Producers say 2020 is year to produce more while spending less - Midland Reporter-Telegram

Chevron has bucked the budget-cutting trend, slightly increasing its capital and exploratory budget for its Permian unconventional development as it marches toward its goal of producing 1 million barrels of oil equivalent per day from the Permian.

The company is planning a $4 billion capital and exploratory budget for its Permian unconventional development, up slightly from $3.6 billion in 2019. The company does not break the budget down into drilling and other expenditures but said all development would be horizontal.

As it ramps up its Permian Basin production, the company is also committed to the region’s communities. Chevron is a founding partner in the Permian Strategic Partnership and is investing in technologies designed to reduce its environmental footprint.

Chevron has reached a 12-year agreement to purchase 65 megawatts of power from a wind farm in West Texas and is investing in other partnerships to capture and reduce emissions, develop alternative energy and emerging technologies and in energy storage.

That commitment extends to flaring, the company said. Chevron cites a report from Rystad that the 30 largest natural gas producers in the Permian last year averaged 6.1 percent flare share of production, while Chevron’s operations flared at just 1.07 percent.

To accomplish this, the company has established cross-functional teams that continuously review and analyze opportunities for takeaway system effectiveness, starting with early project planning and throughout the production process. The company drills only in areas where natural gas takeaway capacity is present and brings wells into production only when that capacity is available. Chevron will also shut in wells when gathering and takeaway systems are disrupted.

Concho Resources

Concho plans to do more with less in 2020.

The Midland-based company has a capital budget of $2.6 billion to $2.8 billion for 2020. The budget will fund drilling, completion and putting on production about 300 horizontal wells. The budget is a 10 percent decrease from the previous year, but the number of wells to be drilled is unchanged. As a result of drilling and completing 10,000-foot wells on average, Concho will complete 10 percent more lateral feet on 10 percent less capital. Annual oil volume growth is expected to be between 10 and 12 percent pro forma for the company’s New Mexico Shelf divestiture.

Concho also plans to increase its quarterly dividend 60 percent, to 20 cents per share.

In its first Climate Risk Report, Concho reported it has reduced flare volumes nearly half from 2016 to 2018 and said that is just one aspect of its commitment to the environment. The company uses advanced planning and coordination with its midstream partners in its efforts to reduce flared gas volumes. That advanced planning goes toward constructing production facilities and securing gathering and takeaway for the oil and natural gas produced as new wells are brought online. The company has also invested heavily in emission control equipment for vapor recovery, closed vent systems, custody transfer units, combustors and flares and inspects facilities for fugitive emissions. Concho has also eliminated high-bleed pneumatic devices throughout its operations. Front-line employees have been given increased authority to shut in a well to temporarily suspend production in the event of transient, high line-pressure events as an alternative to flaring.

Concho calls that authority part of its corporate culture that responds to challenges and goal-setting and empowers front-line employees.

Devon Energy

Devon is focused on the southeastern New Mexico portion of the Delaware Basin. Of its $1.7 billion to $1.85 billion capital budget for exploration and production, $1 billion will target Devon’s Delaware Basin holdings, including drilling. That $1 billion is up 15 percent over 2019.

Devon plans 115 to 125 operated Delaware Basin wells, including horizontal projects.

Avoiding venting and limiting flaring is the company’s goal -- not only to protect the environment. Capturing and retaining as much natural gas as possible benefits Devon’s bottom line.

To meet that goal, the company continually evaluates and optimizes facility design, installs and maintains reliable pressure relief valves to minimize tank releases and installs vapor-recovery equipment to capture flash gas emissions and route them to a pipeline. Devon also uses green completions to capture produced gas during completions and well workovers following hydraulic fracturing. If flaring is unavoidable, the company installs monitoring equipment to ensure the gas is properly destroyed rather than vented.

In its recent sustainability report, the company said methane emissions have fallen to 1.22 million tonnes while the company has set a methane emissions intensity target of 0.280 percent of natural gas produced by 2025. Its use of recycled water jumped 11.75 million barrels in 2018, almost triple 2017 levels. The company also reported that 27 percent of its board members are women and that safety performance has improved, with total recordable incident rates steadily declining.

Diamondback Energy

Midland’s Diamondback Energy plans to keep expenditures flat compared to 2019, with a capital budget of $2.8 billion to $3 billion for 2020.

Of that, $2.45 billion to $2.6 billion will be spent on drilling, completions and equipment for 320 to 360 gross, 288 to 324 net wells. Of the wells to be drilled, almost all – 99 percent – will be development and 1 percent exploratory.

