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Wolfcamp Shale Investing

Written By Jason Stutman

Posted June 3, 2013

The Permian Basin has been a well-known oil play for at least half a century now. However, with the rise of new drilling methods, the true potential of the Permian Basin is just now being brought to light.

In 2005, the number of new drilling permits in the Permian Basin was 4,435. After the shale boom had finally been realized, the number of new permits increased to 9,235 in 2011 and 9,335 in 2012.

In that seven year time period, crude oil production in the Permian Basin jumped from 253 million to 312 million barrels.

And now, there are several unconventional plays arising that will play a major role in driving production growth even further.

Potato, Potato

Within the Permian Basin, there are several overlapping shale plays due to differences in depth. This overlap has made a small mess of semantics between Spraberry, Wolfcamp, and Cline formations on the surface.

In fact, overlapping is prominent enough to warrant the melding of the Wolfcamp and Spraberry plays to form the ‘Wolfberry Trend’.

wolfberry shale map

But after all is said and done, it doesn’t matter what you call it. The fact is, this collection of plays could be bigger than the Bakken and Eagle Ford combined.

Together, the Spraberry and Wolfcamp plays are like a layered cake that, when separated, gives you 3 to 4 million acres of productive shale. You also get a total of about 3,500 to 4,000 collective feet of shale formations.

And one of these shale plays is absolutely huge. I’m talking bigger than the Eagle Ford and bigger than the Bakken. The play I am referring to is the Wolfcamp Shale.

The 7,200-8,100 foot deep Wolfcamp formation lies right below the Spraberry field and is incredibly thick. In fact, with a range of 800 to 2,000 feet in thickness, it is the thickest known on-shore shale play in the United States.

To help put things in perspective, the Eagle Ford is only about 300 feet deep and is producing over half a million barrels per day. The potential for production in the Wolfcamp is massive.

And if the term ‘operating expense’ is now crossing your mind, you are absolutely correct: accessing shale at 300 feet is a heck of a lot easier than at 8,000.

But where there’s a will, there’s a way, and one company is already proving its ability to produce from this unconventional play. This company has also recently secured a strong financial backing for future production costs.

The Biggest Stakeholder

With approximately 900 thousand gross acres (730 thousand net), Pioneer Natural Resources (NYSE: PXD) holds the most acreage in the Wolfberry/Spraberry Field. Most of this acreage is prospective for the deeper Wolfcamp horizontal shale.

Permian Basin Map

Pioneer has interest in more than 7,000 active wells in the Spraberry Field and is currently operating 26 rigs – accounting for about 10% of rig activity in the area.

Traditionally, the Spraberry zone was subject to vertical drilling, but Pioneer is now beginning to tap into the Wolfcamp Shale that lies below with an innovative horizontal drilling technique.

This technique is called stacked laterals, a form of multi-well pad drilling that involves the layering of horizontal drills in order to reach multiple shale levels at once. Pioneer is able to drill up to 40 wells from a single pad site to various depths. Each drill is turned horizontally through 6 different strata (depth levels) after vertical drilling is completed.

And these aren’t just pipe dreams either. Pioneer has already seen strong and promising production results from the Wolfcamp play in multiple counties.

The company’s first horizontal Wolfcamp Shale well in Midland County had an initial flow rate of 1,693 BOEPD with 75 percent oil content. The company’s Martin County well also had a similar initial flow rate of 1,572 BOEPD with 77 percent oil content.

In addition, Pioneer plans to add rigs in both northern and southern counties of the play this year. Much of this production will be financed through a recent partnership.


In January, Pioneer announced a deal with Sinochem (SHA: 600500) which would grant the latter 40 percent interest in the southern portion of the Spraberry formation for approximately $1.7 billion. In June, the deal was finalized.

Of the 207 thousand net acres Pioneer holds in the southern portion of the Spraberry, Sinochem now has full interest in approximately 83 thousand.

Sinochem has already paid $631 million to Pioneer upfront: $522 million for a portion of the transaction and $109 million for Sinochem’s 40 percent share of net expenditures.

Sinochem will continue to finance Pioneer’s operations, paying the remaining $1.2 billion by carrying 75 percent of Pioneer’s future facilities and drilling costs.

Pioneer will also continue to conduct all operations in the area including leasing, drilling, and marketing, so there should be no new concerns involving management and direction.

With the increased liquidity received, Pioneer essentially holds a $1.2 billion credit towards operating costs, and teh company should be able to aggressively expand production efforts in the area.

After considering promising initial production levels, vast acreage rights, additional financial backing, and the sheer size of the Wolfcamp, Pioneer Natural Resources is looking to be one of the biggest players in this upcoming shale play.


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