News Release

Faster decline rates prompt Permian players to eye spending boost

Longer-term performance crucial as key US basin matures, URTeC delegates told

1 minute read

Accelerating tight oil decline rates top a growing list of concerns for Permian basin operators, with unexpected production shortfalls prompting producers to consider stepping up drilling investment and M&A activity, Robert Clarke, Research Director, Lower 48 Upstream, told delegates at the Unconventional Resources Technology Conference (URTeC) in Denver.

As ultra low-cost undrilled locations become exhausted and productivity gains across wider sections of acreage continue to moderate, producers should shift their focus from early production rates to longer-term well performance and production optimisation, Mr Clarke said.

The shift is inevitable as the Permian matures and with declines rates are likely to increase over time.

Mr Clarke told delegates: “Individual well productivity improvements helped to offset decline rates through 2017, but those gains have weakened over the past two years. No longer do we routinely see operators press-releasing record-setting wells.

“For wells drilled so far this year in the Midland Wolfcamp, average initial production (IP) rates are down 6% and we see productivity reductions across numerous benches.

“Steeper decline rates and smaller IPs in the Permian basin will likely result in operators needing to drill more wells than originally planned, if they're committed to hitting previously established long-term targets. This will be especially challenging in the near-term because raising capital budgets today is effectively off-limits.”

He added: “Some companies are embracing economies of scale for both rigs and infrastructure as a way to enhance well performance and improve decline rates. However, our analysis indicates this approach is more effective at cutting costs than improving production characteristics.”

The alternative to raising capital budgets and drilling more wells is to turn to M&A. There was a burst of asset and private-to-public deals during the 2016-2017 “Permania” period, but that has now cooled, Mr Clarke added.

“We are now experiencing a period of consolidation in the basin where synergies, costs and cash flow matter more than inventory. This is shrinking the number of companies that look like ideal acquisition targets,” said Mr Clarke.

“Even with accelerated declines, the remaining number of highly economic locations supports our overall Permian growth figures for the next couple of years.”

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