Jagged Peak has six rigs on its Delaware acreage, planning five frac fleets for 2017
Jagged Peak Energy (ticker: JAG) released first quarter earnings Thursday, showing a net loss of $465.9 million, or ($0.42) per share. The vast majority of this loss is attributable to stock-based compensation and deferred income taxes due to the company’s IPO on February 1. After adjusting for these non-cash and non-recurring items, Jagged Peak reported adjusted net income of $10.5 million, or $0.05 per share.
Already closing in on 10 MBOEPD production, Jagged Peak is 100% focused on developing its Permian acreage. The company spent $122.5 million in CapEx in Q1 2017 and completed seven wells in the Delaware basin during the first quarter. The company reports that an additional 17 gross wells were in various stages of drilling or completing at the end of the quarter.
Source: Jagged Peak Energy
Since the end of Q1, Jagged peak has drilled an additional eight wells and completed five more. The company is operating six drilling rigs and three frac fleets. Jagged Peak plans to add an additional two frac fleets in this year as more wells are drilled.
Source: Jagged Peak Investor Presentation
In total, Jagged Peak spent $91.3 million on development, and an additional $22.8 million on leasehold acquisitions. These acquisitions added 2,153 net undeveloped acres, giving the company a total of 68,546 acres at the end of the quarter-all of it in the Delaware basin.
Targeting more than 200% production growth in 2017
Jagged Peak produced an average of 9.8 MBOEPD in Q1 2017, up 53% sequentially. This growth is expected to continue, with overall 2017 production expected to average about 18 MBOEPD, growth of 221% above the 5.6 MBOEPD that the company produced in 2016.
All of Jagged Peak’s 12 currently completed wells are targeting the Wolfcamp A, but several drilled and uncompleted wells will evaluate the second Bone Spring and the Wolfcamp B formations. The company recently drilled two wells to examine 660’ spacing targeting the Wolfcamp A in the central portion of Jagged Peak’s acreage. Preliminary results are encouraging, with both wells producing in line with expectations. The positive results have led the company to plan a three-well spacing test in the northern portion of its acreage.
“Based on the wells we have drilled to date and wells drilled by other operators, we believe the Lower Wolfcamp A, Upper Wolfcamp A, Wolfcamp B and 3rd Bone Spring Sand formations are significantly delineated across our acreage,” Jagged Peak said in a statement on its website.
“The top of the Wolfcamp formation ranges from approximately 8,850 feet to 11,420 feet, and the top of the Bone Spring formation ranges from approximately 8,600 feet to 10,900 feet. We also believe that significant additional development opportunities exist on our acreage in the Brushy Canyon, Avalon Shale, 1st Bone Spring Lime, 1st Bone Spring Sand, 2nd Bone Spring Sand, 3rd Bone Spring Lime and Wolfcamp C formations,” Jagged Peak said.
Source: Jagged Peak Investor Presentation
Artificial lift swap cuts downtime
In the southern portion of Jagged Peak’s acreage, an artificial lift change has delivered significant improvements. The company had relied on gas lift to improve its recovery, but difficulty with wellhead compression led to about 20% downtime. Replacing this process with electric submersible pumps, however, has not only cut downtime but also significantly improved production.
Q&A from JAG Q1 2017 conference call
Q: In terms of the drilling days, do you have an update for us on how they were going? I think in 4Q you’re all heading 29 days about to rig release and that is below what you’ve budgeted for the year, and I think back in March on the call, you said that some of your recent wells are in the low 20s.
JAG EVP & CFO Robert Howard: We’re experiencing about the same 29-30 days per well that we had in the fourth quarter, and we’re increasing activity. We’d expect that to come down over time as we get more of these rigs lined out and, but no deterioration at all in the result so far.
Q: So, you all talked about, tweaking some completion techniques and seeing some good results, and maybe even a higher oil cuts. Could you dive into that a little bit and give us a few details and why you think some of these oil rates are coming on a bit stronger?
JAG VP, Operations Chris Bairrington: We are changing out the surfactants as Joe — we are changes surfactant thoughts as Joe pointed to a little earlier. Some of that was cost driven, which is actually turned to our favor just due to the effectiveness of the surfactants that we are using. We’re still using (inaudible) but we are also some of the drivers of what we’re actually getting in our better wells are going to be that we are using diversion techniques to.
So, we are playing with stage facing, surfactants, diversion drops, and that seems to be proving out to be yielding better wells.
Q: And then just a question on the flaring. So are you still flaring — you’re still flaring a fair amount, and when do you think that’s going to change? So, can you guide us through a bit on 2017 on what that oil and gas mix might look like?
Chris Bairrington: Flaring has been — flaring was a problem in the previous quarters. However, we’re getting the systems in place right now. So, with our contracts that we have with targeted building out the systems. So flaring is at the minimal now and we expect it’s going to get even less, but so we are forward-looking is that we really should not have as much or very little going forward.
