December 5, 2016
Author: Bielenis Villanueva Triana, Senior Analyst
Publisher: Oil & Gas Financial Journal
With the approaching end of 2016, a detail analysis of the North American shale industry during this year clearly shows improved practices across drilling, completion, well performance, well placing and eventually well economics. All key metrics including drilling speed, proppant per stage and EUR per well have increased this year across the main shale oil plays, as shown in Figure 1 to Figure 3. Operators have improved well performance every year for the last five years and such improvements are expected to continue with the activity focused on the core areas of the main shale plays.
Drilling speed continued increasing in 2016 across all plays, mainly due the deferral of rigs built before 2014 with the increased use of newer, more efficient rigs. On average, the drilling speed has increased to nearly 800 ft per day across the US shale plays. Higher drilling speed was also a result of increased use of pad drilling, particularly in Permian Delaware where it reached nearly 60% in 2016. In mature plays such as Bakken, Eagle Ford and Niobrara, pad drilling is already above 90%. Differences on drilling speed among shale plays is a result of different targeted depths, lateral lengths, and number of wells per pad. Further drilling efficiency is expected in all plays particularly in the Permian Basin.
All main shale oil plays have increased the average lateral length of the wells in 2016, except for Bakken with an average lateral length of 9,400 ft, same as last year. Niobrara has been the play with the largest increase in lateral length per well during this year, mainly due to longer laterals drilled by Anadarko, Noble Energy, Bill Barret and PDC Energy. Such longer lateral wells have included more proppant use per stage, which gives an indication of bigger stages, hence more reservoir contact that ultimately results in more oil recovered. This case is more prominent in Permian Delaware wells, which have had a moderate increase in lateral length but a significant increase in proppant use per stage in the last two years. Further increase in completion intensity is expected particularly in the Permian Basin.
The increase in completion intensity observed in 2016 together with activity focused on the core areas of the plays (also known as high-grading), led to higher recovery volumes per well (Estimated Ultimate Recovery – EUR) across all main shale oil plays, particularly for Eagle Ford and Permian Delaware. The latter has on average the largest EUR per well across the main shale oil plays at nearly 1 billion boe. However, Bakken wells still recover the most oil per well due to a high oil content in this play. Further improvements in well performance are expected among all shale plays since they all have a considerable inventory of undeveloped locations in the core area.
The combination of increased efficiencies, lower unit well costs and high-grading during the last two years, has led to a decrease in breakeven prices of 47% on average since 2014 among all shale plays, as shown in Figure 4. All main shale oil plays reached a wellhead breakeven price below 40 USD/bbl during 2016 with Eagle Ford wells having the lowest wellhead breakeven at 31 USD/bbl.
Rystad Energy has quantified the different factors causing the 47% drop in shale breakeven prices and found out that on average 30% of the drop is due to lower unit costs and only 13% are attributable to efficiency improvements. Hence, Rystad Energy sees most of the recent cost reductions are highly cyclical, so in a high-activity scenario, well costs will quickly revert towards 2014 levels.
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