This was a short but fast-paced and informative webinar by Brett Sinclair of NOVI Labs, which does some great work in machine learning, data analysis, and economic analysis of shale plays in the U.S. There has been some debate about how much Permian Basin resource is remaining, based on technology, economics, depletion effects, and commodity pricing.
In the Midland Basin,
ExxonMobil and Diamondback are the dominant players. In the Delaware Basin, EOG
is a dominant player, but has drilled quite a bit of its best acreage. The
total production per operator for the best operators is closer in the Delaware
than in the Midland. There was a cyclical production peak at the end of 2022.
Currently, 55% of Permian production comes from the Delaware Basin and 45% from
the Midland. The Permian Basin utilizes half of the horizontal rigs drilling in
the U.S. Efficiency gains continue and are measured by NOVI in lateral ft per
rig per month. Post-COVID, the efficiency gains dropped compared to pre-COVID.
Efficiency did improve a little after lower efficiency rigs were dropped, but
the bigger picture is that efficiency is not dropping at the rate it was
pre-COVID.
Completion efficiency is measured in
proppant per foot per month. This has been increasing steadily since 2021.
Lateral feet per frac fleet per month has been steadily increasing as well. The
result is that rigs were lost, but efficiency improved. In 2025, it looks like
there will be 15-20% fewer lateral feet drilled than in 2024, reflecting the
drilling slowdown due mainly to low oil prices. About 15% fewer lateral feet
are expected to be completed in 2025 than in 2024.
Remaining locations in each
Tier (1 through 4) were determined based on rock quality, pressure depletion,
predicted oil pricing, and other factors. Novi’s ML models train on several
features to get the four that are then given Tier 1 through Tier 4. Tier 1 and
2 locations are less than 50% drilled. The price collapse in 2015 led to high
grading of locations with the best rock quality. Now, between 50 and 60% of
wells in Tier 1 and much of Tier 2 are drilled. Delaware drilling really ramped
up in 2016. The best wells, in Tier 1 rock, have been drilled. The sheer size
of the Delaware makes for plenty of Tier 1 and 2 (38,000 or so locations) and
even more of the other Tiers. The best rock wells fell from 80% undrilled to
60% in 2025. The Wolfcamp A Tier 1 rock is over 60% drilled. He also mentions that new, deeper bench plays, such as the Barnett in the Midland, affect the remaining reserves calculations.
Prior depletion affects the
Midland more than the Delaware. At today’s pace, Tier 1 rock in the Midland
will last until 2037-2038, and Tier 1 rock in Delaware will last until the
2050s. The Permian overall average is that Tier 1 will last until 2037 and Tier
2 into the 2040s.
Economic analysis shows that
37,000, or ¼ of locations, have a positive NPV below $50/Bbl. The total is
130,000 proven locations plus 70,000 resource locations. However, many
companies will not drill locations below $60/Bbl as their own internal
economics will suffer. Thus, the number of locations likely to be drilled is
likely to be much less than that given above.
Q&A
P10/P90 Ratio gives confidence level. 20% fewer lateral ft
per year due to current low pricing. Growth will slow, but it will still
produce as it takes market share from the rest of the U.S. The breakevens they
did assume some decent gas sales at $1.50 Waha gas pricing. Certain companies
may struggle at $60/Bbl even though they are giving economics to $50/Bbl.
Delaware is thicker with more benches. Midland developed one bench at a time.
Delaware learned by doing stacked pay together.
Since I think this is important data
and analysis for the Permian, the engine of U.S. oil production and emerging
associated gas production, I am including the slides below for ease
of access to a nicely done study.
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