Relationship between CrownQuest Operating, LLC and CrownRock, L.P.
CrownQuest entered into an administrative support agreement with CrownRock, L.P. at the time of CrownRock’s formation in 2007. Substantially all of the time of CrownQuest’s employees is allocated to the operation of CrownRock’s properties and the provision of general and administrative services to CrownRock. In addition, CrownQuest operates approximately 99% of CrownRock’s total net wells, and the wells CrownQuest operated for CrownRock provided approximately 99% of CrownRock’s average daily production in 2020.
CrownRock, L.P. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. Our assets are located in Texas, New Mexico and Utah, and our operations are primarily focused on the development of our core Permian Basin assets. We were organized as a limited partnership in February 2007 by affiliates of our management team and Lime Rock Partners IV, L.P., a private equity fund focused on the oil and gas industry.
CrownRock’s core properties, and therefore the properties which CrownQuest operates, consist of approximately 81,000 net acres in what we consider to be some of the best acreage in the Permian Basin of West Texas, specifically, the Northern Midland Basin. This is where we are focusing primarily on drilling horizontal targets on multiple benches. The Permian Basin of West Texas is characterized by an extensive production history, predominately oil-focused drilling targets, extensive infrastructure, wells with long reserve lives and multiple producing horizons. The Wolfberry play is a modification and extension of the Spraberry play, while the Wolfcamp and Spraberry shale play utilizes horizontal drilling in the historic Spraberry play, the majority of which is designated in the Spraberry Trend Area Field. According to the latest information available from the Energy Information Administration of the U.S. Department of Energy (the “EIA”), the combined Permian Basin Wolfcamp/Spraberry/Bone Springs shale play is now the largest oilfield in the United States by both proved reserves and production, and the second largest natural gas field in the United States by both proved reserves and production. Based on the returns we have generated through our drilling to date, the number of undrilled locations in our drilling plan, and our observation of the activity and results of other operators in this area, we believe the Midland Basin represents one of the premier oil and natural gas development opportunities in North America.
We have implemented and continue to refine an ongoing optimization program with the goal of maximizing value from development of our acreage position. We collect, and broadly distribute among our technical staff, data on well and completion design, well spacing, and well performance. We encourage active and cross-disciplinary communication and strive to consistently adjust our operations based on observed data.
From October 2007 through December 2014, we primarily focused on drilling vertical wells in the Midland Basin. In January 2015, we initiated our horizontal program, with our first horizontal well coming on line in March 2015. We spent much of 2016 and the beginning of 2017 preparing to accelerate our horizontal activity. This included identifying potential horizontal drilling locations plus identifying optimum spacing between wells, including interval spacing between zones or benches. We believe our horizontal well inventory will be developed most efficiently through full section development, which is the practice of drilling multiple wellbores in a section and completing the wellbores after the multiple wellbores have been drilled.
During 2017, we increased horizontal drilling, and drilled approximately 60% more horizontal wells as compared to 2016. Also during 2017, we continued to engineer our optimal spacing development program, which resulted in a build-up of an inventory of drilled but uncompleted wells in order to concurrently complete wells in each spacing unit block. During 2018, we continued our acceleration of our horizontal drilling, mainly drilling multi-well pads. During 2019, approximately 90% of our drilling was on multi-well pads, ranging in size from six to 12 wells. During 2020, we continued our drilling on multi-well pads and continued increasing our knowledge of our core areas. Through this we enhanced our understanding of reservoir characteristics with respect to vertical spacing between benches and enhanced our strategies on the best methods of combining benches and spacing wells within the various benches. Additionally, we focused on optimizing all aspects of our operations including (1) drilling, by increasing our drilling footage per day per rig and decreasing our cost-per-foot through improvements to casing and fluid designs; (2) completions, by sustainably reducing costs by optimizing fluid and completion designs and unbundling fuel and sand; and (3) production operations, by optimizing artificial lift techniques and conversions, and maximizing run times. From January 2015 through December 31, 2020, we have drilled or were drilling 411 gross horizontal wells in the Midland Basin, eight of which were drilled in 2015, 27 of which were drilled in 2016, 52 of which were drilled in 2017, 66 of which were drilled in 2018, 130 of which were drilled in 2019 and 128 of which were drilled in 2020. Also, during the same period, we have drilled four gross horizontal wells in the area targeting zones other than the Wolfcamp and Spraberry shale play.
Our horizontal drilling results and the drilling results by operators offset to our acreage have led us to further assess our horizontal drilling inventory and expand our horizontal development plan. Our total production of oil and natural gas has grown from 15.4 MMBoe in 2018 and 24.0 MMBoe in 2019 to 30.1 MMBoe in 2020. We believe we will continue to experience significant production growth as we implement our horizontal drilling plan through 2021 and in coming years, increase the number of horizontal rigs we are running, and increase the percentage of our horizontal wells that are completed and producing.
We believe, based on our analysis of data acquired through our horizontal drilling program during 2015 through 2020 along with the horizontal drilling results achieved by operators offset to our acreage, that multiple benches contained within our acreage may be prospective, which could substantially increase the ultimate hydrocarbon recovery of each surface acre we have leased in the Permian Basin. We believe there are a significant number of horizontal locations on our acreage that will allow us to target the Wolfcamp, Spraberry, Pennsylvanian and Clearfork/San Andres formations.
Although our emphasis is on our horizontal program, we continue to strategically drill vertical wells in order to hold acreage to all recognized productive depths, optimize capital returns in our best areas, and assure the continuation of our horizontal program. Since 2007 we have drilled over 1,150 gross vertical wells in the Midland Basin. We estimate approximately 22 gross Midland Basin vertical wells will be drilled in conjunction with our planned horizontal development over the next three years and those will perpetuate a material portion of our Midland Basin acreage position.
Spade Ranch. We currently have approximately 105,000 net acres in the Spade Ranch property located in Mitchell County, Texas, on the Eastern Shelf portion of the Permian Basin. One lease covering 98% of this acreage can be perpetuated under continuous development provisions by drilling four gross (four net) wells per year. In 2013, we shot a 3D seismic survey over the Spade Ranch. We have merged and reprocessed approximately 233 square miles of seismic survey to strengthen our future exploration ability in this area. We have drilled fewer than twenty-five exploratory wells on this large acreage position. This drilling pace has been sufficient to perpetuate our continuous drilling obligation under the lease. This drilling encompasses eight structural and stratigraphic prospects thus far that have been developed from our 3D seismic survey.
San Juan Basin
The San Juan Basin is located in the Four Corners region of the Southwestern United States, with the main portion located in northwestern New Mexico. We own approximately 1,900 gross (approximately 300 net) acres in the San Juan Basin of New Mexico. Approximately half of our net acres are on Native American tribal lands. We have not drilled any new wells since 2010, and we have not scheduled, and do not currently plan to schedule, any drilling activities in 2021. Our current plans are to focus on existing production. CrownQuest operates approximately 98% of CrownRock’s net total wells in the San Juan Basin.
The Paradox Basin is located mostly in southeastern Utah and southwestern Colorado. We own approximately 2,500 gross (approximately 1,000 net) acres in the Paradox Basin of Utah. We have not drilled any new wells since 2008 and we have not scheduled, and do not currently plan to schedule, any drilling activities in 2021. Our current plans are to continue producing two of the seven wells located on our acreage and to plug and abandon the remaining five wells in 2021. We also hold 50.7% of the equity interests in, and serve as the managing member of, Abajo Gas Transmission Company, LLC, a Utah limited liability company that holds a gathering system in the Paradox Basin that services our properties. CrownQuest operates 100% of CrownRock’s net total wells in the Paradox Basin.