Mark Whitley, founder and CEO, Chisholm Energy Holdings recently explained the company’s decision to expand in the Delaware Basin and if there is any interest to expand further.

Hart Energy: You’ve recently expanded your position in the Delaware Basin with an acreage acquisition in Eddy County, New Mexico. What did you see in those undeveloped assets that led to the deal?

Whitley: The Delaware Basin and particularly in New Mexico is the newest portion really of the Permian Basin. But, it is a very active basin that goes back many years. Some of the earliest discoveries were in the Delaware Basin. There are thousands of vertical wells that we can go to and take log data, and in some cases core data, out of libraries and do analysis of our own to see what is there.

This additional acreage that we bought was in an area where there are hundreds of wells drilled to the Morrow. The Morrow is deeper than the Wolfcamp and the Bone Spring, which are the two primary targets in the Delaware Basin. We had technical data that told us that there is hydrocarbon there. There is hydrocarbon in the second and third Bone Spring most likely, in the top of the WolfCamp and possibly even in the base of the WolfCamp. So, we have already answered one question. The opportunity came to us in a private deal. The company could have taken it as a public process, but they didn’t want to. We were able to work out a deal that worked for both of us. It allowed us to put together a position now which we can begin to craft together drilling and spacing units that will be 7,500 and up to 10,000 feet in length.

Hart Energy: Do you have interest in further expansion in the Delaware Basin?

Whitley: We do. We started out with an informal target of 30,000 acres. We have already reached that. We have over 30,000 acres. I still think there is a good opportunity here with some small acquisitions that we could get to 40,000 possibly before the end of the year [and] down the road maybe as far as 50,000 acres. I would say today our target has shifted from 30,000 to 50,000.

Hart Energy: Let’s turn to production. The name of the game is increasing output while controlling costs. What have you found to be the keys to maintaining that balance?

Whitley: It is about cost control. In many of the cases, the assets that we use (i.e. drilling rigs, frack fleets, etc.) are the same that everyone else uses, but it’s a question about how you use them. My team[Chisholm], because they have operated together for so long and i n some cases as much as 20 years together, has a really good operating practice which gives us the ability to do things both the right way, but also in a cost-effective way. You hear a lot of companies talk about that. But, if you look at the team and they’re previous experience they’ve had some of the lowest cost per foot in the basins and particularly Pennsylvania. So, we are going to replicate that in the Delaware Basin.

Hart Energy: What type of completions have you found work best in your Delaware position?

Whitley: If you look at the Delaware, first of all it’s made up of conventional rocks. The Bone Spring is a sandstone. The Wolfcamp is primarily shale with a conventional reservoir at the top that is sandstone. We have adopted a standard frack job. It’s not what everybody talks about today in pumping more sand, but we take the standpoint that in order to evaluate all of these and really see what is making the difference in these wells it’s not just the amount of sand that you pump. It’s how you pump it and where you pump it. So, targeting and landing the horizontals in the right target, making sure you stay in that target. To remove one of those variables we use this standard frack job: 1,500 pounds per foot, 210-foot stages with 30-foot clusters in those stages and about 4,000 barrels of water per stage.

Hart Energy: Do you think the industry will be able to get more output out to the Permian market? And, should it consider any warnings?

Whitley: New Mexico is behind all of the Permian Basin just because of the slow uptake in activity over the last couple of years. But, that is coming. We have a midstream provider that is actually going to gather oil, gas and water for us:3Bear Energy. It’s a novel water solution for us because now we won’t have to truck any water, or very little water. It will actually be moved on pipes from the location to their impoundments. Where it will be stored until we need it and then they send it back to us in a pipe. So, all these volumes now will move on pipe. Not in a truck. The cost saving from both a capital and an operating standpoint is in the $2 to $3 per barrel range. We produce 15,000 barrels of water a day already.

Hart Energy: How does Chisholm Energy use technology and big data?

Whitley: The concept of big data is really the purview of the major companies. It’s really difficult for us to get staffed up to do something like that. But, we use a great deal of data. It’s just handled in a less programmatic way and maybe more of a human way. We have a staff of experienced reservoir engineers and geologists who work together to evaluate log data, landing data, reservoir data and performance data. So, we may not be on the same playing field, but we definitely understand the importance of data.

Hart Energy: Share your thoughts on any challenges Chisholm deals with in its Delaware Basin position.

Whitley: One of several challenges is logistically moving anything in trucks. Later on, when we understood that, we decided to get an answer to that as quickly as possible. A big portion of that is moving water, but also moving crude oil. Trucks in New Mexico are going to move crude oil first and water second. We have moved very quickly to get this partnership in place with 3Bear so that we can move both on pipe. That is going to make the lives of our operations people significantly less complicated and safer. Moving anything by truck raises the specter of accidents. If we are moving 100% of our fluids on pipe, that is largely mitigated.

Hart Energy: Are infrastructure concerns playing into that?

Whitley: It is. It all fits together. So, the infrastructure of gathering oil and gas go together [and] he of moving things like water and sand go together. We decided not to get into the sand sourcing business. That is just another level of complexity. We really aren’t staffed to do that. We could be maybe somewhere down the road [and] having been involved in the business for 42 years now, you learn to never say never. What we thought was impossible many years ago is now just taken for granted.

Hart Energy: Can you tell us what positives you’re seeing in your Delaware Basin position and what Chisholm Energy is excited about?

Whitley: The great thing is the fact that we have only had this asset in hand for a little over a year, and [look] how far we have come already. Testing both in the Bone Spring and in the Wolfcamp had early success. That has driven our desire to add to our footprint. It’s based on having two assets. One is above ground, which is [Chisholm’s] people. We have a great team. They work very well together. And, we bought a good underground asset, which we can now turn into a very significant company based on both the Bone Springs and the Wolfcamp.