March 2017 

Permian Midland Review: Acreage high grading and breakeven prices

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Article: North American Shale breakeven prices: What to expect from 2017?


Article: NA Shale wins 2016 with improved drilling, completion and breakeven price


RYSTAD ENERGY PRODUCT HIGHLIGHTS

NASWellCube: Database with daily updates of official US & CA well data, covering over 420,000 wells and permits. It contains detailed analysis of well curves, pad drilling, re-frack trends and well economics to provide a complete well by well overview of the North American shale industry. 

NASReport: Consists of monthly insights on industry trends, forecasts (short and medium term) for both production and spending. Detailed analysis of key North American shale plays and operators and a deep-dive into well data for drilling, completion and productivity trends. Delivered electronically on a monthly basis. 

NASCube: A subset of UCube. Database with monthly updates of the US and Canada shale gas and tight oil data for 400+ companies and 90+ shale plays and sub-plays with NPV estimations and long term forecasts at the asset level. Data derives from Rystad Energy’s global upstream database UCube, with additional information regarding acreage and well data.

NASMapsGeological data, company acreage and well location maps for the main North American shale plays. Maps are available as pdf-layers and GIS files with embedded information for import to GIS software. Maps are also integrated in the NAS databases.


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Wellhead breakeven prices have dropped significantly among all shale plays over recent years and since 2014, the average decrease has been around 46% within the main shale oil plays. The main cause has been a reduction in unit prices, which represented approximately 57% of the total decrease. However, acreage high grading and efficiency improvements have also played their part, contributing approximately 19% and 26% respectively.

Among the main shale oil plays, Permian Midland has moved from averaging a wellhead breakeven price of 71 USD/b in 2014, to 36 USD/b in 2016. Effectively realizing a 49% decrease, this is the highest among all main shale oil plays. In this newsletter, we will take a small look into the development of acreage high grading in Permian Midland. We define core acreage as the 0th-50th percentile of a cluster’s average breakeven price distribution. We split all wells in each play into different clusters with the area of 100 km2. Distribution is analyzed at operator level for all operators with more than 150 wells in a play (“major operators”), all else is defined as minor operators and are analyzed together.

Figure 1 shows the quarterly development for the number of spud wells in Permian Midland, categorized by acreage grading. Acreage categorized as core, has moved from averaging around 60% of all spuds in 2014, to about 80% in 2016. 

In Figure 2, we compare the monthly development of average wellhead breakeven prices in Permian Midland to the share of drilling conducted on acreage categorized as core. The chart shows that while operators have moved to drilling more wells on core acreage, they have also realized lower wellhead breakeven prices.

Looking deeper into the wells drilled on core acreage in Permian Midland, we can see that the majority were drilled in Midland, Martin, Andrews and Glasscock counties. Together, these counties represent about 50% of core acreage drilling activity. Another interesting observation is that the share of core wells spudded in Midland County faced the largest relative increase during 2014-2016.

Not surprisingly, the yield in terms of both average wellhead breakeven prices and well EUR normalized with horizontal drilling length is also highest in Midland County. The wells in Midland County greatly dwarf the average of counties within the core and non-core acreage as seen in Figure 5 and 6.

In Figure 7, we compare the total number of horizontal spud wells for the top 15 operators in Permian Midland versus the share of spud wells conducted in Midland County. The largest operator in terms of spud horizontal wells is by far Pioneer Natural Resources – they also spud about 42% of their wells in Midland County. ExxonMobil were the operator doing the largest share of their spuds in Midland County during 2014-2016, with approximately 62% of their 200 operated Permian Midland spud wells in this period. 

Operators in Permian Midland have conducted significant high grading of acreage, moving from averaging 60% of their drilling in their core acreage during 2014 to about 80% in 2016. This change, combined with unit cost deflation and efficiency gains, has contributed to the drawdown of breakeven prices as observed throughout this period. Within the counties of Permian Midland, the effect of high grading has been particularly large in the Midland County. It was shown that this County contained a more prolific acreage in terms of realized decrease in wellhead breakeven prices and increase in well EUR normalized with lateral length. Looking at operator activity in Permian Midland, we can observe that Pioneer Natural Resources are the largest in terms of spud wells through the 2014-2016 period with 42% of these spuds conducted in the Midland County.