FORT WORTH, Texas—Having drilled about 10% of its potential Delaware Basin well locations, Tall City Exploration III expects to exit the year with over $400 million in annualized EBITDA. 

Tall City President and CEO Mike Oestmann told attendees of Hart Energy’s DUG Permian Basin and Eagle Ford conference and exhibition in mid-May that the company’s success to date stems from adhering to five principles. The company has taken a technical approach to the wells it’s drilled so far in the area. The focus, he said, has been on economic wells tapping “vast” resources in the basin.

“What we’re trying to do is simple in the abstract, with a lot of difficult technicalities along the way,” he said. Hart Energy May 2022 - Tall City Exploration CEO Mike Oestmann headshot

“We have 90% of our resources ahead of us. We’re just scratching the surface of what’s out there.”—Mike Oestmann, president and CEO, Tall City Exploration III

Tall City, founded in August 2018 with $500 million in funding from Warburg Pincus, has aimed to lease high-quality rock, land wells in the best zones, place large and efficient fracs, keep both opex and capex low and scale operations when things are going well, Oestmann said.

“The key to leasing high-quality rock is understanding the geology,” he said. 

And Tall City believes in the potential of the Permian Basin, he said.

In 1946, the Argo Dora Roberts #1 well in the Permian produced 70 bbl/d, he said, and now wells in the area are able to produce 1,000 bbl/d.

“We believe there is still tremendous value in the Permian,” Oestmann said. “The resource is almost unfathomable.”

The company has drilled 30 wells in its Wolfcamp acreage in the southern part of the Delaware Basin, which he called prolific.

“They have demonstrated production on par with other operators in the southern Delaware Basin,” he said. “We’re doing a good job of staying within the zone, and then that sets us up to run a pretty good frac.”

And in those 30 wells, Tall City has pumped just over 1,200 stages, or about 95% of the stages, he said.

The wells, he said, are “clearly economic, and they’re repeatable.”

Tall City also has 11 DUCs that it plans to frac this summer.

“We have a general frac recipe that works,” Oestmann said. 

At the same time, he acknowledged there are variables to take into consideration. 

“There’s infinite knobs you can turn when you’re fracking,” he said.

Tall City is also fighting to keep costs down.

“Controlling cost is a constant challenge for us,” he said. “We’re fighting inflation, just like everyone else.”

Drilling times have improved as the company has learned more about the region. The company has rigs scheduled out to the middle of 2023.

“Our first well was not a good one” as it took about 40 days, Oestmann said. 

Now drilling times are half that, he said.

After drilling a number of wells in a “relatively small area” it was possible to optimize the drilling operations, he said. The drillers used “accurate target” information to stay in specific zones and were able to spend more time rotating than correcting, he said. 

And as with fractures, drilling presents its own host of choices to make.

“There are an infinite number of variables in drilling,” Oestmann said. “We’ve changed bits, we’ve changed fluids, we’ve changed (bottomhole assemblies) BHAs, and a lot of other things.”

Of the roughly 400 locations the company has in its inventory, Tall City has only drilled about 10% of what’s available, he said.

“We have 90% of our resources ahead of us,” he said. “We’re just scratching the surface of what’s out there.”