American Oil and Gas Reporter - December 2016 - 88

ConventionCoverage: Permian Basin Petroleum Association
challenge is to get the right people and
train them in the short term," he said.
"During the last five or six years, a lot of
people came into the market that were
less than high-caliber. When running an
expensive operation, we don't need lowcaliber people."

Prevailing service prices are unsustainable
assesses Schlumberger Permian Basin
Region Vice President David Christmas.
During his remarks on the second day of
PBPA's annual meeting, held Oct. 26-27
in Midland, Christmas indicated that
stronger rates would allow service companies to add crews and equipment to
bring additional capacity back to market.

Good Help Wanted
Without additional revenue, necessary
investment in people and equipment will
languish, warned W. Stacy Locke, president and chief executive officer of San
Antonio-based Pioneer Energy Services.
The downturn has forced his company,
which offers drilling and production services, including wireline, well servicing
and coiled tubing, to downsize substantially as revenue dove from 2014 to this
year. During the same period, he said,
the company dropped from about 4,000
employees to about 1,500. "This has been
a very devastating downturn," Locke said.
Some competitors in production services already have sought federal bankruptcy protection, he pointed out.
Although it has cut crews and equipment, Pioneer has continued to look for
innovative ways to save operators time
and money, including adding high-spec
AC powered walking rigs with 500-ton
top drives, Locke said, but he added that
his company's day rates were as low as
they could go. "We are trying to save
every hour we can on the part we contribute to an operation," he said. "We are
getting close to our limits."
Locke predicted rigs would return,
but crew training remained a major concern. "I always fear somebody getting
hurt," he said. "That chills everybody."
The most important component to Permian Basin operations is high-quality
people, Christmas indicated. "The biggest
88 THE AMERICAN OIL & GAS REPORTER

Long-Term Strategy
It is possible the commodity market
will not balance for another year, but
service sector costs will increase, assessed
Denzil West, CEO of Midland-based Reliance Energy Inc. Service cost declines
often lag 10 months behind oil and gas
price drops, West said, but more activity
will boost service rates.
"It is driven by activity and not oil
prices," West asserted. "We may see some
service price escalation before we see an
increase in the crude price, which is a
big concern to all of us who operate. We
have to strike that balance between service
companies and (producers). That is easier
said than done."
According to West, he and company
founder Gary McKinney have focused
on keeping the company's ownership in
private hands while utilizing a proven
track record of developing acreage and
transmission systems, then divesting assets
to larger independents. Armed with proceeds from a sale of Delaware Basin
holdings to Pioneer Natural Resources
in 2007, founders of Reliance Energy
began focusing on prolific Wolfberry
acreage on ranches in the northern Midland
Basin in 2008, he recounted.
Relying initially only on mezzanine
financing, the company drilled more than
40 wells from 2008 through 2010, with a
focus on completing Wolfberry wells
deeper into the Strawn and Atoka, West
elaborated. In 2010, the company divested
about 9,000 acres to Occidental Petroleum
Corporation, which allowed Reliance's
principals to pay off the existing financing
and build the company. From 2011 to
2016, Reliance drilled approximately 300
vertical wells and 50 horizontal wells, he
said, adding that the company recently
divested properties to Concho Resources
Inc.
"Basically, we grew this over an eight
year time frame," West explained. "It
was a slower trip without equity sponsorship, but in the end, Reliance owned
almost a 100 percent working interest in
the properties we divested to Concho.
Maybe it was slower, but it was very
profitable in the long run."

Service rates are driven more by activity
than commodity prices, reﬂects Denzil
West, chief executive officer of Reliance
Energy Inc. West said service prices
could rise soon even if commodity prices
did not.

According to West, the properties Concho bought included freshwater and saltwater distribution systems in an expansive
distribution system. One midstream network was sold to EnLink, which West
said had taken the assets to a new level.
Altogether, he said, the Reliance team
created almost $3 billion in value in eight
years.
An Established Formula
Oklahoma City-based Permian Resources LLC continues to drill horizontally
to target the Wolfcamp on 66,000 acres,
mostly in Reagan County, Tx., by applying
skills learned in other resource plays, reported Jeff Mobley, CEO and chief financial officer.
"In slightly more than two years we
have been able to triple production on
our asset base," Mobley told PBPA.
With production from nine intervals,
Permian Resources is producing 28,000
barrels of oil equivalent a day, he said.
The company has an inventory of almost
4,000 well sites, he added.
Although the company has cut its rig
count from four to two, it has managed
to increase per-well recovery by reducing
well costs 50 percent, he said. "Cost reduction has been a big part of success,"
Mobley said. "Part (of the reduction) is
from service companies and part is from
our team coming up with innovative ways
to reduce costs."
SEE SERVICE RATES PAGE 92

American Oil and Gas Reporter - December 2016

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