American Oil and Gas Reporter - March 2020 - 62

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SpecialReport: Permian Basin Activity
cash flow at $55/bbl," he goes on. "Utilizing commodity prices of $50 a barrel
WTI and $2.25 per MMBtu Henry Hub
for the budget in 2020, the company expects to grow oil at a mid-single digit
rate within cash flow and be in full development mode in Howard County by
the end of the second quarter of 2020."
In early February, Laredo executed a
bolt-on transaction to its tier-one Howard
County position, adding 1,100 net acres
for $22.5 million. The acquisition increases
the company's working interest on its
operated acreage from 83% to 95%, bringing Laredo's Howard County leasehold
to 8,380 net acres (99% operated). The
transaction increases Laredo's operated
inventory in Howard County to 130 gross
(124 net) primary locations in the Lower
Spraberry, Upper Wolfcamp and Middle
Wolfcamp formations.
Howard County Activity
The company reports that two of its
four active drilling rigs have been deployed to Howard County. A third was
expected in early March. The first of
Laredo's initial 15-well package in
Howard County has been drilled successfully and completion operations were
expected to commence on the full package
during the second quarter, according to

the company.
Pigott says Laredo is beginning to
add more sand to its standard completions
design, taking advantage of the low cost
of in-basin sand. The enhanced completions design, utilizing 2,400 pounds of
sand per foot, is expected to increase the
cost for an Upper/Middle Wolfcamp
10,000-foot lateral to $6.8 million, but
potentially enhance well productivity.
In the first quarter, Laredo took a
major step toward incorporating the Cline
formation into its future Midland Basin
horizontal development program, completing two Cline wells. Total average
well cost, adjusted to a 10,000-foot lateral
using 2,400 pounds of sand per foot, was
$7.4 million, or 8% less than predrill
cost assumptions.
"Significantly, expected returns at the
lower well cost increase by 6% and 8%
at $50/bbl and $55/bbl, respectively,"
Laredo stated in a release announcing
the completion of the two Cline wells.
"Although early, initial production results
are encouraging and reinforce the company's assumption that Cline wells benefit
from larger completions. Combined with
the lower costs, expected returns for the
company's approximately 150 Cline locations become increasingly competitive
and extend Laredo's inventory of oilier,

Three of Laredo Petroleum's four active drilling rigs are working in Howard County, Tx.,
in the Midland Basin, where the company is drilling and completing a 15-well package
on a wider spacing development plan and using average lateral lengths approaching
10,000 feet. In early February, Laredo closed on a bolt-on acquisition to its tier-one
Howard County position, adding 1,100 net acres to increase its operated inventory in
Howard County to 130 gross (124 net) primary locations in the Lower Spraberry, Upper
Wolfcamp and Middle Wolfcamp formations.

62 THE AMERICAN OIL & GAS REPORTER

higher-return opportunities."
Laredo's $450 million 2020 capital
program, which includes $390 million
for drilling and completion activities, is
supported by a robust hedge position.
For full-year 2020, the company has
hedges locked in on 90% of expected oil
production, 40% of expected natural gas
production and 25% of expected NGL
production, the company reports.
Lowering Well Cost
Scott Sheffield, president and chief
executive officer of Pioneer Natural Resources Company, says the company had
an "excellent" 2019, thanks in part to
lowering the cost of each well drilled
and completed from $12.4 million in
2018 to $8.8 million last year. How was
Pioneer able to accomplish a 30% savings
in well cost?
In the company's year-end earnings
report, Sheffield lists five key factors in
lowering costs per well. The first is
drilling and completion efficiencies, and
the second is reduced completion costs
achieved by partnering with service companies. The company averaged drilling
about 1,000 feet a day and completing
1,600 feet a day in 2019. Pioneer has
also transitioned to West Texas in-basin
sand, resulting in 50% lower sand costs.
Facilities optimized around development
and differentiated water infrastructure
also have lowered well costs, according
to Sheffield.
Pioneer, which is drilling four wells
per pad with average lateral lengths of
9,800 feet, placed 77 horizontal wells on
production in the fourth quarter. Joey
Hall, executive vice president for Permian
operations, says Pioneer plans to operate
an average of 23-24 horizontal rigs in
the basin in 2020, including five rigs in
its southern joint venture area.
According to the company's operations
report, the 2020 program is expected to
place 345-375 wells on production by
year's end, compared with 306 wells
placed on production during 2019. Wells
placed on production in 2020 are expected
to be 40% Wolfcamp B, 40% Wolfcamp
A, 15% Spraberry and 5% other formations, with an average lateral length of
9,800 feet.
Interestingly, all of Pioneer's oil pro-
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