"The Future Ain't What It Use To Be"






Here is a cool shaleprofile.com (SPC) tool that projects Permian HZ tight oil production out nine years, to the end of 2029. The assumptions are that a.) the current rig count does not change, b.) the same rigs can keep drilling the exact same number of wells per month, c.) the lag time between drilling and completing remains the same, d.) and well productivity (liquids, C+C) never changes, all wells are exactly the same, It ignores DUC contributions that might make production levels go up or down and considers decline from existing wells drilled before September 2021 and decline from new wells drilled after that date. This SPC feature is fun and useful for making assumptions, guesses, about the future based on past results.


The chart, above, could give folks the idea that tight oil PDP reserve replacement in the Permian is still over 100%, even at half the rig count and half the CAPEX expenditures, production is still growing and everything is peachy for many years to come. Lets think about that...

Most of that good news coming from the Permian Basin is in New Mexico where they have been drilling the snot out of Lea and Eddy Counties, I assume because of Biden's Federal permit restrictions. 52% of all oil and gas leases in Lea County are Federal (BLM website).

Twenty two percent of all the rigs running in the entire Permian Basin are running in Lea County. New Mexico, in its regulatory wisdom, is putting an end to using potable groundwater for frac'ing and is trucking IT"S produced water to West Texas so we can have earthquakes here, in Texas, and not there, in New Mexico. Its clamping down on flaring and well...those boys up there in New Mexico are in a hurry to get those wells all drilled, before they can't.


Remove Lea and Eddy Counties in New Mexico from the picture and the Texas part of the HZ Permian play is struggling to maintain current production levels at current rig counts.





But overall liquids (C+C) well productivity, when normalized for lateral length and proppant loading, is not constant in the Permian, its been falling ever so slightly since 2016.. This chart above strongly suggests that current well design and frac procedures are creating good IP12 months, but the front end loading, perhaps for cash flow reasons, appears to be negatively impacting EUR.

Are wells yet to be drilled in the Permian Basin going to be exactly the same based on a type curve?


No; even shale oil well productivity from one location to another on the same drilling pad is different. In case you think you can "predict" the behavior of shale oil wells from initial potential out nine years, the above chart is an example of Shell Western's well performance in the Delaware Basin, in its core area. Well performance is all over the map. If you think newer vintage wells are MORE predictable, think again; look at what's happened to 2021 and 2020 well productivity.


Do you think Shell is pleased with how its 2020 and 2021 wells tracked type curves? It just sold its entire Delaware holdings to COP this week for a song.

Left, a distribution of HZ tight oil well performance over the entire Permian Basin. No two wells are the same.


Over-drilling core areas is leading to pressure depletion and a poor relationship between parent wells and offsetting children wells. The kids are not behaving properly. Further, water to oil ratios in the enormous Delaware sub-basin are skyrocketing as are gas to oil ratios in the Delaware and Midland sub basin. That's not going to get better, its going to get worse. Its not realistic to assume well productivity will remain constant; it always declines as field development and basin maturity occurs. Always. Shale oil is no different.



So, for fun, lets take the same cool shaleprofile.com tool and tweak it a little bit to show that HZ rig counts stay the same but because of rising well costs, severe supply chain disruptions in getting steel tubulars, frac source water getting scarce, produced water problems getting worse, current employment problems stay the same or get worse, methane emissions standards (taxes) come down like a sledge hammer on the entire sector, or God forbid, Midland gets a 5.0 earthquake...the same number of rigs drills 1% fewer wells per month. That's not a big number, 1%; its a matter of a few days from spud to lateral toe, running casing and RDMO, from 1.2 wells per month per rig to 1.18.


Lets also assume well productivity (in C+C liquids) declines 0.5% monthly as gassy oil wells in the Permian Basin become more like oily gas wells. And lets assume Hotel Permian is getting full up and future wells will need to be more out in the flanks of core areas, in goat pasture, wells will cost more money and not be as good, their economics even worse.

Under the same parameters for the entire Permian Basin, 1% monthly declines in rig efficiencies and 0.5% decline per month in well productivity, the Texas part of the Permian declines even more, above.


"Change is inevitable, change is constant." Benjamin Disraeli


"The Future Ain't What It Use To Be." Yogi Berra


Thanks very much to my mate, Enno Peters and shaleprofile.com.


America needs to be conserving its remaining hydrocarbon resources like our lives, and the lives of our kids, depends on it. Instead, in 2020 the US exported 1.28 billion barrels of Texas tight oil to Asia, etc. and America exported over 5.4 TCF of natural gas.


Production in shale basins will go up, and down; the medium to long term trend is down. In the mean time, every additional barrel of HZ tight oil produced in Texas will simply be exported. It will provide some tax benefits to Texans, good paying jobs for a select group of people, but no benefits to the American consumer. That oil will simply sail away, gone.


M.