American Oil and Gas Reporter - June 2022 - 49

SpecialReport: Permian Comeback Kings
Buttressed by consistently higher oil
and gas prices and a veritable wonderland
of reserves capture opportunities, the Permian's
vast upside potential is opening
plenty of running room for both public
and private players.
The majors are raising budgets and
large independents are adding acreage,
but the small-cap players and private
companies continue to lead the drilling
charge. As they ramp drilling programs,
they are expanding acreage positions
and seeking ways to do creative deals
that let new and proven investors alike
in on the action.
Gaining Scale
After adding assets and growing production
by more than 400% since 2020,
Earthstone Energy Inc. continues to
search for attractive acquisition targets
and take advantage of tried-and-true techniques
to make the most of assets in the
northern Delaware Basin and southern
Midland Basin, says Chief Executive Officer
Robert Anderson.
On board with Executive Chairman
Frank A. Lodzinski and others since a
2014 reverse merger with Oak Valley Resources
LLC, Anderson explains that The
Woodlands, Tx.-based public company
entered the Midland Basin with acquisitions
in 2016-17 and continued to search
for ways to gain scale in the Permian and
appeal to more investors.
At the beginning of 2020, a wellhedged
Earthstone anticipated achieving
positive free cash flow early in the year,
but instead shelved capital spending, paid
down debt, and focused on finding acquisition
targets as oil prices fell below
zero during the bleakest days of the covidinduced
downturn. The search for new
additions has paid off.
The company's purchase of Independence
Resource Management, resulting in
an 18% stock price hike in one day in
late 2020, kick-started a largely equitybacked
growth spurt that includes four
acquisitions and two bolt-ons thus far,
with Earthstone optimistic of more ahead
as it focuses on integration and execution
of its acquired assets, Anderson says.
" We are a very healthy company with
a great leverage profile and great cash
flows and we are not done yet, " he says.
" I think there is the ability for us to do
more deals, and the sellers that have
taken Earthstone's stock are pleased with
the performance. "
A 2022 capital budget of $410 million-$440
million assumes a four-rig program,
two in each basin, to spud an estimated
60 gross operated wells with firstproduction
anticipated from about 58.
About 20 nonoperated wells are expected
to be drilled and completed, Anderson
says. Second quarter guidance pegs overall
equivalent production at 70,000-74,000
barrels of oil equivalent a day, up from
15,000 boe/d in 2020.
Earthstone's first foray in the Delaware
Basin came with the purchase of
Chisholm Energy Partners LLC in February.
That deal included 13,500 boe/d
(79% liquids) on 35,100 net acres in the
core of the northern Delaware in Eddy
and Lea counties, N.M.
In April, the company brought on line
the two-well Minis pad, targeting the 3rd
Bone Spring Harkey Sand, with production
over the first 24 days of 1,600 boe/d
(87% oil) from 7,500-foot laterals. In
May, rigs were drilling in Earthstone's
Ram project, including 10,000-foot laterals
on a two-well pad in Lea County, and a
two-well pad in the company's Cletus
project area in Eddy County.
Also in April, Earthstone closed on
its acquisition of Bighorn Permian Resources
LLC in the southern Midland
Basin, which included 35 net drilling
locations on conservative spacing. The
assets are largely a cash flow engine,
Anderson explains, with production of
42,400 boe/d, including 25% oil and
57% liquids, on 110,600 net acres mostly
in Texas' Reagan and Irion counties
near Earthstone's legacy assets.
In the Midland Basin, one rig in May
was drilling an average 9,900-foot laterals
on a five-well pad at Earthstone's Barnhart
project area in Irion County and the other
14,300-foot average laterals on a fourwell
project in its TSRH area in Reagan
County, he points out.
Stage spacing in the Midland Basin is
typically shorter, but otherwise completion
designs in the two sub-basins are similar,
Anderson notes, with 2,000-2,200 pounds
of sand pumped per lateral foot, although
proppant is lowered to around 1,800
pounds in areas with greater well density.
Earthstone is methodically deploying
technology to establish the best well economics,
he says. To set up drilling in
both basins, the company predrills for
surface casing to save days on location.
In the Delaware Basin, the company is
using 3-D seismic to identify any geological
variabilities in order to optimize
steering and landing zones.
The company is exploring the advantages
of wider spacing compared with
industry offsets as it works to avoid
overdevelopment, higher costs and lower
yields, Anderson says.
After closing on a string of acquisition deals that has helped it grow production four-fold
since 2020, Earthstone Energy continues to search for assets that can help it keep expanding
its operational scale in the northern Delaware and southern Midland basins.
JUNE 2022 49

American Oil and Gas Reporter - June 2022

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