[Editor’s Note: This story is part of an ongoing series focused on the top private producers in the Lower 48, including the features Veteran, Newly Listed Private Producers on Top 100 Hungry for M&A, Right Risk, High Return: Aethon Jumps on Elevated NatGas Prices, and Anschutz: Powder River’s Winning Factor? Vast Potential.]
Surge Energy America is celebrating this summer 10 years since it first acquired a swath of some 76,000 acres in the northern Midland Basin’s Howard and Borden counties.
In 2015, Surge Energy was newly incorporated and fighting for a swath of acreage that was generally considered uneconomic to develop. Indeed, the Permian Basin itself had long been considered a mature region where much of the recoverable resource had already been wrung dry.
But a lot can happen during a decade.
As hydraulic fracturing ushered in the shale revolution, the storied Permian only enhanced its legendary status as it led the U.S. to its status as a world energy leader. And Surge grew production from its questionable footprint in northern Howard and southern Borden to new heights, applying ever-advancing shale technology that has enabled today’s production of more than 84,000 boe/d to easily surpass its early total of less than 4,000 boe/d. The firm now occupies the fourth slot of top private producers in the Permian as ranked by Enverus.
“We had a lot of confidence that our team could figure out the method to develop, test and delineate that area,” which is commonly known as Moss Creek, said CFO Travis Guidry.
Surge started drilling the northern Howard in 2016, then pushed further north into southern Borden County beginning in 2017.
“Really, we were the pioneers of testing, delineating and proving economic development in the Wolfcamp A in southern Borden County,” he told Hart Energy in an exclusive interview.
All told, Surge gas drilled and completed more than 625 wells in the Moss Creek; about 160 wells are in Borden, and the rest in Howard.
“We have more competition now as a result of proving strong production and economics in Borden County, but we're definitely proud of our efforts to prove that area,” Guidry said. “We like our contiguous acreage position, we've continued to add on to that position over the years. We think we have the most technical knowledge, geologically as well as operationally on how to drill, complete and operate the wells once they're online.”
Dramatic changes in efficiency are key to the success of the firm—and the Permian itself. In the early days of Surge’s Permian work, drilling a lateral up to 3.5 miles on average could take 30 days. Fast-forward to 2025, and the average completion period is less than half, averaging 12-13 days, he said.
But it was in July 2019 that Surge “achieved a groundbreaking milestone in the evolution of global shale oil development by successfully drilling and completing a horizontal well with a 3.4-mile lateral in the prolific Permian Basin,” Guidry said.
At that moment, the length was recognized as the longest known lateral shale oil well ever drilled.
“This accomplishment set a new industry benchmark and highlighted our technical expertise and drive to expand the limits of what’s possible in shale development.”
Laterals exceeding three miles are common in the Permian, which Guidry attributes to continued advancements in drilling technology, geosteering and field execution that have further pushed the boundaries of modern shale oil development.
“Last year, we averaged about 3000 completed lateral feet per day, which is up about 30% (from) the last three years, so there have been significant improvements on the efficiencies,” he said. “But I think what really sets us apart is on the cost structure.”
Eastern equity
Surge Energy America is a private producer based in the U.S. but 100% owned as the sole asset of Shandong Xinchao Energy Corp., a Chinese company trading on the Shanghai Stock Exchange.
“The strategy of our parent company back in 2015 was to invest in U.S. oil and gas. They saw that as a unique opportunity for Chinese investors to be able to invest on the Shanghai exchange in Chinese currency, but the underlying asset is U.S.-dollar denominated,” Guidry said.
Shandong Xinchao has invested about $1.7 billion of its own equity into Surge, primarily with the original acquisition in 2015.
Debt and a revolver based in the U.S. have funded the development of the assets from that point forward.
“Our parent has been very supportive and most of our cash flow has been reinvested in the business here in the U.S.”
Since its inception, Surge has invested more than $175 million in water and electrical infrastructure, such that the company owns a significant portion of its produced water lines, freshwater lines, saltwater disposal wells and four recycling facilities.
“We’re able to effectively, produce, treat, use recycled water for completions, operations, and dispose of water very inexpensively relative to people that contract out that to a midstream water provider,” Guidry said. “This water infrastructure has led to the conservation of approximately 6.8 billion gallons of fresh water.”
Similarly, the firm has invested in its electrical infrastructure and connected almost the entirety of its wells to grid power, which means “we don't have to use generators.”
The benefits of grid power are twofold: it’s less expensive and it produces far less emissions than traditional field power.
“In total we have eliminated 418 thousand metric tons of CO2e. This has been driven by the electrical infrastructure connecting wells to grid power and eliminating the need for generators, but also includes water infrastructure which eliminates water hauling truck trips, and the use of dual fuel completion equipment which reduces the use of diesel fuel by substituting compressed natural gas (CNG),” he said.
The result is that Surge enjoys a rate of less than $5/boe in lease operating costs, which is a top tied metric “in our area of the Midland Basin.” Indeed, Surge’s per-boe rate has been unchanged for the last six years.
“It's definitely had a significant impact for us by investing in that, and in the water and electrical infrastructure,” Guidry said.
And Surge will continue pushing an organic growth strategy, advancing its operations further north in Borden County.
“We were a very early tester of the Middle Spraberry in our area. Several years ago we started co-developing the Middle Spraberry, with our Wolfcamp A and Lower Spraberry zones. This year, we’re focused on pushing that to the east of our position and seeing what we can do there, so that's another organic inventory adding opportunity,” he said.
In 2024, Surge executed two farm-ins with a large public operator in Howard County, which Guidry declined to name.
“We are drilling the second [farm-in] this year, so it's an opportunity for us that we gain access to new acreage by farming into acreage from another operator, and they're able to retain a small interest in the wells, once we start producing them.”
Surge’s Howard County position neighbors that of large public companies including Occidental Petroleum, Ovintiv, Diamondback Energy and Exxon Mobil.
“Effectively what we're trying to do while acquisitions aren't really there as far as deals coming to the market, in the meantime, we're looking to add organically and add to inventory via that method,” he said.
Near-term M&A
Between the small- and mid-cap producers that have yet to be gobbled up by larger peers, there remains some runway for additional Permian consolidation, Guidry said. But the massive consolidation trend of 2024 is unlikely to be repeated.
As Permian opportunities for M&A emerge, Surge will be there, Guidry said.
“We’re definitely looking to be a buyer. That’s our directive from our sponsors, to continue to try to grow the business. They're not interested in selling at this point, so we're focused on trying to make good prudent decisions on the acquisition front. We’d like to be there for potential consolidations and on assets as well.”
Surge has substantial liquidity of $1.4 billion that leadership wants to deploy toward growing the business.
Might Surge announce a deal in the coming months?
“That is our plan,” he said.
“Since inception we have contributed over $11 billion to the Texas economy, including cumulative oil and gas revenues, royalty and working interest payments, and production taxes and look for more in the next ten years. ”