Why Is EP Energy Increasing Focus in the Wolfcamp?



EPE’s Wolfcamp focus

EP Energy (EPE) considers its Wolfcamp operations its “largest strategic asset.” The company has been increasing its focus in the Wolfcamp region, as you can see in the graphs below. EPE, which also holds significant operations in the Eagle Ford, was seen shifting capex (capital expenditure) from Eagle Ford in the first half of 2016 to the Wolfcamp region in the second half of 2016. In fact, Wolfcamp capital allocation increased more than 50.0% in the second half of 2016.

We explored the reason for this shift in our previous series, Inside the Permian Pie: Why E&P Players Are Snatching up Slices. Key Permian players include Apache (APA), Concho Resources (CXO), and Chevron (CVX).

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Wolfcamp, which lies in the Permian Basin, has given the company a strategic edge. It seems to make sense that the company is moving its capital to more operationally efficient regions. As we saw in The Permian Boasts Lower Break-Even Than All Other Plays, Eagle Ford has one of the highest break-even costs compared to the Permian and other regions. We’ll look at this in more detail in the next part of this series.

Moving its focus to the Permian Basin from the Eagle Ford seems to be a strategic decision on the company’s part. When asked about future activity in the Wolfcamp region in its 3Q16 earnings conference call, EPE’s management said, “We’ve driven out cost. We’ve improved well performance and even in a low price environment we now have the benefit of the sliding scale royalty. Lease operating expenses are down and when you put all that together the returns in the Wolfcamp program are quite strong and so that’s sort of begs, sort of begging for more capital as we go forward.”


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