PITTSBURGH—With efficiency gains accelerating in drilling and completion designs, the biggest opportunity for E&Ps to make headway lies in closing the gap between the top-performing wells and the worst wells in an operating area, according to Toby Rice, president and COO of Rice Energy, who was a featured speaker at Hart Energy’s DUG East conference on June 22.

“Why is that some wells outperform? Why is it that some operators consistently outperform?” Rice asked. “We’re all looking for an edge. We all hire from the same talent pool. We all use the same equipment. Why is it that we see such a slow adoption of best practices over a period of time?”

According to Rice, identifying performance gaps is what gave his company the confidence to get started in the oil and gas industry.

“I believe the biggest opportunity in front of the industry today is closing the gap between the worst wells and the best wells,” he said. “How amazing would it be if every well we drilled would be the new biggest well in a field? Our execution in closing these gaps is the secret behind Rice Energy’s success today.”

With no material advantage when it entered the Appalachian Basin, Rice Energy, an up-and-coming E&P, was forced to develop a new approach that began with “challenging the status quo” and “believing there is always a better way,” Rice said. An underlying belief, he continued, was “the only thing we control is how efficiently we operate the assets that we have with the resources at hand.”

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In the trend to achieve better results by drilling longer laterals, Rice cited average lateral lengths for peers as being 6,800 ft, which is “a lateral length Rice Energy averaged three years ago, and we’re well above that today.” Rice said his company was similarly several years ahead of its peers regarding completions results being better with shorter stage lengths.

“It’s not about whether the operator has the technical capability to drill 10,000-ft laterals or frack with shorter stage lengths,” Rice said. “Rather, it’s about whether the operator has the capability to change its program rapidly. Rice Energy certainly possesses this ability to move quickly.”

In building an acreage position—given its limited finances to hire landmen—Rice Energy’s approach centered on building relationships with landowners. Rice said the company built those relationships “with the hope we could motivate them to promote our company throughout their communities.”

Building ‘A Deal Machine’

Over a two-year period, the company was able to sign 5,400 land deals, using less than 20 land agents.

“We’ve built a deal machine that has captured 150,000 acres, and a customer relationship machine that has activated 15,000 partners to champion the success of Rice Energy today,” Rice said. “These machines will allow us to continue to add acreage organically in the future, to replenish our inventory, and also allow our executives to focus on doing smart acquisitions.”

Rice cited maximizing field communications and automation as means of helping scale up production operations and thus lower lease operating expense (LOE). Using sensors installed on a so-called smart pad, Rice Energy was able to lower LOE from 32 cents per thousand cubic feet (Mcf) in 2013’s fourth quarter to 18 cents/Mcf in 2016’s first quarter—a decrease of 45%, driven by production facility automation.

“The tech industry has changed the world,” Rice said. “And if it hasn’t changed your business approach, you need to ask why.”

Rice also discuss benchmarking, focusing on how quickly and with how many wells an IP threshold of 1 Bcf/d was reached. Rice Energy hit production of 1 Bcf/d more quickly than its peers with just 180 wells, he said, as compared with data indicating that five peers reached 1 Bcf/d after drilling 200 to 400 wells.

Rice Energy’s output in the first quarter of this year totaled 675 Mcfe/d, according to Rice, with single wells generating returns of 55% to 75% at strip prices. The company controls 200,000 effective stacked net acres comprising Marcellus and Deep Utica acreage in Pennsylvania and Utica acreage in Ohiothat represent more than 10 years of drilling inventory.

Driving Down Total Costs

Also speaking at DUG East, Ray Walker, the COO of Range Resources Corp. (NYSE: RRC) similarly pointed to 1.5 million effective net acres comprising acreage prospective for the Marcellus, Utica/Point Pleasant and Upper Devonian. Of this, he said, wet and dry gas acreage totaled 670,000 and 870,000 acres, respectively.

In terms of driving down costs, Walker cited a 34% decline in unit costs over the last five years. Unit costs--LOE and other cash costs, plus depreciation, on a per unit basis--fell from $4.30/Mcfe in 2011 to an estimated $2.58/Mcfe in 2016. Additionally, “Range has always fostered a lot of innovation,” he said, citing a cost per thousand feet of lateral coming in at $819 vs. an average of peers’ $983.

Walker recalled how, as long ago as 2007-2008, Range began thinking about how it could best take advantage of multiwell pads. “We started thinking: What is this going to look like in 10, 15, 20 years? We were building pads that could hold 18 to 20 wells.”

This foresight is likely to prove its worth, as most pads are designed to accommodate 20 wells with the flexibility to drill Marcellus, Utica/Point Pleasant or Upper Devonian formations.

“Today, we sit here with all our acreage due to be HBP by the end of this year. We have 124 pads with five wells or less on them. We have almost 60 pads with six to nine wells on them. And all these pads can go up to 18 to 20 wells,” Walker said.

“This is going to represent a major step-change in costs for Range. We can save almost $850,000 per well over what a grassroots pad would be. The pads are there, the locations are there, the facility’s there, the meter tap is there, the water’s already hooked up and so on.

“This sets us up in a unique positon, not only from an investment viewpoint, but also from a regulatory, environmental and compliance standpoint. We’re not going to be there doing a lot of brand new stuff.”

Chris Sheehan can be reached at csheehan@hartenergy.com.