$2-million wells in the San Andres are generating 50% to 70% ROR
Profitable Yuma Energy (ticker: YUMA) reported first quarter earnings Thursday, showing net earnings of $2.6 million, or $0.16 per diluted share. This compares favorably with the $12.8 million loss Yuma took in Q1 2016.
Yuma Energy merged with Davis Petroleum in October in an all-stock transaction. The effects of this merger are clearly apparent, as the combination of the companies’ acreage has resulted in significant production growth.
First quarter production averaged 2,886 BOEPD—nearly double the company’s production in Q1 2016.
Yuma announced its entry into the Permian basin in a joint development agreement with two private companies in April. This agreement covered an area encompassing 33,280 acres of the San Andres play in the northern Permian, in Yoakum County.
To develop this play Yuma has acquired 1,985 net acres in the area and intends to spud its first well this year. Additional acreage acquisitions in the area are in the works.
Yuma reports that several operators are already active near the company’s acreage. The historic results from these wells suggest that one- mile laterals typically produce 300 MBO EURs and 300 BOPD IPs, while 1.5 mile laterals produce 500 MBO EURs and 330 BOPD IPs.
These estimates include all previous wells in the area, including early wells when ideal targets and processes were not established. With this in mind, new wells in the area are likely to exceed these numbers, as zones and frac designs are better understood.
Unlike in the Delaware basin, wells in the San Andres typically cost $1.8 million to $2.5 million.
The San Andres play unearthed: an OAG360® exclusive interview with YUMA COO Paul McKinney
Oil & Gas 360® spoke with Yuma Executive VP and COO Paul McKinney to learn about the San Andres play and see how the area compares to the more familiar Delaware and Midland basins.
“The San Andres play is probably one of the better kept secrets in the Permian right now,” McKinney told Oil & Gas 360®. “The capital cost is significantly less [on San Andres wells].
“The ratio of the producing rates and reserves, and this is my opinion and I think that in the next year it will be proven to be this way, I think you’ll find that the San Andres play itself will ultimately provide better economics in terms of rate of capital employed or rate or return or whatever parameter you want to use.
“It’s a newly-emerging play, there have been quite a few wells in the Yoakum County area and the area just west of Yoakum, in Lea County in New Mexico. There’s been over 75 wells drilled in that area and the economics are very robust.
“We have looked at all the wells in the play, including the wells that were drilled early on when people were not sure where to land the laterals and how to complete the wells. Many of the early wells were fraced into the ocean, some of the frac jobs were too large, the landing zones were too high, but if you include all those wells that were not optimal, a P50 on a one-mile horizontal well would be 300 BOPD IPs and about 300 MBO EUR. Looking at a 1.5 mile well, again including non-optimal wells, they came on with IP rates of about 330 BOPD and about 500 MBO EURs.
“So when you look at the resulting economics, San Andres wells are robust at $45/bbl oil. There are 50% to 70% rates of returns, with very short payouts so from an economics standpoint they are very robust.
“I made a presentation at the IPAA conference and when I got off the stage after presenting our entry to the Permian basin, an engineer who is very familiar with the play and is highly respected in the industry came up to me and said, ‘your economics are conservative.’ I was very encouraged by that.
“This play runs from Andrews and Gaines counties up to Yoakum and Cochran counties and over to the eastern counties of New Mexico. Every area is different, there is a lot of variability in the rocks and how you treat these wells, but it is a very exciting play.
“For the most part, you have a few publicly traded companies who have the financial wherewithal to do quite a bit with it, but it’s also the playground where a lot of private equity companies have invested and are doing very well. Every one I’ve seen so far has had very handsome results. So, like I said it’s one of the best-kept secrets in the Permian basin. But I think a year from now people will be talking about it quite a bit.”
