Authors: Olga Kerimova, Analyst, and Theodora Batoudaki, Analyst, Rystad Energy
Publisher: PESGB Newsletter, May Edition
Tight oil production in the United States has been growing over the last years, with an increase of 1.1 million bbl/d year-over-year in 2014 alone. This article examines the fundamental drivers behind this growth: drilling efficiency gains, well performance improvements and reduction in breakeven prices, focusing on the top US oil plays.
Figure 1 shows light oil production from US shale and tight oil plays over the last four years. The top five plays contribute more than 80% to the production growth. Eagle Ford Shale is the largest contributor to production, followed by the Bakken/Three Forks Shale play. In total, light oil production increased more than three-fold from 1.3 million bbl/d in 2011 to 4.4 million bbl/d in 2014. In 2014, light oil production was still growing, almost unaffected by the lower oil prices in the second half of 2014.
Figure 2 shows the average number of horizontal wells drilled per rig year for the top US oil plays from 2012 to 2015. In 2014, drilling efficiency in Eagle Ford and Bakken improved by more than 10%. One of the key reasons for this improvement is the introduction of pad drilling. Pad drilling, which was first introduced in 2009, allows operators to drill multiple wells from the same drilling location. This method reduces the time spent for rigging up and down. As of 2014, over 80% of all wells in these plays were drilled using this method. Permian Midland is one play where drilling efficiency appears to have been declining since 2013, with a 3% decrease in wells per rig year in 2014 and a 5% decrease in 2015 to date. This trend can be explained by the transition to drilling longer laterals with a higher number of frac stages, as well as a shift in activity to deeper parts of the play. The longer drilling time (and the corresponding higher costs) are therefore offset by performance improvements and higher recoveries, leading to the growing production additions from Permian Midland in Figure 1.
The increasing average 30-day initial production rates for Permian Midland are also evident in Figure 3. Figure 3 presents the well performance of the five largest oil plays, measured by the average 30-day initial production rates (30-day IP), light oil content and estimated ultimate recovery per well (EUR Oil). The values are based on well by well reported production data and hyperbolic decline assumptions. The oil plays with the highest average 30-day IPs are Eagle Ford and Bakken, while the highest growth in 30-day IP was delivered by Permian Delaware and Bakken. Bakken’s light oil content, which is the highest among US shale plays, averaged 84% over the period 2012-2014.The average oil EUR for the selected oil plays has increased by more than 30% from 2013 to 2014. These plays also experienced a considerable improvement in 2013, when oil EUR increased by 10%. For Niobrara, the main reason for the increase is the switch to longer laterals, which is also the case for Eagle Ford. In Eagle Ford, operators are also focusing on drilling within the sweet spots, in Karnes and DeWitt counties. Permian Delaware continues to see increasing oil EUR in 2014 as companies are turning from Bone Spring/Avalon to the Wolfcamp formation.
Figure 4 shows average WTI breakeven prices for selected US shale plays by year. Rystad Energy analysis shows that for most plays breakeven prices are decreasing. For the selected plays in the chart the yearly reduction has been 8.7% from 2012 to 2014 (17% in total over the two years). A yearly reduction of the shale breakeven prices reflects reduction in well cost, an increase in EUR per well and increase in light oil content, as shown in Figure 3. The reduction in well cost is due to shorter drilling time (increased pad drilling) and shorter completion time (increased use of zipper fracs). Increase in EUR is due to lower decline rates thanks to better well placement and advances in known completion techniques i.e. modified zipper fracs, reduced cluster spacing.
Even though the oil price dropped significantly in the second half of 2014 and still remains at relatively low levels, hence leading to a considerable reduction in US shale rigs, light oil production from US shale plays has not stopped growing. The main reason for this are the enhanced drilling efficiencies (pad drilling, reduced drilling time per rig etc) and the improved well performance (light oil, 30-day IP, EUR) in the largest US oil plays in 2014. Lower unit prices will most likely continue the trend of falling breakeven prices for US shale in 2015, making shale an even more competitive source of production.
Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Contact: Theodora Batoudaki, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), Africa as well as South East Asia.