Current JAG Stock Info

Delaware Basin producer Jagged Peak Energy (ticker: JAG) announced fourth quarter results today, showing net earnings of $12.8 million, or $0.06 per share. Over the full year, Jagged Peak reported a net loss of $451.9 million, or ($0.36) per share, but most of this was due to one-time equity-based compensation related to the company’s IPO in January 2017.

Jagged Peak produced an average of 24 MBOEPD in Q4, which represents a 273% increase compared to Q4 2016, and is 25% above Q3 2017. Jagged Peak also announced reserves today, showing holdings of 82.4 MMBOE. This is an increase of 118% compared to 2016 reserves, and gives a reserve replacement ratio of over 800%.


Jagged Peak expects to spend between $540 million and $590 million this year, which is in line with the $567.6 million spent in 2017. The company plans to drill 40-45 wells and bring 42-46 online.

Jagged Peak has a position of more than 75,000 net acres in the adjacent counties of Winkler, Ward, Reeves and Pecos, in the Southern Delaware basin in west Texas.

Production growth will slow from the massive growth seen in 2017, but will still be robust. The company expects to produce an average of about 29.5 MBOEPD in 2018, representing growth of more than 70% year-over-year. Jagged Peak is planning for a $50 oil price environment combined with cost inflation of 10% to 15% in 2018.

Commenting on 2017 results, Joe Jaggers, Chairman, CEO and President of Jagged Peak said, “2017 was a transformative year for Jagged Peak.

“We completed our IPO and, through the use of these proceeds, more than quadrupled our activity level based on the number of wells we brought online and more than tripled our total production. We accomplished all of this while maintaining a peer leading adjusted EBITDAX margin and LOE rate, replacing more than 800% of the reserves that we produced and increasing our drilling inventory by over 55% to approximately 2,090 future locations.

Jaggers said the company managed its activity level to make certain operating improvements during the quarter, which deferred its production growth profile. “Following those operational improvements, we are currently deploying five rigs and four completion fleets.”

In February, Jaggers announced he would retire at the end of March 2018 for health and personal reasons, and that current independent director James J. Kleckner would become the company’s president and CEO.

“I know that our incoming President and CEO, Jim Kleckner, will do an outstanding job of taking Jagged Peak to the next level in terms of operating performance and capital efficiency,” Jaggers said in a statement today.

Kleckner was appointed as an independent member of the company’s board in January 2017. He retired from Anadarko Petroleum Corporation as its EVP of international and deepwater operations in August of 2016, after serving in various senior level operating positions for Anadarko and its predecessors since 1981, including regional VP of Anadarko’s Rockies’ operations from 2004 to 2013, during which he led the transformation of the region through investments in several unconventional assets. This resulted in production growing from less than 50 MBOEPD to over 300 MBOEPD during the period of his leadership. Kleckner holds a B.S. in Petroleum Engineering from the Colorado School of Mines.

Turning to seismic in the Delaware

Jagged Peak is turning to 3D seismic to enhance its operations, and said it has licensed surveys over its acreage. The company believes this will significantly improve its drilling operations, and it offered two of the wells in the central portion of its acreage as an example of the benefit from using seismic.

The company’s Whiskey River 4A-8 drilled an area that was relatively even, and 100% of the well’s lateral length was in the target window. The Whiskey River 19.56B-8, on the other hand, targeted an area that turned out to be uneven. Because of this, only 63% of the lateral was in the target window.

This difference had a profound effect on the productivity of the wells. The on-target 4A-8 well had an IP30 of 2,073 BOEPD, while the off-target 19.5B-8 had an IP30 of less than half—only 925 BOEPD.

The company believes that using seismic data of the area before drilling would have shown unevenness around the 19.5B-8 and it could have planned to direct the well accordingly.

Jagged Peak Tags Up to $590 Million CapEx for 2018 and 40-45 Wells in the Delaware

Source: Jagged Peak Investor Presentation

Jagged Peak is planning to back-weight its drilling and completions activities this year, meaning the 3D seismic data can be interpreted before most wells are drilled. This will allow the company to be more efficient with its drilling operations, ensuring that wells are on target as much as possible.

Q&A from JAG conference call

Q: In terms of the 3D seismic and understanding the potential rate of change in 2018, how many wells in 2017 were drilled using 3D seismic and given the timing of the survey this year, how many wells do you think will benefit from the 3D seismic this year?

JAG: In 2017 using the Cochise 3D, we drilled approximately six wells that were impacted by our learnings from that – from that well. The drilling schedule is a moving target. But based on current planned activity, I’d say approximately 20 of the wells will be impacted in 2018 by our interpretation of the survey that covers Whiskey River.

Q: For 2018, clearly you guys have slowed down your activity pace. I guess from what was expected several months ago and can you just give us some broad and specific data points on what really drove that decision making process. It sounds like that you’re going to use more data analytics and want to be more deliberate about how you. approach 2018, but what were the key triggers that made you go down this path?

JAG: First we did a look back on our 2017 performance and evaluated our technical efficiencies in that program. And as Joe mentioned, we really focused on a lot of delineation of additional target zones. But what we saw also so was the example I showed you that the ability to penetrate more target window was really amplified with 3D seismic and so we think about our 2018 program. We didn’t want to outrun our technical learning curve. And so we wanted to pace that with the data acquisition and integration that’s coming from the 3D shoot we discussed, coupled with a lot of other data gathering and integration work whether it would be core PBT work on fluid properties and additional pressure information around there and we believe that not out running that technical learning curve and wasting value in the ground is critical to our program going forward. And so we sequenced our drilling program coupled with how we bring that data in the organization digest it and turn it into value growth and our drilling program.

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