Diamondback’s Permian Pad Drilling Potential
Diamondback Energy Holds 1,500 Gross Locations Economic at $40/bbl
Pure play Permian operator Diamondback Energy (NYSE: FANG) recently announced an increase in production guidance as well as capital spend for the 2016 year. The company increased production guidance from 34 to 38 Mboe/d to 38 to 40Mboe/d. Well completion estimates were also increased to 70 to 75 gross horizontal completions, up 30% from previous plans. The rise in completions has added to capital expenditure for the year to $350 to $425 million from $250 to $375.
Pad Drilling in the Midland Basin Shows Promise
Diamondback recently completed their first three well pad in Howard county which targeted the Lower Spraberry, Wolfcamp A and Wolfcamp B. The company plans to begin frac operations on the second three well pad this month, all with 10,000 foot laterals and has a third pad planed for the fourth quarter all in Howard county.
Drilling costs have decreased 46% since their peak in the fourth quarter of 2014 as well costs are currently below $6 million for a 10,000 foot lateral and below $5 million for a 7,500 foot lateral. Diamondback expressed that 30% to 40% of drilling cost reductions since Q4’14 have come from optimization not just a reduction in drilling day rates.
Delaware Basin Acquisition Expands Footprint by 22%
Diamondback entered into the Delaware basin in July with the announcement of the company’s acquisition of 19,180 net acres in Reeves and Ward county for $560 million. This adds 290 net identified horizontal locations to their Permian inventory with the possibility of down spacing in the future. This acquisition increased Diamondback’s acreage footprint in the basin by 22% while adding infrastructure like tank batteries, frac pits and pipelines. The company is expecting to add one rig to the area in 2017.