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Rystad Says Permian Well Productivity is Just Fine

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Earnings season is in full swing and once again investors are scrutinizing the spending habits of US shale operators. With concerns over capital discipline come those about well productivity and whether the pace of output growth is sustainable at current crude oil prices.

A July report from analytics firm Kayrros indicates that the average well in the Permian Basin, the primary source of oil production growth in the US and world, is both less productive and more expensive than reflected in public data. This assessment is based on findings that hydraulic fracturing work in the basin was underreported by 21% last year.

Operators have descended on the Permian in recent years, selling off positions in other basins as they have narrowed their focus on productive, liquids-rich areas in West Texas and southeastern New Mexico. In the process, the basin has become more crowded, much of the prospective acreage has been claimed, and many newer wells have not produced like older wells.  

However, consultancy Rystad Energy is not buying into the hype that well productivity there is dropping.

“After careful analysis, we do not find sufficient evidence in the data to support these speculations,” said Artem Abramov, Rystad head of shale research. “We conclude that the average new production per well in the basin matches the all-time highs seen in early 2019—despite depletion concerns.”

 

New production is defined as hydrocarbons flowing in a well’s second month of production. The second month is typically the first full month of production, and in most cases, also the peak production month for unconventional wells.

The typical Permian horizontal well currently produces 830 B/D of oil during its second month of production, an all-time high, Abramov said. The pace traditionally has been set by the largest independents, which have benefitted from early entry into the basin, quick learning due to scale, and a number of high-grading opportunities given large acreage positions.

But a new development, Abramov said, is “record-high new well productivity” for the majors based on preliminary second-quarter production data. In fact, the majors “might have surpassed the top 10 public shale [independents] for the first time since 2014–2015.” ExxonMobil, Chevron, and BP all have extensive positions in the Permian.

 

A driver of horizontal well performance is the length of the productive interval, or perforated lateral length. The average perforated lateral length in the Permian increased to 8,500 ft in second-quarter 2019 from 5,000 ft in first-quarter 2013.

When new production per horizontal well is normalized to an 8,000-ft well, the most significant structural improvements in average normalized productivity occurred from 2013 to 2016. Things then flattened during 2017–2018 as more operators came into the basin and began developing newer, less mature acreage with lower well productivity.  

“Interestingly, we have been observing a new period of improvement since the second half of 2018 as a result of high-grading in the current capital discipline environment and an increasing share of acreage moving into field development mode,” Abramov said.

Rystad Says Permian Well Productivity is Just Fine

05 August 2019

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