DENVER—Some new words have crept into the lexicon of private E&Ps courtesy of the current downturn in oil and gas prices. The longtime “buy and flip” or “buy, develop and flip or IPO” vocabulary now includes the word “survive”— before “monetize.”

Ben Burke, senior geologist with Fifth Creek Energy LLC, discussed these shifts in strategy and more while speaking on a panel of private operators at Hart Energy’s recent DUG Rockies conference. Joining him were Permian player Centennial Resource Development LLC and Powder River Basin-focused Liberty Resources LLC. The latter have hobbled drilling until prices improve. Fifth Creek is in an earlier stage and is still on the asset hunt.

Centennial has built a 41,000-net acre position in the oil core of the Southern Delaware Basin since it was formed in 2013 with backing from NGP. CEO Ward Polzin said results to date have been “among the best initial production results and EURs per lateral in the Southern Delaware,” holding their own with those in the Midland Basin.

The company will ultimately chase the full lineup of stacked formations available in the Delaware, including Upper and Lower Wolfcamp A, Wolfcamp B, Wolfcamp C and Third Bone Spring. But for now, having cut its four-rig program to one, its efforts are focused on the Wolfcamp A.

“One of the challenges is when running just one rig, we can’t afford to test all the zones,” Polzin said. “We are focused on maintaining what we have and going with the best zone, which currently is the Wolfcamp A.”

Centennial has expanded its reserves by 30% to about 32 million barrels of oil equivalent (boe) of proved reserves, 71% oil. When prices rebound, it expects to uncover further upside in the Second and Third Bone Spring.

Held flat through 2015 on a reduced drilling program, the company’s production is 7 Mboe/d. Centennial has drilled about 35 horizontals to date in addition to about 20 wells that were in place at the time it bought the asset from Atlantic Exploration LLC in mid-2014. It’s whittled drilling and completion costs to about $5.8 million (including facilities and proppant) from $12 million.

When commodity prices are in the tank, hardly anything beats optionality. Centennial has few drilling obligations, so it can be flexible with its capital spending, which it has directed to a purpose-built gas gathering and processing system and an under-construction oil gathering system.

It has brought field personnel into the main office to increase the emphasis on reducing costs and to coalesce around the philosophy that “we’re all in this together,” Polzin said.

The Delaware’s overpressured zones are a positive and a negative—they yield more oil per lateral length per section, but are pricier as a result. “We think the returns justify it,” Polzin said.

Average cumulative well production has increased 35% since Centennial took over the assets. It uses a hybrid frack of slickwater and gel with single-section laterals of about 2,500 ft, 23 stages and 200 ft per stage. Polzin noted that the company has kept its base frack “pretty much the same” since 2014, so improvements have come via tweaks.

“Our last 12 Reeves County wells significantly outperformed the type curve,” Polzin said.

“It’s amazing the combination of small things that we’re forced to do now that add up to significant changes,” he said. “High-intensity fracks will be the next step.”

Overall, drilling time has been reduced from 45 days to about 22 days. Drilling and completion capex has declined about 47% since 2014, while average lateral length has increased about13%.

Remarking that the downturn has lasted about 18 months, Polzin thinks “we’ve got another year to go” before commodity prices improve significantly. “You have to play defense—throw the 10-yard pass,” he said. “Stay close to home. But you have to keep the offense going as well.”

Centennial is a private-equity backed company, he said, emphasizing that “you have to accept that you’re going to be here for longer and the returns are going to be a little lower.”

A Fourth Peak

Jack Vaughn’s Durango, Colo.-based Peak Exploration & Production LLC is on its fourth iteration, this time in the Powder River Basin. Previous Peak entities have worked in the San Juan Basin, the Granite Wash, the Texas Panhandle, the Barnett Shale and most recently, the Williston Basin.

Peak has assembled roughly 43,000 acres and drilled its first well on the Powder River acreage in 2012. Like the Permian, the Powder offers plenty of stacked pay in several formations including Frontier, Turner, Parkman, Niobrara, Shannon and Sussex.

Peak’s team also sees upside in the Muddy and Dakota formations. Its land, mainly in the middle of the basin, has a fairly large component of federal and state holdings, but “we understand the regulatory environment and know how to manage through it,” Vaughn said.

To date the company has drilled over 60 horizontal wells, and like Centennial, is holding production flat. It is working conventional zones like the Parkman, Shannon, Turner and Frontier, while keeping an eye on the resource play potential of the Niobrara. Drilling in the Powder’s overpressured zones can be challenging and costly, much like in the Southern Delaware Basin.

Peak has gone from three rigs to none, having laid down its last one in January. It expects to start up one rig in the third or fourth quarter of this year. About 8% of the revenue stream is gas and NGL, so Wyoming’s strict anti-flaring regulations require that the company have infrastructure.

Cost cutting is now the focus. “We’ve done a lot of science,” Vaughn said, “and since 2013 our average well cost has been reduced by about 40%.” The company is careful about how it monitors flowbacks on its overpressured wells to protect long-term EURs. “You don’t want to get too aggressive,” Vaughan said.

With minimal debt requirements, Peak is weathering the current tough market while keeping in mind the rate of return requirements from its private-equity backers, principally Yorktown Energy Partners. It plans to operate within cash flow and continue lowering its general and administrative costs.

A Fifth Creek

Still in the early stages is Fifth Creek Energy LLC, the fifth iteration of the founders of Bonanza Creek Energy, Mike Starzer and Pat Graham, who took Bonanza public with great success in 2011. Fifth Creek was founded in late 2014 and is currently evaluating deals for its first acquisition.

Burke discussed the company’s strategy and what he’s seen evolving in deal flow and structure.

Fifth Creek’s main financial sponsor is NGP Energy Capital Management, with support from Bank Paribas, Holmes Creek and Wells Fargo.

Fifth Creek’s target size for an acquisition is $500 million to $1.5 billion, and it’s seeking proved developed producing reserves and growth potential. It plans to apply its horizontal drilling, geoscience expertise and frack stimulation technology skills to assets that have existing infrastructure and long-life reserves.

Burke discussed case studies in major U.S. oil shale plays, the Utica/Point Pleasant shales and Alberta’s light oil plays to illustrate the type of deal the company is considering. In terms of deal structure, Fifth Creek will consider cash, cash and equity, joint ventures and earning participations, special-purpose entities, seller-retained overrides and net profits interests, and operating partnerships.

How will the A&D market shake out for the many management teams looking for a foothold across the U.S.? Burke figures there are 400-plus teams and 30-plus private capital providers representing about $30 billion dedicated to E&P.

Since 2008, Burke said, strategy has changed radically. In 2008, it was buy and flip; in 2010, buy, drill a few and flip. In 2012, the strategy was buy, develop and flip; in 2013-2013 buy, develop and IPO; and in the past year the strategy has been buy, develop, survive, optimize…wait on a commodity rebound, and monetize. Holding for longer is the name of the game.

Susan Klann can be reached at sklann@hartenergy.com