Bakken Update: Further Well Improvements Seen In The Delaware Basin As Operators Beat Expectations
Well costs and enhanced completions continue to be the story for 2016. Well costs continue to move lower. This has not decreased production per well, as enhanced completions or Mega-Fracs have continued to provide impressive results. Enhanced completions are a very complex topic, but can be explained simply. The operator focuses on frac’ing or fracturing the shale closer to the well bore. Operators are better able to break up the source rock with this method, creating better induced production.
(Source: Pioneer)
Pioneer (PXD) provides an excellent picture of how this is being accomplished. Frac clusters are moved closer together, so more complete fracturing occurs. This results in more of the shale opening up, which creates more production. Shorter stages mean higher pressures are accomplished. This results in more proppant and fluids being needed. Pioneer has decreased stage length from 240 feet to 100 feet. Frac clusters were initially set every 60 feet, and are now at 15. Pioneer now needs to use 1700 lbs of proppant per foot. Its initial design used 1000 lbs/ft. Fluids usage has increased from 30 bbls/ft to 50 bbls/ft. Since most operators are making the adjustments to completion design, it should benefit proppant and fluids producers. US Silica (SLCA), Emerge (EMES), Hi Crush (HCLP), and Fairmount (FMSA) are all frac sand producers that should benefit. Fluids producers like Flotek (FTEK) and Newpark (NR) should also see demand increase.
The Permian is one of the top basins in the United States. It is split into two main basins. This includes the Midland and Delaware basins. Both are quite good, but we are focusing on the Delware. The Delaware Basin was developed a little later than Midland, but has picked up significantly over the passed year. Some very good results have been seen both in the northern and southern parts of the basin. It is difficult to find operators levered to the Delaware as most operators are larger companies. Matador (MTDR) may provide the greatest exposure as a percentage of market cap, although it doesn’t have the largest footprint. Occidental (OXY) has 1.5 million acreas followed by Chevron (CVX) at 1 million and Shell (RDS-A) at 618,000. Concho (CXO), Cimarex (XEC), EOG Resources (EOG), Anadarko (APC), Apache (APA), and Energen (EGN) are also bigger players in New Mexico and west Texas.
The past quarter has seen further improvements in well economics in the Delaware. These improvements differ by county, and the Delware basin is very large. So each area is independent with respect to geology. The Bone Spring and Wolfcamp are the main intervals. The Bone Spring and Wolfcamp are the main targets, depending on operator.
Cimarex has seen some relatively large increases due to upsized fracs.
(Source: Cimarex)
Cimarex’s better source rock stimulation has required 1,650 lbs/ft of sand. 120 IPs have seen a 22% improvement. Mega-Fracs have also shown improvements targeting the Avalon.
(Source: Cimarex)
The improvements have been spectacular. Production has increased by 119% over the first 180 days. This is also the case in the Bone Spring.
(Source: Cimarex)
Its new completion design is working across all intervals to date. The second Bone Spring has seen a 70% improvement at 180 days. As with Pioneer, it is decreasing the number of feet per stage. This trend should continue, and results should see further improvements. These results are just some of the reason beat on the top and bottom lines.
Matador continues to see good results as well. It reported the best Matador IP rate to date in the entire basin. Jimmy Kone 228H had an IP of 2,438 Boe/d. Paul #221H was its best Wolfcamp A-XY IP rate to date at 1,701 Boe/d. This was its fastest Wolfcamp location drilled. LOE was down 28% over 1Q16.
(Source: Matador)
Drilling times continue to improve throughout the entire basin. These improvements range from 42% to 60%. This is part of the reason for the big beat on the bottom line last quarter.
EOG Resources is also seeing large increases in production from the Delaware Basin.
(Source: EOG)
Both Wolfcamp and Bone Spring wells are seeing an uplift in production from 20% to 25% over the first 90 to 180 days. Well costs are heading lower.
(Source: EOG)
The above slide shows improvements in EOG’s main three plays. The improvements in the Delaware have been the best, now down 43% since 2014.
When looking at production improvements, it is best to break down each well to a per foot basis. Wells can differ in length significantly from location to the next. Since production improves with lateral length, we can see how much each foot produces. Some operators may drill only short laterals (one mile), while others do long laterals (two mile). The operator drilling long laterals may produce more oil per well, but it may not be enough oil to offset the additional costs.
(Source: EOG)
The above slide shows how EOG has improved with respect to this data point. Using the first 120 days of production, it has almost doubled since 2014.
In summary, the Delaware continues to see large improvements in well design and costs. The geology of this basin is some of the best in the country and part of the reason these operators continue to outperform. We expect to see continued improvement to well economics, which should lower payback times. The operators in the Delaware Basin are some of the best positioned in the US.
Data for the above article is provided by welldatabase.com. This article is limited to the dissemination of general information pertaining to its advisory services, together with access to additional ...
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