Article: Mixed evidence from shale well decline rates: more stable initial output, but more aggressive terminal decline
Article: Over 600 DUC wells are intentionally delayed in each of the largest shale oil plays
RYSTAD ENERGY PRODUCT HIGHLIGHTS
NASWellCube:Collection of official US & CA well data, covering over 220,000+ horizontal and fracked vertical wells, with complete US shale coverage. It contains detailed analysis on well curve, pad drilling, re-frack and well economics and provides a comprehensive overview of the North American shale industry.
NASReport:Consists of a monthly insight, short term and medium term forecasts for both production and spending for key North American Shale plays and operators, a deep-dive into well data and completion trends. The NASReport is now electronically delivered on a monthly basis.
NASCube:Database that provides US and Canada shale gas and tight oil plays data for 400+ companies and 90+ shale plays and sub-plays. Data derives from Rystad Energy’s global and complete upstream database UCube, with additional information regarding acreage and well data.
NASMaps: Geological, company acreage and well location maps. Maps are available as pdf-layers and GIS files with embedded information for import to GIS software.
Newsletter Subscription:If you are not yet a subscriber to this email or you would like to receive one of our other industry newsletters, please fill out the Newsletter Subscription Form
Investments in the E&P industry peaked in 2014 at 900 BUSD globally. In response to the changing oil price, operators decreased activity unanimously across all supply segments by an average of 40% in 2016 since 2014. Operators have however differentiated between the segments, decreasing shale investments by 66%, and offshore investments by a milder 34% since 2014. As the oil price is expected to increase over the next few years, the question is: which source of new production will have the greatest growth?
One effect of the decrease in investments is lower unit costs. Since shale had the largest drop in investments, this segment also experienced the largest decrease in service costs. Indexing to 2014, the average unit cost for shale decreased 30-35% by 2016. Offshore on the other hand, saw more moderate cost reductions where projects dropped 20-25%. The developments in the unit costs and well performance also affect the economics of each source. Figure 1 shows the breakeven oil price, payback time and IRR. Shale and shallow water projects currently have the lowest breakeven oil price of $50/bbl, where shale benefits from cost reductions. Ultra deepwater fields have the third lowest breakeven price of $65/bbl. The low breakeven price for Ultra deepwater is due to large reserve bases, which can offset the costs associated with the technical challenges of the environment. Shale has the lowest payback time of 4 years assuming an oil price of $70/bbl and 8 years at $50/bbl as well as the highest IRRs.
*Offshore estimates are based on the 30 largest projects within each group expected to be sanctioned in 2016-2025. Shale estimates are based on 2016 well results and costs; going forward, shale breakeven prices are expected to increase as operators drill outside the core areas. Source: Rystad Energy research and analysis
In terms of breakeven price, shale and shallow water are equally attractive however; a large advantage for shale is the short payback time. The low breakeven price in combination with the low payback time and the flexibility to scale up and down activity will enable cash to flow to this source of production. The fact that companies can recover investments faster reduces the risk of the source and make it more attractive. As a result, Rystad Energy expects that shale will have the largest growth in investment over the next few years. Figure 2 shows the historical and forecasted investment levels for offshore and shale based on Rystad Energy’s base case oil price scenario. Offshore will experience a slower recovery due to lower sanctioning levels during the downturn.
Global investments continued to drop in 2016 for the second year in a row, with shale suffering the most. In terms of economics, shale is very competitive with low breakeven prices and the lowest payback years. Shale should recover quicker than offshore, and shale rig counts have already started to recover in June 2016, the first time over the last two years. For the next five years, shale is expected to grow with at an average rate of 33%.
Rystad Energy invites you to our Annual Oil & Summit 2016. Join us to hear about our latest analysis and outlook for the oil market, global E&P activities, oilfield services and North American shale. www.rystadsummit.com