Heard On The Call: Centennial Resource Development

Centennial Resource Development (NASDAQ: CDEV) elaborates on pure play in the Delaware and Permian Basins. Excerpts from the Q2 Earnings call are below.

 Q: Could give some more thoughts on the gas situation in Delaware, what’s your view about how things play out at a basin level when we bump into capacity and would you expect to see something similar to the DJ or older lower pressure wells get knocked off first?

Chairman, Chief Executive Officer Mark Papa: Our read is that indeed likely beginning in early 2019, there’s going to be an issue where some gas in the Permian and likely first in the Delaware just isn’t able to define a method of egress. And then the situation will be, the gas either has to be flared or the gas has to be shut-in along with the corresponding oil. So we do see that situation developing, now the other complicating factor could be if there’s corresponding oil shut-ins which might mitigate it. But I would say there is a greater than 50% probability based on our assessment that there is going to be a gas takeaway problem that develops in probably starting in the first quarter 2019 and probably is of one-year of duration.

And it’ll probably be the smaller companies that are affected. I don’t think the large caps and I don’t think the integrateds will be the companies that are necessarily affected and that they have likely secured a gas FT. So you can probably tell from the earnings call announcements on who has announced that they have gas FT and who has not as to where the discrimination will be and we’ve been pursuing this gas FT for about six months and I believe we’re likely one of the few Mid Cap Permian pure plays that does have gas FT. And so I think it is a discriminating factor for us and it hasn’t been talked about too much really, but I believe within 4, 5 months the problem will be upon pretty much the whole Permian Basin.

Q: one question on ops, that CWI pad, obviously one of the strongest pads we’ve seen in the Delaware to-date, what do you think is driving the magnitude of the outperformance in those wells?

Chairman, Chief Executive Officer Mark Papa: I would just make an overarching statement and then I’ll ask Sean to contribute there. I think if you look at Centennial’s Reeves County well completions in the last 12 months, I believe we likely have perhaps the best or one of the top two or three most effective well completions of any company in the Southern Delaware Basin. And we’ve seen several analyses where some sell-siders have done some analysis, and in some cases the Centennial data is colored by completions done when Centennial was a private equity company before we really became a public company. And that was done by a previous technical team, but now that we’ve got our technical team in place, I think our completion efficacy is really pretty much second to none. And so my overarching answer to you Michael would be that, we have pretty much the best technical team in the Southern Delaware and so the results aren’t particularly surprising to me. Sean, you can chime in if you want to add anything to that.

 VP, Chief Operating Officer Sean Smith: Thanks Mark. I really just concur with what you’re saying there. We’ve been striving to land our wells properly, keep them in zone for longer periods of time within a tighter window and then obviously our completions, we continue to push and innovate where we can there. There wasn’t anything magical on these particular wells, except for small incremental changes that we continue to do to try to increase, as Mark said, our efficacy and efficiency of our completions. And obviously the well results are bearing out, I think we continue to see some improvement in certain areas, both from the completion side, and then obviously from the production side as well.

Heard On The Call: Earthstone Energy Inc.

Earthstone Energy Inc (NYSE:ESTE) discusses operations in the Midland and Eagleford on the Q2 2018 earnings call. Excerpts from the call are below.

Q: Could you talk a little bit about the Eagle Ford release today or that you plan to drill an additional five to seven wells there in the fourth quarter. Do you continue drilling there despite more call it reallocation and continue to slow down in the perm if sort of things continue or how do you see that sort of end of the year, beginning of next year played out?

President, Robert Anderson: We’ve got a few obligation wells for ’19 in the Eagle Ford and then we’ve got another area in the Eagle Ford that we don’t have any obligation that we could go drill some wells. I think, ultimately, at the end of the day when we get into ’19, even with the differentials are economics in the Midland Basin are going to be superior. So it’s a matter of, spending a little bit of capital in the Eagle Ford but not necessarily allocating tremendously more. If we tried to do it right now, I’m not sure that the benefit between now and the end of the year has — is that great for us given that we think the differentials are going to improve in the Midland Basin during ’19.

Q: So I guess that kind of goes to my follow-up. As far as when you and Frank look at bolt-on any sort of acquisitions, trades, whatever you might see, the thought is still prefer Permian over Eagle Ford because of these returns?

President, Robert Anderson: That and operational efficiency, if we can track on a few acres here and there and get longer laterals or surface operations becomes a scale issue where you can really drive down your costs, both of those things are impacting how we look at acreage opportunities in the Midland side of it.

Chief Executive Officer Frank Lodzinski: The economics are just strong and obviously this is a hopefully a temporary phenomenon out there, but I think it would be poor — frankly, we’ve made our bed and we’re going to sleep in it and the Permian Basin is our focus going forward. And I’m gratified that the operations are going so well and the economics look really strong.


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