We examined in detail one of the most prevalent reservoir risks, parent-child wells. Infill wells located next to older producers are routinely called 'child' wells, in reference to the older offset 'parent' producers. Only a small percentage of wells drilled today in the Permian are child wells but this will change in the coming years as operators ramp up production.
Alex Beeker, our senior research analyst, explains: "When child wells are drilled, they are exposed to different reservoir conditions than the parent. Leaning on history again, we believe future child wells, because they're effectively drilled into pressure sinks, could have EURs 20-40 percent smaller than their parent producers. This would massively impact production growth and also limit the amount of cash flow available for reinvestment."
A few things are clear from our sensitivity analysis: Permian production will grow aggressively for the next few years, technology advancements will quickly spread across all operators, and EURs for many parent wells should keep rising. Further into the future though, huge downside reservoir risks may quickly become a reality if technologies don't evolve to meet the geological challenges of the future.
There is much at stake for operators in the Permian to get the technology vs. geology equation right. Under the conditions outlined in the report, the maximum range between the upside technology and downside reservoir risk cases is more than 1.5 million b/d in 2025. That's more production than the Bakken ever delivered on an annual basis.
The technology vs geology tug-of-war has the ability to profoundly alter the future production profile of the region, and ultimately oil price. Lower Permian supply from 2021 onward could exacerbate the global supply gap and effectively mean the US cannot deliver what the market believes it can. Other sources of higher cost, conventional production would be needed.