Diamondback also plans to spend $200 million to $225 million on midstream – down 15 percent - and $150 million to $175 million on infrastructure, down about 8 percent.

Diamondback is working internally and with its midstream providers to reduce flaring to a minimum, flaring only when there is a lack of infrastructure or third-party gatherers and processers will not or cannot accept gas because of in-field compression or capacity restraints.

Last year, the company’s board of directors formed a Safety, Sustainability Corporate Responsibility Committee to oversee the company’s environment, social and governance efforts. This year, 10 to 15 percent of Diamondback employees’ short-term incentive compensation will be tied to ESG-related metrics – flaring, greenhouse gas emissions, safety (total recordable incident rates), spills and water recycling.

Elevation Resources

Elevation Resources has cropped its 2020 budget to $56 million from $73 million last year.

Of that figure, $52 million will be spent on drilling eight gross, six net horizontal development wells, down from $67 million spent on drilling last year. The remaining $4 million will be spent on production facilities, down from $6 million last year.

Elevation builds gas connections and production facilities in advance of new well completions. Elevation doesn’t elect to flare gas due to low natural gas and NGL prices but does experience operational flaring related to third-party compression and plant downtime that amounts to less than 3 percent of gas production on an annual basis. The new owners of Elevation’s primary gathering and processing systems have increased compression capacity 67 percent and reduced gas plant downtime.

Elevation has implemented and documented a comprehensive environmental compliance plan audited and reported by a third-party environmental consulting firm. This plan includes bi-annual thermal camera imaging for emissions monitoring and repair. The company also discusses and reports ESG objectives and compliance at each quarterly board meeting, which includes Elevation’s employees, community engagement and leadership.

EOG Resources

EOG Resources has several goals with its 2020 capital plans.

Its $6.5 billion budget will fund about 800 net completions as well as infrastructure, new domestic drilling potential and environmental projects. EOG believes it can fund this program and its dividend – which it plans to increase 30 percent - at $50 oil or more, with higher prices generating more substantial free cash flow.

The company is targeting double-digit return on capital employed (ROCE) this year and plans to continue lowering the oil price required for 10 percent ROCE as well as improving capital efficiency 9 percent and reducing cash operating costs 2 percent.

EOG is also targeting 12 percent U.S. oil volume growth, while reducing well costs 4 percent and continuing to improve well productivity.

The company plans to continue advancing the progress it reported last year on its environment, social and governance disclosure, and ESG performance. EOG reported low flaring intensity rates and continues advances in other efforts to reduce its environmental impact. EOG continues to expand its water reuse technology, uses electric frac fleets and continues to electrify its operations, replacing diesel generators where possible. The company is also piloting the use of alternative energy sources such as solar to power compressors and reduce greenhouse gas emissions. The company reduced its use of fresh water, sourcing 75 percent of its water from reuse companywide from non-fresh water sources. In the Permian Basin, 98 percent of its water was from reuse or non-fresh water sources, reducing freshwater consumption over 60 percent. At the same time, EOG had a wellhead gas capture rate of 98 percent across the company, including the Permian Basin.

Equally as important, EOG management said, the company reduced its recordable incident rate by nearly 30 percent.

Fasken Oil and Ranch

Fasken Oil and Ranch will be busy finalizing its Manor Park horizontal well program, finalizing drilling and completing of the wells. The company is currently processing the 3D seismic data acquired in Andrews and Midland counties last year, all at a cost of $102 million.

Fasken’s capital budget for 2020 is $306 million, up slightly from 2019. Of that, $244 million will fund drilling of 64 wells, two of them exploratory wells and 62 development wells.

Fasken uses vapor recovery systems at its tank battery facilities to reduce fugitive emissions and minimize waste and only flares natural gas when it is absolutely necessary. In other environmentally friendly moves, the company continues to maximize usage of recycled produced and Santa Rosa brackish water for drilling and completion operations and is continually analyzing the most effective water-treating techniques, being open to using new technologies as they develop.

Fasken representatives are also very proactive in engaging the local news media and the public in promoting the oil and gas industry’s advances in environmental stewardship.

Great Western Drilling

Great Western Drilling has sharply increased its planned capital expenditures for 2020 – its drilling budget is up 40 percent and spending on other capital projects has increased 60 percent.

Almost all of the company’s $35 million to $40 million in capital expenditures – 95 percent – will go toward drilling 75 gross, 15 net wells, 71 of which will be development and four exploration wells. The remainder of the budget will fund waterflood pattern enhancement.

