After a couple of years testing wells and developing infrastructure in the Permian Basin, Laredo Petroleum (NYSE:LPI) now appears set up for fast growth driven by a couple of prime catalysts.
The Permian Basin is quickly becoming a favorite investment area with Concho Resources (NYSE:CXO) and Pioneer Natural Resources (NYSE:PXD) grabbing investor attention. The basin is located in west Texas and southeastern New Mexico and provides some infrastructure benefits over other new shale plays. Investors are starting to realize the massive resource potential with the realization of the stacked zones in the play after years of successfully drilling vertical wells.
Though Laredo Petroleum only has 144,107 net acres in the Permian Basin, the company suggests the development in four stacked zones yields approximately 360,000 net acres, to date. Assuming all four zones are proven throughout the whole acreage position, the company has the potential for an asset position equal to the equivalent of roughly 575,000 acres in a single zone play.
The company is currently drilling locations in the Upper Wolfcamp, Middle Wolfcamp, Lower Wolfcamp, and Cline zones with the potential to add other zones including the Spraberry, Strawn, Atoka, Barnett, and Woodford that would add to the positions listed above.
During the first quarter, Concho Resources drilled 55 wells in the Delaware Basin portion of the Permian with a focus on multiple zones. The prime focus was the Bone Spring with 41 wells and the Wolfcamp with 11 wells. The company is using these stacked plays to drive production growth up over 20% in 2014.
New rigs, multi-well pads
Another prime catalyst for growth is the push toward multi-well pads that increase production and operational efficiency while allowing for the reduction in well costs and improved production, especially with the stacked zones. The shift to multi-well pad drilling though delays initial production from the first well by up to 123 days. The shift to a four-well program causes lumpy production growth with a sudden addition of four wells to the pipeline after drilling and completion work that takes over 170 days, but the plan gains greater than 40 days in efficiency gains along with the lower costs.
At the time of the first-quarter report, the company had only completed 17 laterals from multi-well pads providing considerable upside for 2014 with the plan for 60 wells this year. On those, seven horizontal wells were completed in the first quarter with a goal of completing up to 20 during the second quarter. Part of the increase comes from adding the sixth and seventh horizontal rigs to the drilling program during the quarter.
The move to multi-well pads is an industry standard these days with Pioneer Resources already deploying these moves. The company plans to expand the northern Spraberry/Wolfcamp drilling plan to 16 rigs from the five in operation at the end of 2013. The rigs are drilling mostly three-well pads with a focus on multiple zones including the Wolfcamp A, B, and D, Lower Spraberry, Middle Spraberry, and Jo Mill. Pioneer expects to continue growing rigs in this region by five to ten per year due to the multiple zones of oil in the basin.
The increase in drilling rigs and multi-well pads will provide Laredo Petroleum with substantial growth potential in 2014 and beyond. The company increased the drilling rigs from five to seven during the first quarter and exited the quarter with 13 horizontal wells drilled and uncompleted due to the multi-well pad completion delays. Considering the company only completed seven horizontal wells during the first quarter, the company is stacked with growth potential from multiple zone drilling from multi-well pads.
Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.
Mark Holder and Stone Fox Capital clients own shares in Laredo Petroleum. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.