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GlobalData: best performing wells in Permian break-even at as low as US$22 per barrel

During the last three years, companies operating in the Permian basin have drilled much longer laterals and used substantially more complex well completion design in their newer wells with the aim of reaching higher initial production (IP) rates. Well lateral lengths in the Permian have increased in average by more than 1,500 feet (ft) since 2016 to approximately 7,500 ft by the end of 2017, says GlobalData, a leading data and analytics company.

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A GlobalData analysis of recent wells for 26 operators in the Permian basin indicates a break-even oil price range from US$21 to US$48 per barrel with lateral lengths ranging from 4,500 ft to 10,500 ft. On 25 June, the price of a 42-gallon barrel of West Texas Intermediate Crude (WTI) was $68.08.

The Permian basin is a large oil and natural gas producing area largely located in the western part of Texas and the southeastern part of New Mexico.

Currently, five Permian operators, EOG Resources, XTO Energy, Pioneer Natural Resources, Concho Resources, and Chevron are the companies with the lowest oil break-even price. For these operators, well lateral lengths vary from 7,560 ft to 10,500 ft and an oil break-even price for their most representative type well is less than US$26 per barrel.

The estimated ultimate recovery (EUR) for such wells exceed 1,000 million barrels of oil equivalent (mmboe) and their IP rate is in the range of 1,260 barrels of oil equivalent per day (boed) and 1,917 boed.

Longer laterals do not necessarily translate into high productivity. For instance, QEP Resources has an average lateral length of around 7,200 ft, but an IP rate of around 730 boed. By contrast, the wells drilled by EOG have approximately the same length, 7,560 ft, but yield twice higher initial rates.

The reason for such a difference is generally related to a completion design incorporating more fracturing stages and the amount of proppant injected. Recent wells drilled by EOG have approximately 2,400 pounds of proppant injected per lateral foot, while QEP used 1,300 pounds of various type proppant per lateral foot.

All 26 operators included in this analysis have new wells that break-even below a price of US$50 per barrel. Nonetheless, some operators evidence the possibility of reaching even higher well returns with break-even values below US$25 per barrel.

—Svetlana Doh, Oil & Gas Analyst at GlobalData

Comments

Calgarygary

Say what you want about the North American oil and gas industry, but its hard not to be impressed by its ability to innovate and improve on production costs using technology over the past few decades. I often wonder how long it would take to develop affordable EV's and other alternative mobility solutions if all the capital and expertise applied to o&g production were redirected?

Peter_XX

Well, they would lose their capital. EV's are not a big business (yet) and if you would have to wait so long for a return on the investment, you would go bankrupt long before. Why would EV's ever become affordable? There are not sufficient rare elements in the earth's crust for that to happen. Likewise, there is not sufficient crude oil to continue with conventional fuels forever. We do not have sufficient biomass for biofuels. Therefore, a long-term sustainable solution will involve improvement of energy efficiency and gradual substitution of fossil (non-renewable) resources with renewable resources (including some supply of electricity but certainly not 100% substitution).

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