Great Western has very few operated properties where it has to flare due to a lack of market. The company has had to flare at times when pricing goes negative but has elected to reduce production to minimize flaring in those cases.

Being a small operator, the company uses third-party environmental consultants to satisfy environmental regulatory requirements and will use those consultants to help develop future ESG policies.

Henry Resources

Henry Resources will be spending about 20 percent less this year than in 2019, planning an $80 million capital budget.

Most of that capital will fund drilling 19 gross, 10 horizontal development wells with the remainder going toward some real estate projects.

Henry flares probably much less than 1 percent of its natural gas volumes, flaring only during upsets.

Laredo Petroleum

Tulsa’s Laredo Petroleum is banking heavily on its Howard County acreage in 2020, expecting to transition all its development activity to Howard County by the end of the second quarter.

Laredo is anticipating mid-single digit oil and total production growth compared to 2019, driven by capital-efficient development in Howard County.

Laredo expects to invest $450 million this year, down 7 percent from 2019. That includes $390 million for drilling and completion activities and $60 million for infrastructure, land and other costs. The company expects to balance expenditures and cash flow at $50 WTI and $2.25 per Mmbtu Henry Hub pricing.

The company said it is beginning to add more sand to its standard completion design in order to take advantage of low costs for sand per foot to potentially enhance well productivity. 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. The additional costs are incorporated into the 2020 capital program, but no productivity increase associated with larger completions has been assumed.

Capital required to maintain a mid-single digit oil growth rate, assuming current service costs, is expected to decrease by 15 to 20 percent in 2021, improving the company’s ability to generate free cash flow.

Lario Oil & Gas

Both activity and capital expenditures at Lario will be down 10 percent this year, the company reports.

Lario has a capital budget of $223 million, of which $214 will drill 26 gross, 23 net wells. Of those, three will be exploratory wells. The company has also budgeted about $10 million for surface facilities and drilling additional saltwater disposal wells, if necessary.

From time to time, the company has been required to flare natural gas because of downstream processing or infrastructure constraints. The company has gas-gathering infrastructure connected to all of its units, and many of those units have secondary gathering connections installed with a different midstream provider. If service is interrupted with the primary gatherer, gas production is then pushed to the secondary gatherer, which materially reduces the need to flare when capacity is constrained. Lario has also installed vapor recovery units on all of its surface facilities in what it determined is a best practice.

Lario has been in existence for about 100 years and has always been a steward of the environment in the context of its operations. The company believes its focus on environmental stewardship and employee safety have been cornerstones of its long-operating history and will continue to be essential for the long-term success of the business.

Occidental Petroleum

As Occidental celebrates its 100th anniversary in 2020, the company plans to take the technical expertise, ability to adapt quickly and innovation that marked its first century into its approach to sustainability in a low-carbon world that it expects will dominate its next century.

Occidental production exceeded guidance by 28,000 barrels of oil equivalent in 2019, and the company expects to grow production by 2 percent this year off that higher base. The company has also lowered its capital budget an additional $100 million to between $5.2 million and $5.4 billion with an eye toward spending less to produce more barrels.

The company is working to pay down the debt incurred in its acquisition of Anadarko last year and expects to capture $900 million of overhead savings in 2020, meeting its target a year ahead of schedule. The company also expects to capture more than 75 percent of its operating and capital synergies this year.

First quarter guidance reflects planned downturns – at its Dolphin and Al Hosn projects -- as well as the timing effects of several large pad developments in its Permian Resources unit.

Occidental has earmarked $2.2 billion for its Permian Resources unit and will operate 15 gross, nine to 10 net rigs and put 270 to 295 wells online in 2020. The company is targeting 6 percent growth from its Permian holdings.

Occidental is continuously working to reduce flaring and associated greenhouse gas emissions through improved gas plant reliability and uptime, increased automation and optimization of existing infrastructure. In its plans to develop new fields, Occidental strives to balance infrastructure and the takeaway capacity needed to transport gas with anticipated growth. The company has committed to eliminating routine flaring globally by 2030, and recently became the first U.S. oil and gas company to endorse the World Bank’s Zero Routine Flaring Initiative.

Across its Permian operations, leak detection and repair teams monitor sites to identify and mitigate emissions sources, and based on their input, the company plans plant and facility upgrades, including retrofitting them with vapor recovery units and lower-emitting equipment. Occidental also uses natural gas extensively in its operations, and solar electricity to power some of its fields.

