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Must-Know: Extraction Oil & Gas’s Low Cost Drilling Inventory

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Dec. 7 2016, Updated 6:05 p.m. ET

Extraction Oil & Gas’s low cost drilling inventory

According to Extraction Oil & Gas’s (XOG) Corporate Update and Guidance presentation on December 5, 2016, the company has 3,093 gross locations economic at $45 per barrel of WTI crude oil equivalent. This is the equivalent of 78% of total gross locations.

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Single-mile equivalent locations

The majority of Extraction Oil & Gas’s (XOG) gross locations are longer laterals. When adjusted for the single-mile equivalent, these gross locations—which are economic at $45 per barrel—results in 3,001 miles of equivalent locations.

The analysis in the chart above is based on Extraction Oil & Gas’s inventory of all gross risked locations within its focus area of the Wattenberg Field on September 30, 2016. These numbers does not include any of XOG’s extension areas that could benefit from the company’s enhanced completion methodology.

Operating costs

Operating costs play a major role in the location economics. Since 2014, Extraction Oil & Gas has focused on reducing its operating costs. In the last two years, Extraction Oil & Gas has reduced its completion well cost (or CWC) ~40%.

Among the other upstream companies, Devon Energy (DVN), Marathon Oil (MRO), and ConocoPhillips (COP) are also working to reduce their operating costs in order to bring down the break-even price of their reserves. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) typically invests at least 80% of its total assets in oil and gas exploration companies.

PUD development cost

According to Extraction Oil & Gas’s management, its PUD (proved undeveloped) development costs stand at ~$8.00 per boe (barrel of oil equivalent). This is on the lower side of the spectrum when compared with other oil and gas producers.

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