Centennial to enter northern Delaware basin

Centennial Resource Development Inc. has agreed to buy 11,860 net acres in Lea County of southern New Mexico, directly north of the Red Hills area, from fellow Denver firm GMT Exploration Co. for $350 million in cash.

Centennial Resource Development Inc. has agreed to buy 11,860 net acres in Lea County of southern New Mexico, directly north of the Red Hills area, from fellow Denver firm GMT Exploration Co. for $350 million in cash.

The move boosts Centennial’s Delaware basin position to 88,000 net acres from 76,000 net acres at yearend 2016, when the firm closed on its $855-million acquisition of 35,000 net acres in Reeves County, Tex., part of the southern Delaware basin, from Silverback Exploration LLC (OGJ Online, Nov. 28, 2016).

Production from the newly acquired acreage during the first quarter averaged 2,100 boe/d, of which 77% was oil. Of the total acreage, 79% is operated with an average 85% working interest. The largest nonoperated partners include EOG Resources Inc. and Concho Resources Inc.

Centennial has identified 255 gross horizontal drilling locations in the Avalon shale, 2nd Bone Spring sand, 3rd Bone Spring sand, and Wolfcamp A formations, based on 660-1,056-ft spacing.

The acreage has an estimated undeveloped resource potential of 91 million boe, with additional upside potential from the 1st Bone Spring sand, 2nd Bone Spring shale, 3rd Bone Spring carbonate, and Wolfcamp B formations, the firm says.

“Located in the sweet-spot of the Bone Spring trend, this acquisition marks our entry into the northern Delaware basin, further expanding our footprint into an area with similar producing horizons as our existing acreage,” commented Mark G. Papa, Centennial chairman and chief executive officer.

Revised drilling, production plans

While there are currently no operated rigs on the GMT acreage, Centennial plans to add one operated horizontal rig during the third quarter and spud five gross horizontal wells through yearend. Four wells are expected to be completed and placed on production late this year. Well costs on the acquired acreage are estimated to be similar to Centennial’s Reeves County wells, or $6-7 million for a 4,500-ft lateral.

Centennial is increasing the midpoint of its full-year 2017 drilling and completion capital expenditure guidance by $38 million, of which 85% is expected to be associated with operated activity.

Pro-forma for the deal, Centennial also is raising its 2020 oil production target to 60,000 b/d from 50,000 b/d, representing a 4-year compound annual oil growth rate of 80% from 2016 to 2020.

The firm is increasing the midpoint of its 2017 production guidance to 25,750 boe/d from 24,500 boe/d while raising the midpoint of its oil production guidance to 15,750 b/d from 14,850 b/d. Centennial’s estimated average oil production during the first quarter was 10,500 b/d.

Centennial plans to finance the acquisition, expected to close during the second quarter, through proceeds from one or more capital markets deals.

Centennial was formed in 2016 through the merger of Centennial Resource Production LLC and Silver Run Acquisition Corp., a special purpose acquisition company formed by Papa and private equity firm Riverstone Holdings LLC (OGJ Online, July 22, 2016).

Contact Matt Zborowski at matthewz@ogjonline.com.

More in General Interest