Occidental is dedicated to conducting its business in a manner that safeguards employees, protects the environment, benefits neighboring communities and strengthens local economies. Social responsibility has long been a priority for Occidental and its management team, and they have been implementing and enhancing environmental, social and governance policies, programs and commitments for decades that demonstrate commitment to being a Partner of Choice.

Occidental’s subsidiary Oxy Low Carbon Ventures seeks to advance carbon capture, utilization and storage while helping develop technology and business models to provide lower carbon oil and products. Through Occidental’s experience in carbon capture, use and storage in enhanced oil recovery -- which uses carbon dioxide in the production process -- the company is working toward its aspiration to develop lower carbon oil. One key project underway to progress this objective is a Direct Air Capture (DAC) plant that Occidental is in the process of designing in the Permian to annually capture 1 million metric tons of man-made CO2 directly from the atmosphere.

PDC Energy

PDC Energy of Denver has reduced its planned oil and gas capital investments about 15 percent to between $1 billion and $1.1 billion for 2020. This budget is based on $52.50 WTI pricing and $2 per Mcf NYMEX pricing.

PDC forecasts its 2020 production will rise 6 percent to between 205,000 and 215,000 barrels of oil equivalent per day.

Pioneer Natural Resources

Pioneer has raised its capital budget for 2020 compared to 2019 levels.

The company has a budget of between $3.15 billion and $3.45 billion, up from $295 billion in 2019. Of that, $3 billion to $3.3 billion will drill 345 to 375 horizontal development wells. Other spending will go toward facilities associated with tank batteries and $125 million for water infrastructure.

Recent reports from Rystad Energy show the company flares the least among its peers in the Permian at less than 1 percent. Pioneer flares gas occasionally because of high-line pressure associated with its midstream partners and for routine safety and maintenance reasons.

The company takes its ESG issues seriously, publishing an annual sustainability report with increasingly material disclosures on ESG matters across various aspects of its business. Its board of directors has also assigned three directors to serve as ESG advisors in addition to its standing Health, Safety and Environment and its Governance committees.

QEP Resources

QEP plans to deliver 4 percent oil growth in the Permian Basin while reducing its capital program in the region by about 8 percent. The company plans to generate $100 million of free cash flow at $50 WTI pricing.

The company will operate two rigs in the Permian Basin in 2020, supported by a smaller rig drilling to intermediate depths fore part of the year, putting 65 net operated wells on production this year.

QEP is basing its first quarter and full year guidance based an assumed WTI price of $55 per barrel and natural gas price of $2.50 per Mmbtu at Henry Hub. A second assumption is that the company will elect to recover ethane from its produced gas in the Permian Basin where processing economics support it. The guidance also assumes there are no impacts from a potential monetization of its Permian Basin water asset and that the company will make no property acquisitions or divestitures.

Rosehill Resources

Rosehill Resources is following the lead of other operators in cutting its budget and activity levels for 2020.

The company has budgeted between $155 million and $175 million, down about 30 percent from 2019 levels. About 90 percent of the budget is for drilling and completion activities. Rosehill will drill 20 to 24 wells, all horizontal development wells and all operated/high working interest wells. This is down 18 percent from 2019. Spending on other capital product s is down 75 percent, primarily because of a decrease in facilities investments. The company has no material non-drilling projects planned for the year.

Historically, the company’s gas flaring has been driven by offtake constraints from third-party gatherers and transportation providers or processers. Rosehill is actively targeting future reduction by working with third-party gatherers and transporters to align infrastructure needs with development drilling plans.

Rosehill has recently established an ESG committee focused on enhancing the company’s efforts in all areas of ESG, with plans to summarize those efforts in its upcoming annual report and proxy statement as well as other public materials.

XTO Energy

Whjle not detailing specific goals or budgets for the year, this ExxonMobil subsidiary reported good progress in its Permian growth, with fourth quarter 2019 production rising 54 percent from the same quarter of 2018, to 294,000 oil equivalent barrels per day.

ExxonMobil saw its Permian flaring intensity fall to its lowest level in the fourth quarter of 2019, just above 2 percent of gas production. The company continues to focus on reducing flaring in such a complex operating environment, making significant investments in gathering, processing and natural gas pipelines to enable resource development and reducing flaring intensity.

These investments, along with flare reduction procedures, will ensure the company continues to reduce its flaring intensity. ExxonMobil is on track to meet its target of reducing flaring associated with oil and gas production and processing by 25 percent across all operations by the end of the year compared with 2019 levels.