Concho Resources: Horizontal drilling will continue to drive Permian Basin growth

Posted on 20 May 2014

By Linda Hsieh, managing editor

Concho Resources, which has a current daily production of just over 100,000 BOE, plans to double its production by 2016, Ray Peterson, VP of Drilling for Concho Resources, said at the 2014 IADC Drilling Onshore Conference last week.

Concho Resources, which has a current daily production of just over 100,000 BOE, plans to double its production by 2016, Ray Peterson, VP of Drilling for Concho Resources, said at the 2014 IADC Drilling Onshore Conference last week.

Under a growth plan called “2×3”, Concho Resources is expecting to ramp up its drilling activities in the Permian Basin in order to double its production by 2016. Further, most of this expected growth will come in the form of horizontal-drilling rigs, Ray Peterson, VP of Drilling for Concho, said at the 2014 IADC Drilling Onshore Conference in Houston on 15 May. “All in all, we expect to end the year with 35 rigs and 31 of them drilling horizontal wells. This is a big change for Concho. If we look back about a year and a half ago, you’ll see just a handful of horizontal and some 30-odd vertical rigs that were drilling at the time,” he said.

The horizontal trend is not limited to Concho, however. Mr Peterson noted that the Permian has gone from a total of 360 rigs in Q1 2011, when only 13% of the fleet was drilling horizontally, to 551 total rigs now. “About 58% of the rigs are horizontal. That’s where the growth is coming from,” he said, adding that the phenomenal comeback the Permian is making is only expected to continue over the next few years. Daily oil production has already passed 1.5 million BOE this year and could reach 2 million BOE in a few more years, he said. “It’s an oily basin, but what’s so surprising is it’s still got a lot of places to drill for gas, too. It’s a great place to be.”

Concho continues to stake out a leading position in the play, with 605,000 net acres and 503 million BOE in estimated proved reserves as of year-end 2013, all in the Permian. “Concho has drilled 347 horizontal wells since the first quarter of 2011. We are definitely a leader in horizontal drilling in the Permian Basin. That’s the only basin where we work, and everything we do in Concho is in the Permian.”

Mr Peterson attributed part of his company’s success to the drilling efficiencies that have been achieved. In the Northern Delaware Basin of Southeast New Mexico, for example, Concho has been able to reduce its horizontal drilling days from 28 to 22 and, in the Texas Permian, from 27 to 23. “We are doing more with fewer rigs. That’s a good thing for us,” he said, adding that drilling contractors shouldn’t perceive this as a negative. “I think there is still plenty of opportunities. Fewer days on the well and better efficiencies are things that are going to benefit all of us in the long term.”

Concho is using a variety of rig types, including older mechanical rigs, across its four major operating areas within the Permian, Mr Peterson said. In the New Mexico Shelf area, where the company is drilling shallow TVDs and 1-mile laterals, “a 750-hp mechanical kelly rig is taking care of us and doing a very good job.” In the Northern Delaware Basin, “we’re seeing 1,600-hp pumps on 1,000-hp rigs, and that is working for us. Some have top drives, and some don’t.”

For some extended-lateral wells where the MD reaches 20,000 ft, 1,500-hp SCR and AC rigs with top drives are brought in. These newer-type rigs are also used in the Southern Delaware Basin, where 1.5-mile laterals are the standard. Finally, in the Midland Basin, Concho uses a mix of 1,000-hp mechanical rigs and 1,500 SCR/AC rigs with top drives. “We have enjoyed a wide variety of rigs. That’s what has made it work.”

Concho is also working with 16 different drilling contractors for the 33 rigs it currently has under contract, including several of what Mr Peterson called niche players. “It’s nice to be able to have that variety, but we still want everyone that works for us to focus on safety… This is still a people business. Anybody can buy iron, but it takes people to be a contractor.”

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