After Parsley Energy Inc.’s (PE) mixed start to the year—a production beat, a net loss and a nifty bolt-on acquisition in its core—the company is joining its peers’ optimism in the Permian Basin.
Parsley said in its first-quarter 2015 earnings call it now plans to add three horizontal rigs in June and is upping its capex by 16% to $250- to $300 million. Pioneer Natural Resources Co. (PXD) and RSP Permian Inc. (RSPP) have also indicated they would increase rig counts if prices continue to strengthen.
In Parsley’s most inexpensive acquisition since its IPO, the company made a sizeable impact on its horizontal inventory. It acquired 3,562 net acres in Northwest Regan and north Midland counties, Texas, for less than $5,000 per acre. The $17 million deal adds 114 net horizontal drilling locations. The purchase includes $7 million cash and an estimated $10 million in well carries.
Overall, the deal increases Parsley’s horizontal inventory by 23% to 2,237 net locations, when including revised spacing assumptions of 660 feet compared to previous spacing of 870 feet.
However, it was still a wobbly quarter for Parsley. Production was strong despite bad weather, but price realizations cost the company and contributed to a $17 million net loss.
“The big highlight is not the quarter but well performance, which continues to exceed expectations,” said John Freeman, analyst, Raymond James. “Parsley has upgraded Wolfcamp type curves.”
The company said its EURs are now 1 million barrels of oil equivalent (MMboe), a revision from previous EURs of 690 Mboe.
“At strip pricing and current costs of $7 million/well, Parsley expects PV-10's of $8 million/well, paying out in one year—a 60% IRR,” Freeman said. “This has enabled Parsley to increase production guidance to 47% year-over-year growth at the midpoint” of 20 Mboe/d-21.5 Mboe/d.
Bryan Sheffield, CEO, said the company’s first-quarter 2015 operating results continue to validate the potential of its resources.
“We are pleased to have delivered production growth in the first quarter despite weather related downtime that cost us an average of approximately 1,500 boe/d production,” he said.
After drilling 30 horizontal Wolfcamp wells, Sheffield said the company is confident enough to increase production guidance for the year and introduce a 1 MMboe type curve for its Wolfcamp A and B wells.
“We now expect to generate close to 50% year-over-year production growth on a capital budget that is significantly lower than 2014 spending,” he said.
Freeman said that while Parsley saw a mixed quarter, its well performance is demonstrating that its assets are “among the best in the Permian and will deliver some of the best returns over time.”
As for RSP, the company had a shaky first quarter in 2015 too, reporting a miss on all counts but still maintaining bullishness on its Permian holdings, Freeman said. The company’s 15.9 Mboe/d production missed consensus of 16.6 Mboe/d and it suffered 21% higher lease operating expenses (LOE). First-quarter capex was also substantially lower at $82.5 million, compared with consensus estimates of $130.7 million.
Nevertheless, the company announced plans to keep three horizontal rigs active during the second half of the year and would retain an option to expand the program to four rigs should oil prices strengthen.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
