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Page added on July 30, 2018
Permian Decline Rate Innaccuracies Risky for Operators, Investors
While parallels can be drawn between the current boom and prior periods of intense Permian activity, investors and operators should be careful when basing decline rates of horizontal tight oil wells on data from vertical wells, warns a July report by Wood Mackenzie.
The Permian has thousands of vertical wells that have been producing for decades, but the relative immaturity of the Wolfcamp compared to other zones means pure field data for horizontal tight-oil wells goes back just eight years. Because of this, proxy values based on decades-old data from vertical wells and other shale plays have often been used to determine tight-oil terminal decline rates.
“The challenges of modeling tight well estimated ultimate recoveries (EURs) are growing and accurately selecting a representative terminal decline rate is not always straightforward,” Ryan Duman, principal analyst with Wood Mackenzie’s Lower 48 upstream team, said in a release. “It may have been historically, but using those assumptions for today’s Wolfcamp wells in the Permian may contribute to inaccurate volume assessments and valuations.”
While Wood Mackenzie’s analysis shows terminal decline rates for the Permian’s vertical wells is between five percent and 10 percent annually, the most common terminal decline value observed in mature horizontal Wolfcamp wells is 14 percent.
Once the decline rates are adjusted to reflect the more realistic 14 percent scenario, it’s realized that terminal declines are a long-term risk to production. By 2040, nearly 800,000 barrels per day of Permian production is lost.
Duman said the most significant risk associated with the decline rate error is with investors who are looking to purchase assets with a significant proportion of existing producers.
“To date, the bulk of Permian M&A activity has targeted undeveloped tight oil acreage, but we are starting to see more developed properties transact,” he said. “In the past two years alone, 16 of the largest Permian deals, totaling almost $2 billion, have involved what we classified as mid-life or late-life assets.”
Companies trying to grow within a constrained capital budget will be hit hardest by accelerated declines due to less contribution from mature wells.
“Operators with the smallest projected cash flow deficit – that is, more established players – may fare the worst in regard to present value erosion because they have more mature wells in their portfolio today and could have exhausted a larger portion of ultra-low-cost drilling locations,” said Duman.
The Permian is still expected to dominate U.S. oil supply growth. But if decline rate values aren’t accurately and consistently employed when calculating future production, operators may find themselves drilling more than they expected to or budgeted for to meet their plans for growth.
14 Comments on "Permian Decline Rate Innaccuracies Risky for Operators, Investors"
Makati1 on Mon, 30th Jul 2018 8:29 pm
RIGPORN. Nuff said.
twocats on Tue, 31st Jul 2018 1:38 pm
we have to suffer for weeks with articles stating US was producing 11 mbpd and pucknuts like Boat doing his oinking hog celebration day in and day out. only for the inevitable to happen:
https://www.eia.gov/petroleum/production/#oil-tab
MAY is out and we are at 10,442 DOWN FROM APRIL!!! So its not “skies the limit”. It’s toil and struggle to eke out an increase. see you a-holes for the JUNE report.
MASTERMIND on Tue, 31st Jul 2018 1:55 pm
Twocats
The worlds largest oil trader Vitol said last year they though shale might peak this year..looks like they may be right..
Davy on Tue, 31st Jul 2018 2:56 pm
Two cats, I agree and my comment earlier says as much. Yet, credit needs to be given to those who deserve it and it was Nony who was telling us this was going to happen a few years ago and we laughed him off the board. It is an amazing achievement good or bad. I feel it is a retirement party but I thought that a few years ago.
Don Zenga on Tue, 31st Jul 2018 4:59 pm
Lets presume US oil production increases to 12 million b/d, then 13 million b/d, 14 million b/d.
So now the World will be expecting USA to maintain that level of production and the depletion rate will also increase as the sweet spots are used.
Then the energy used to extract could increase and the EROEI could come closer to 1:1.
Then some day the drop will start and there will be panic. Whether the drop will be in 2020 or 2025 or 2030 is not known at this point of time.
twocats on Tue, 31st Jul 2018 6:07 pm
don’t feel the need to give nony credit for anything. i don’t think i’ve ever been impressed by any of his predictions. we are about 6 years past when it was obvious that shale could easily keep this party going if the funding was going to be there. the ups and downs of pricing and production have been beyond pretty much everyone’s ability to grasp.
when a system is given absolute immunity from a downturn then it is guaranteed that it will not downturn. if bankruptcies and losses are not allowed to deter an industry it will maintain. which is the way the plutocrats want it, well they get it. but it has warped things around the globe – a weird distortion – and that’s why institutions are fracturing and rotting from within. peak oil has struck civilization with a five point palm exploding heart technique. its still talking and walking around – but its dead – hemorraghing from the inside out.
Makati1 on Tue, 31st Jul 2018 8:48 pm
“If there ever was a US attack on Iran, Persian Gulf analysts stress only Russia, Nigeria and Venezuela might be able to provide enough oil and gas to make up for lost supplies to the West. That’s not exactly what the Trump administration is looking for.”
http://www.atimes.com/article/how-brics-plus-clashes-with-the-us-economic-war-on-iran/
“If a US oil blockade on Iran is coming, Iran could answer with its own Strait of Hormuz blockade, producing economic turmoil for the West. If this leads to a massive depression, it’s unlikely the industrial-military-security complex will blame itself….
There’s no question that Russia and China – the two key BRICS players – will have Iran’s back.”
Are YOU prepared for $200+ oil, America? I don’t think so. Slip slidin’…
rockman on Wed, 1st Aug 2018 10:56 am
WoodMc…what goof balls. They want to convince everyone they understand decline of PB wells better then the operators themselves. Those companies that are investing 100’s of millions and get DAILY REPORTS of the production of each one of their. And this from wells WoodMc sees gross monthly production figures several months after the production from those wells happens.
Thanks WoodMc…we weren’t looking at the internal DAILY PRODUCTION REPORTS and had no idea about decline rates. LOL.
Duncan Idaho on Wed, 1st Aug 2018 4:27 pm
“Then the energy used to extract could increase and the EROEI could come closer to 1:1.”
At 5:1 we are no longer living in the same world.
Boat on Wed, 1st Aug 2018 5:39 pm
Mak
You forget N America is net oil independent. You should learn to count barrels. If the middle east went oil poof it’s Europe, and Asia in deep shyt. China having Irans back may include a million troops. Nigeria and Lybia the EU and Japan can scrap over. All those pesky Sharia Muslims? The new enemy of the world.
Boat on Wed, 1st Aug 2018 5:45 pm
Mak
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MTTNTUS2&f=M
Barrel counting made easy
Anonymouse1 on Wed, 1st Aug 2018 6:12 pm
You cant even count-period. And that is with the help of your fingers and toes, boatretard. So dont go lecturing people who CAN count, on the topic.
Go back to watching TV. I am sure something on geared for your demographic and IQ is on. CNN, faux, Nascar, 700 club, etc.
fmr-paultard on Wed, 1st Aug 2018 6:33 pm
anontard wow you’re a walking case of verbal diarrhea. i don’t know why you attacking supertards. you must be a sock puppet of greg.
Makati1 on Wed, 1st Aug 2018 7:56 pm
Boat, barrels mean nothing. A barrel of tar sands sludge ‘petroleum’ is not the same as a barrel of light sweet petroleum. Nor is the liquids from fraking the same as either. NET energy wise, they are all very different. Try tuning your car on kerosene sometime. LMAO