FORT WORTH, Texas—Laredo Petroleum Inc. (LPI) bought most of its acreage in the Permian from 2008 to 2010. “We were drilling horizontal wells well before most people even thought that was a value. If you’ve got the right acreage [and] you’ve got stamina [then] you have a chance at really winning,” said Randy Foutch, chairman and CEO, at DUG Permian on May 28.

As of March 2015, the company holds 179,722 gross (149,141 net) acres and about 4.3 billion barrels (Bbbl) of resource potential on more than 7,700 identified locations in the Permian.

About 3,200 operated horizontal well locations in the basin, in which the company has more than a 90% average working interest, are development ready. “That’s huge. That’s exciting. That makes you want to get up early and go to work,” Foutch said. “The contiguous acreage is something that’s pretty important to us and it has huge advantages also.”

Foutch said Laredo’s approach for the Permian was simple and consistent, and the company’s focus was on long-term value from the very beginning. This plan included hiring quality people, acquiring contiguous acreage in the right basin, collecting quality data at the right time, maximizing net present value (NPV) and maintaining optionality.

“Buy the best acreage possible. If you don’t have good acreage, nothing else matters. You’re not going to win,” Foutch said. “The investments we made in infrastructure a number of years ago are paying off or starting to. The investment we made in data collection is starting to pay off. And being an early entry in the play and getting the right acreage is starting to pay off big time for us.”

Data Collection

Laredo’s comprehensive technical database integrated with 3-D seismic allows it to identify where to find and position wells across multiple horizons to maximize value, according to his presentation.

“Our view is that the better data you have, the better decisions you make. So we’ve been spending money, time and effort from day one collecting data,” he said.

According to Foutch, Laredo has an extensive whole core database, some of the highest resolution 3-D and a large amount of production logs. “We think looking at the rocks matter,” he continued. “The database is meaningful. You’ve got to build it at certain times. You can’t get some data only one time in the history of the well. Once you run casing, you’re limited to some of the logs you can run. Once you’ve had the well on artificial lift for a while, your production logs aren’t as sanitary perhaps in terms of quality of the data. So this database and the contiguous acreage have been very helpful to us. We enjoy a huge advantage there.”

Multiwell Pads

The company’s goal is to develop the entire resource and maximize operational efficiency by drilling stacked laterals on multiwell pads and concentrating facilities along production corridors.

“Our job is to maximize the NPV. That’s difficult to do early on in this type of resource play, but we think we’re headed in the right approach [and applying] the right method,” he said.

The company reported that average cost savings on a multiwell pad are about $400,000 per well and also reduce cycle time and surface footprint. In 2013, Laredo had 13 horizontal wells on multiwell pads and then 56 in 2014. It currently has four horizontal wells on multiwell pads. Multiwell pads have “tremendous savings,” Foutch said.

According to the presentation, capital efficiency gains from drilling longer laterals, cost savings from multiwell pad drilling and additional service cost savings can generate well economics in this commodity price environment that rival the returns from a higher oil price environment.

Contiguous Acreage

Centralization of infrastructure provides benefits of about $1.2 million per well, according to his presentation. A four-well completion requires 1MMbbl of water in two weeks and takeaway capacity of about 82,500boe per month and about 93Mbbl of water per month during peak production.

Additionally, production corridors leverage the company’s resource concentration and contiguous acreage base to facilitate efficient development of the entire resource, Foutch said.

“We have four corridors in various stages of development. We will need others as we finish drilling the blocked up acreage. Fifty percent of our crude oil today never sees a truck; it goes straight from the wellhead through pipe, all the way to where we sell it,” he said.

Maintaining Optionality

Laredo is a 49% owner in the Medallion Pipeline, which gave the company access to sell its crude in a variety of different places. Foutch said they wanted as much optionality as they could get, and through their commitment to Medallion they have the option of selling within Midland, Texas; Colorado City, Texas; Cushing, Okla., or the Gulf Coast.

“We are really big believers in having optionality in operations [and] making sure we’ve got infrastructure where we can market product a number of different places,” he said. “The optionality is very important to us. The flexibility that we’ve built into our system with our infrastructure and other things is very valuable.”

Contact the author, Ariana Benavidez, at abenavidez@hartenergy.com.