Drilling activity in the booming Permian Basin must accelerate just in order to maintain current production volumes, according to a new report from the research firm IHS Markit.
Source: Houston Chronicle
The Permian’s oil output has risen rapidly in recent years from the shale boom, but shale wells deplete much faster than conventional vertical wells, so more constant drilling is required to keep up with the higher production. Because drilling activity is declining in the Permian – and everywhere else – IHS Markit predicts U.S. oil production will flatten out in 2021 after another year of more modest growth in 2020.
The production volumes from existing wells fell by 34 percent in 2018 and that base decline rate is now hitting 40 percent, according to the report. So-called base decline is determined by comparing the forecasted production of wells at the start of each year to their cumulative decline at the end of the year.
“Base decline is the volume that oil and gas producers need to add from new wells just to stay where they are — it is the speed of the treadmill,” said Raoul LeBlanc, vice president of unconventional oil and gas at IHS Markit. “Because of the large increases of recent years, the base decline production rate for the Permian Basin has increased dramatically, and we expect those declines to continue to accelerate. As a result, it is going to be challenging, especially for some companies with cash constraints, just to keep production flat.”
In 2019, Permian production started the year at 3.8 million barrels per day, a million barrels higher than 2018. IHS Markit expects that base production will decline by approximately 1.5 million barrels of oil per day by the end of this year – a staggering 40 percent base decline rate.
However, this year, new wells have well more than offset the losses. The federal government estimates that Permian oil production is currently at 4.7 million barrels daily. IHS Markit though expects the decline in drilling activity to prevent production from continuing to outpace decline after 2020.
Companies with the highest growth in recent years have the steepest base decline rates, and vice versa.
“Now that capital markets have closed for many companies and investors are requiring returns, a critical objective for these companies is to slow production growth, significantly moderating their base declines,” LeBlanc said.
