Clayton Williams Energy provided a review of its ongoing developmental drilling programs in the Permian Basin and Austin Chalk, two of its core oil-producing areas, for 2009 and its outlook for 2010.
The Company began a program in 2008 to exploit its large inventory of developmental drilling locations, primarily in the Permian Basin and the Austin Chalk areas of Texas, but sharp declines in oil and gas prices late in 2008 caused the Company to temporarily suspend most of this program. By mid-year 2009, oil prices had rebounded to acceptable levels and the costs of drilling services had receded due to lower demand for those services. These economic improvements, coupled with strategic actions by the Company to create drilling efficiencies and control drilling and completion costs, allowed the Company to resume and even escalate its developmental drilling program. As previously reported, the Company has taken steps to:
Andrews County Wolfberry
The Company has a large acreage block in Andrews County, Texas on which the Company has identified more than 200 potential locations for Wolfberry wells. A Wolfberry well is a well that commingles production from the Spraberry and Wolfcamp formations. The Company resumed continuous drilling operations in this area in June 2009 with a single drilling rig, and added a second rig in July and a third rig in October. During 2009, the Company drilled and completed 13 gross (11.7 net) wells in this area at an average gross cost of approximately $1.8 million. An additional 6 gross (5.2 net) wells were in progress at the end of 2009, of which 5 gross (4.3 net) have been completed to date. In 2010, the Company plans to use up to six of Desta Drilling’s rigs to drill and complete approximately 104 additional wells at an estimated cost of $173.9 million, net to the Company’s working interest.
The Company also resumed a drilling program in the Fuhrman-Mascho Field in Andrews County, Texas beginning in July 2009. During 2009, the Company drilled and completed 20 gross (18.2 net) wells in this area at an average gross cost of approximately $400,000. An additional 4 gross (3.6 net) wells were in progress at the end of 2009, all of which have been completed to date. In 2010, the Company plans to drill and complete approximately 14 additional wells at an estimated cost of $4.1 million, net to the Company’s working interest.
Austin Chalk (Trend)
The Company has extensive holdings of more than 200,000 net acres in the Austin Chalk area of Burleson, Lee, and Robertson Counties, Texas. In certain parts of this acreage, the Company has been able to tap additional oil and gas production and reserves by drilling new horizontal wells between existing producing units, a practice known as in-fill drilling. The Company resumed in-fill drilling operations in the Austin Chalk area in July 2009 with a single drilling rig and added a second rig in October. During 2009, the Company drilled and completed 3 gross (2.9 net) wells in this area at an average gross cost of approximately $2.1 million. An additional 2 gross (2 net) wells were in progress at the end of 2009, both of which have been completed to date. In 2010, the Company plans to use two of Desta Drilling’s rigs to drill and complete approximately 20 wells at an estimated cost of $39.3 million, net to the Company’s working interest.
Eagle Ford Shale
The Eagle Ford Shale is a formation immediately beneath the Austin Chalk formation. The Company has drilled a horizontal well in Burleson County, Texas to test the Eagle Ford Shale underlying its existing Austin Chalk acreage. The well is currently producing, and the Company is evaluating the data to determine if an Eagle Ford Shale drilling program is economically viable. Depending on the results of this well, the Company may decide to drill additional wells in the future to further evaluate its Eagle Ford Shale potential.
Revised Plans for Capital Spending in 2010
The Company also updated its estimates for capital spending for the remainder of the year. The Company now plans to spend approximately $274.4 million on exploration and development activities in 2010, as compared to the previous estimate of approximately $237.4 million.
Clayton W. Williams, Jr., President and Chief Executive Officer of the Company, commented, "I am very pleased with the progress of our developmental drilling program. The wells we have drilled to date are meeting our production and reserves expectations. As a result, we believe we have some very attractive opportunities for organic growth in the Permian Basin and in the Austin Chalk relative to our current acreage positions. I remain convinced that the steps we have taken to control drilling and completion costs and to stabilize product prices through effective hedge transactions will have a positive impact on the ultimate success of this program."
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