A year after closing Permian entry acquisition, Civitas Resources keeps improving basin results

A year after closing the first of two transformative acquisitions that established a Permian Basin presence and then expanded that position, DJ Basin producer Civitas Resources now has a high-quality, diverse portfolio of drilling opportunities in what it called the lowest two breakeven basins in the US, its top executive said on Nov. 8.

The two Permian acquisitions of oil producing assets from Hibernia Energy III and Tap Rock Resources, for $4.7 billion in August 2023 and from Vencer Energy for $2.1 billion in January 2024, doubled the size of the company and created a scaled position of size in the Permian that continues to grow and become better-quality, Chris Doyle, Civitas CEO and president, said during the company's webcast third-quarter earnings conference call.

"On the productivity front, we've begun to deliver the expected improvement in well performance [by focusing] on incremental well returns rather than an overall pad level return," Doyle said. "Our Permian well costs continue to trend lower, driven by reduced cycle times, drilling and completion design improvements and lower oilfield service costs."

And in the fourth quarter, the company began to complete wells by utilizing SimulFracs across its Permian program in both the Midland and Delaware sub-basins, which are sited respectively in the eastern and western regions of the Permian, Doyle said.

SimulFrac, a technology widely employed in the upstream oil and gas patch, allows the completion of two horizonal wells simultaneously rather than one by one which speeds up their readiness for production.

Early results in the Midland sub-basin have yielded a more than 30% output uplift in daily fluid output, Doyle said.

Mid-40$/b oil breakevens

"Strong results from recent Wolfcamp D [a sub-zone of the Wolfcamp geologic interval] wells in the Southern Midland are unlocking new resource for development as higher productivity is more than offsetting modestly higher well costs," he said. "Returns in the 'D' are competitive with other core zones such the Wolfcamp A and B, and we've identified approximately 120 Wolfcamp D locations in the inventory with mid-$40 [per barrel] oil breakevens."

In addition, Civitas' Permian Basin ground game is adding high-quality inventory with the capture of more than 75 gross drilling locations year-to-date, he added. Additionally, the company has carried out a number of beneficial acreage trades and swaps to materially extend well laterals -- the lengths of the horizontal well portion -- and boost working interest in near-term core developments.

Moreover, "we're working even more opportunities to add to the portfolio," which in the third quarter encompassed about 112,000 net acres in the Permian, Doyle said.

In the DJ Basin of Colorado, the company's legacy asset continues to deliver strong results. The prolific Watkins area, across the southern part of its footprint of roughly 371,000 net acres in the third quarter, comprises about two-thirds of its 2024 DJ Basin well count, Doyle said.

In that area, Civitas recently started producing 13 four-mile laterals, Doyle said, which are greater than 21,000 feet -- an extreme length not yet widely adopted in industry although many producers are heading toward that figure.

No degradation in 4-mile wells

The results are "ahead of expectations," he said. "And there is no per-foot degradation observed as compared to our three-milers."

Doyle noted the "unrestricted deliverability" of a particular DJ well, Blue 4AH, set a Colorado record during third quarter with a 90-day cumulative production of 165,000 b/d of oil, and 2,013 b/d as its highest 30-day rate. Watkins oil is lower API crude than a typical DJ barrel, he said.

And, although he did not immediately provide an API gravity figure, he said the lower API of Watkins' Niobrara-quality oil in the third quarter was a "significant" contributor to Civitas' recent stronger oil price realizations but did not give an example.

"Add to this the positive regulatory developments over the last couple of quarters, including the ballot measure stand-down and the Lowry CAP approval on Watkins, and we're in a great position to continue to deliver in the DJ," he added.

Earlier this year, a ballot measure stand-down was signed into Colorado law that would end ongoing and future initiatives at least through 2027 that would hinder oil and gas development.

Eased Colorado regulations

Also, the Colorado Energy and Carbon Management Commission approved the Lowry Ranch Comprehensive Area Plan, or CAP, for oil and gas development in the state's Arapahoe County. The plan allows more than 150 wells to be hydraulically fractured in Arapahoe County, Colorado, around and under the Aurora Reservoir, schools, homes and a landfill superfund site.

The plan also carries conditions to mitigate environmental and public health concerns, including a requirement that Civitas run its drilling and production on electricity instead of another fuel, and that the company seek additional approvals for each drilling location.

In the third quarter, Civitas produced 348,000 barrels of equivalent oil per day, up about 1.5% sequentially and up nearly 50% from the same quarter in 2023.

Oil volumes of 159,000 b/d in the 2024 quarter were "a little light" owing to unexpected downtime at third-party facilities in the DJ and water takeaway constraints in the Permian although Doyle said these issues were temporary and have now been resolved.

The CEO admits the company did not spend enough maintenance capital this year to maintain what he called a "level-loaded" program, so that actual spending was front-end loaded with the bulk of wells turned in line around mid-year.

But that means production will begin to climb at year-end and into the first quarter of 2025 "before we pull up with TILs sort of mid-quarter," he added.