BBG’s lower cost focus
Bill Barrett Corporation (BBG) has been focusing on lowering costs in the Denver-Julesburg (or DJ) Basin. LOE (lease operating expenses) for 3Q16 was $2.45 per boe (barrel of oil equivalent) compared to $3.74 per boe in 3Q15.
LOE guidance for 2016 was lowered to $31.0 million from $34.0 million in 2Q16. BBG management noted in its 3Q16 earnings conference call that reducing its LOE was “a result of an improvement in operating efficiencies, service cost reductions, the sale of higher operating cost properties in the Uintah Basin and the DJ Basin becoming a greater proportion of our corporate operations.”
Extended reach lateral wells
With lower costs and improving efficiencies, Bill Barrett has also been focusing on drilling more extended reach lateral (or XRL) wells in the Denver-Julesburg (or DJ) Basin this year. BBG defines XRL wells as having a drilling depth of ~6,000 feet and ~9,500-foot laterals. The EIA (U.S. Energy Information Administration) believes that drilling longer laterals is a key step toward increasing drilling efficiency.
As you can see in the above graph, the company has seen a 48.0% improvement in its XRL well costs since 2014.
Other companies that are focusing on drilling longer laterals include Cimarex Energy (XEC), Concho Resources (CXO), and SM Energy (SM). These companies make up 2.0% of the iShares North American Natural Resources (IGE).
Read Behind Cimarex Energy’s Efforts to Maximize Returns to know more about Cimarex Energy.
BBG expects to have 15 gross XRL wells to spud before the year ends.
BBG’s 3Q16 earnings release noted, “The XRL drilling program generates attractive economic returns in the current commodity price environment and we are pursuing further capital efficiency measures designed to improve well costs and enhance economic returns.”
The company expects increased production in 2017 and beyond when the wells are expected to begin producing.
In the following part of this series, we’ll look in more detail at BBG’s XRL well costs and capital efficiencies.