s a good marker for the market,” QEP Resources Inc. Chief Executive Charles Stanley told Reuters on the sidelines of the Scotia Howard Weil energy conference in New Orleans.
He described this new approach as a desire to “simplify and streamline” operations, “concentrating our attention and efforts on our core Permian Basin assets where we believe we can deliver consistent production growth, while reducing drilling and completion costs.” In narrowing its focus to the Permian, Stanley said the current mix of five or six rigs operating may be changed, but for the near term that is how QEP sees its rig deployment. “Our base case assumption is that we run five or six rigs.”
Against all odds, the west Texas Oil Renaissance just keeps on going. QEP adds their name to the long list of operators shifting their focus to the prolific play in West Texas as they look to continue upward for a strong 2018. They will certainly be one of the new kids on the block and we should all keep a close eye on how things unfold for them in 2018 as it may be a great indicator of what to expect in 2019 for the Permian Basin.