Bellatrix budgeting for drilling and completion cost increases

Image: Joey Podlubny/JWN

Bellatrix Exploration says that while it hasn't experienced any pinch points in the availability of drilling and completions services, it is budgeting a five percent increase in the cost to drill, complete, equip and tie in its wells in west-central Alberta by the end of the year.

Bellatrix expects its average well costs in its core Sprit River area to increase to $4 million to drill, complete, equip and tie in, up from an average cost of $3.8 million per well in Q1 2017.

“We built in that extra $200,000, which equates to about five per cent, because it's prudent to expect [service cost escalation]. Pumper units might go up a bit more and so might day-rate costs on drilling rigs, but the other costs aren't going up,” said CEO Brent Eshleman following the company's annual general meeting on Wednesday.

He explained that even a 20 per cent increase in drilling cost wouldn’t have a material impact on the company’s economics.

Bellatrix paid about $15,000 per day per rig in Q1 and its nine wells (7.8 net) typically took 13 days per well to drill.

“If the drilling day rates go up by 20 per cent, that's up $3,000 from $15,000 to $18,000 a day. Over 13 days it's still only $40,000. So the overall impact on our costs is not that great,” Eshleman said.

Discussing availability of pumping services, he said, “The reason we didn't have any issues is that we've had long-term relationships with service providers over the last several years and we've been drilling wells every year.”

The producers that have run into difficulties in services availability, he noted, “are primarily smaller companies that have drilled a handful of wells.”

That said, Bellatrix did have to wait a few days for a pumping crew and even a week once in the first quarter because the service company was “stuck at another job.”

Eshleman's AGM presentation emphasized Bellatrix’s transformation towards sustainable “plus-or minus 15 per cent” compound annual production volume growth after having paid down more than $400 million of debt in 2016.

Bellatrix is on track to its revised full year 2017 average production guidance of 34,500 boe per day, driven predominantly by its Spirit River “growth engine” (Ferrier/Willesden Green), where it is achieving above type-curve production.

“What we’re always asked, of course, is about the long-term senior U.S. note, US$250 million. It’s actually not due for three years… Our game plan for the next 18 months is to refinance that note,” Eshleman said.

Bellatrix continues to advance the Phase 2 expansion project of its Alder Flats plant, which is expected to more than double the inlet capacity of the plant to 230 mmcf per day from 110 mmcf.

“We built [Phase 1] to take control of our gas and to have the capacity to move our product and, quite frankly, it's extremely profitable. It's a deep cut plant,” Eshleman told the audience.

“Phase 2 expansion of the project is on schedule and on budget. It's scheduled for operations [in] Q2 2018. Besides the gas plant, we've put in over 300 km of large diameter pipe lines, which really puts up the barriers to entry for our competition.”