EGN: Assessing Asset Performance Within a Portfolio

Broad trends in well results can sometimes hide more subtle underlying changes that tell a more complete picture of asset performance. In one such case, we found that well results in recent months for Energen could be ascribed to a greater emphasis on the Midland Basin at the expense of the drilling in the Delaware Basin where well results had fallen from peak levels ~2 years ago.

Using the DISCERN Energy platform and database, we see that Energen's well results in the Permian Basin have shown a recent pickup (24-hour IP rates) versus mid 2015 (Blue line, Figure 1). At the same time, lateral length rose over the same period (Red line, Figure 1).

Figure 1 (Left) and 2 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Permian Basin

Figure 1 (Left) and 2 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Permian Basin

Adjusting for lateral length we see that IP rates have been steady at historically low levels (Blue line, Figure 2) suggesting that improving rates have largely been driven by drilling longer laterals.

However, we also find that well productivity adjusted for lateral length in the Delaware basin has fallen dramatically over the last couple of years (Blue line, Figure 4, below) to about 200 boepd per 1000 lateral feet from nearly 300 boepd per 1000 feet.

Figure 3 (Left) and 4 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Delaware Basin

Figure 3 (Left) and 4 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Delaware Basin

But productivity adjusted for lateral length in the Midland Basin is similar to that in 2014 at ~150 boepd per 1000 lateral feet and has improved from a dip in early 2015 (Blue line, Figure 6, below).

Figure 5 (Left) and 6 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Midland Basin

Figure 5 (Left) and 6 (Right): Initial rate and adjusted initial rate (per 1000 feet of lateral) for EGN in the Midland Basin

So the "poor" productivity we saw in Figure 2 was partly from the deteriorating results in the Delaware Basin, but augmented by the shift away from the Delaware Basin where well completions effectively came to a halt in mid-2015. The increased emphasis on drilling in the Midland Basin yielded wells with lower adjusted IP rates. But since these wells were about 8100 feet deep versus 10,000 feet in the Delaware well costs probably more than offset this difference. Indeed, EGN's well depth reflect a complete shift away from completions in the Delaware Basin to a focus on the Midland Basin (Figure 7).

Figure 7: Well depth for EGN has fallen in the Permian as drilling has migrated to the Midland Basin

Figure 7: Well depth for EGN has fallen in the Permian as drilling has migrated to the Midland Basin

The recent increase in lateral length comes from a shift to the longer laterals in the Midland Basin versus the Delaware Basin (6000+ vs ~5000 feet) combined with lateral lengths in the Midland Basin rising more recently to ~7500 feet.

So we find several dynamics at play as the company focuses on a region with consistent asset quality and tries to optimize results there rather than throughout a broader portfolio.

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