A corporate culture focused on driving down costs while driving up well productivity is allowing Permian oil producer Diamondback Energy, Inc. to drill more wells faster while keeping a lid on capital expenditures, chief executive officer Travis Stice said at the company’s second quarter 2023 conference call.
The improved cycle times resulted in Diamondback drilling 98 wells in the second quarter of 2023, a record for the company, and almost twice the 52 wells drilled in the year-ago quarter, as it integrated two large Permian acquisitions into its operations.
At that pace, Diamondback would drill 400 wells this year, significantly higher than its annual guidance of ~340.
“We’re slowing down the drilling pace in the second half of the year and building a few DUCs,” said Stice. “If this was 2017 or 2018, we’d be stepping on the accelerator and spending more capital, but instead we’re focused on generating more free cash flow in the second half of the year and returning that cash to shareholders.”
The drilling productivity improvements are the result of a corporate culture focused on continuous incremental productivity gains, said Stice.
“I wish I could say it was one individual piece of technology that’s transferable across our entire rig fleet, but it’s much more subtle than that,” he explained. “It’s the culture that we have that has an extreme focus on cost control and efficiencies.”
“And it’s not one or two items, it’s thousands of items that are decided upon [by] every one of these rigs,” he added. “They measure how long it takes to physically screw pipe together for 300 times for every trip that they make — that measurement of just simply screwing pipe together in five minutes versus the next rig over that was six minutes, you think it doesn’t matter, but when you do that several bit trips, bit runs, per well, it adds up. And that’s the level that our organization focuses on efficiency.”
Measuring operational metrics
“What it boils down to is the teams measuring every little thing they can on the rig and measuring which way those operational metrics are trending,” said chief operating officer Danny Wesson. “When a metric is not trending in the right direction, they attack it with a fervor that is unlike anything I’ve ever seen. And that continues to [produce] year-over-year improvements in execution.”
This summer the company drilled two record wells with 7,500-foot (2,300 metres) laterals in under five days, said Wesson. “Those results are remarkable, and we don’t talk about individual well results a lot, but those are the things that we continue to do in the day to day of the company that continue to drive our execution downward.”
“We have a healthy competition among our rigs and completion crews that we incentivize monetarily for efficiency and cost control measures,” added Stice.
Diamondback completed and turned 89 wells to operation in the quarter compared to 62 in the year-ago quarter, a number that Stice said was likely to come down to around 80 for the next two quarters. It expects to complete 330-345 gross wells during the year. The company is running four simulfrac crews which can complete about 80 wells each a year.
The average lateral length for wells completed during the first six months of 2023 was 10,889 feet.
“In this new business model of capital efficiency and profitable value over volumes, we’re focused on running the most efficient plan possible,” said president and chief financial officer Kaes Van’t Hof. “Absent a major change in commodity price, that’s the plan and that allows the teams to plan their business and also allows us to execute at the lowest cost from a capex perspective, so kind of that 15-ish rigs and four simulfrac crews feels like a really good baseline for us.”
Net production guidance for 2023 has been increased slightly from 430,000–440,000 boe/d to 435,000–445,000boe/d, due to production outperformance year-to-date.
Diamondback had Q2 net income of US$556 million, down from US$1.42 billion in the year-ago quarter, on lower commodity prices.
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