The Permian basin has been by far the largest source of production growth in the United States as field oil production grew from 1.2M barrels per day (mmbpd) in January 2013 to over 4.2mmbpd. Back in 2013, there were few observers (myself included) who expected Permian to grow as fast and as large as it did. However, the important question for energy investors at this time is how far and fast Permian will expand over the coming years, and finding the answer to that question holds the key to future oil prices since Permian has been the engine of non-OPEC supply growth in over the past few years.
In this article, I will present a number of recent estimates and observations from a number of independent experts, CEOs, investment funds and research equipment on where oil production in Perm (and US slate) may have led over the coming years. Suffice it to say that the prospects for shale growth in Perm and the US appear to be more subdued than we have witnessed in recent years.
Goehring & Rozencwajg
Goehring & Rozencwajg, arguably one of the most astute council investment funds, published the following comments in its report on commodity markets in Q2 / 1[ads1]9:
G&R continues to say the following for American shale production as a whole:
We expect the three large US shale basins to grow by a further 2.7 to 2.9 mb / d total before peaking around 10 mb / d sometime between 2027 and 2029. This equates to somewhere between 275.00 0 and 360,000 b / d of growth per year, compared to almost 1 mb / d of annual growth from the three basins each years between 2017 and 2019. We must point out that these numbers may be slightly higher in the first few years and 2019 could actually see growth of over 700,000 billion from January 1 to December 31. However, we believe that 2019 will be the last time growth exceeds 500,000 weight / day as production begins to decline dramatically.
G&R reached their conclusions through the use of their appropriate neural network. G & R's neural networks have shown impressive accuracy in tracking historic US slate growth. G & R's strong results and impeccable research lend credence to their muted US slate (including Perm) growth projection.
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Rystad Energy has been a strong believer in the American shale revolution, and the consulting firm has excellent work to understand the underlying trends driving the growth in shale oil supply. Recently, the consultancy published an insightful graphical horizontal Permian Well Productivity:
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Using the data in the graph above, I have produced a new graph showing the YoY change in Permian Well Productivity (oil lot) compared to WTI:
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Rystad productivity data shows a noticeable decrease in YoY Perm's horizontal well productivity, while productivity increased by as much as 28% YoY in Q1 / 16 as growth slowed to 10% YoY in Q1 / 19. In fact, productivity growth tended to decline from negative to low single digits for most of 2017 and 2018. Looking at changes in productivity in Perm wells relative to WTI, we can conclude that high grading has played a key role when operators drill their best area during periods of falling prices, while doing the opposite during periods of low prices (This observation is also confirmed by Rystad Energy). It is quite clear that productivity improvements in Perm's horizontal wells have largely remained steady since Q2 / 16, with productivity increasing by only 6.7% over 2.5 years ago. As to where US shale production growth (including the perm) is heading for the next few years, Rystad Energy recently had to say:
Although light oil production volumes from US shale continue to grow, expansion is expected to slow, with light oil subsidies decline by 2023, driven by a flat development in drilling and completion activities.
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Wood Mackenzie, another respected oil and gas advisory services, are witnessing similar trends as accelerating decline rates, pipeline constraints and increasing volume of produced water are believed to affect long-term Permian production potential. The consultancy estimates average initial production rate for Wolfcamp wells drilled in the Midland Basin to be down 6 percent so far this year, along with productivity reductions observed on several benches. More from MRT:
"Every play matures in the end," Ryan Duman, senior analyst, Lower 48 with Wood Mackenzie, said in an email. "As more wells are drilled and the core stock is depleted, it becomes increasingly difficult to grow production," he wrote from Denver, discussing produced water challenges in Perm. "Generally, the slowdown in production growth levels or the direct decline in production leads to a" mature "state of play. The perm is not there yet, but as more wells are drilled over the next few years, we will be approaching a more mature status. delimitation of new zones or geographies dramatically slows game maturity. "
Wood Mackenzie's recent Permian slowdown comments echo a June 2018 study in which the company observed an acceleration in the Permian Horizontal Horizontal Downfall Rate:
The study found that after five years of production, the most active Wolfcamp subplots have annual decline rates roughly twice the proxy value of 5% to 10% commonly used. The most common terminal decline value actually observed in mature horizontal Wolfcamp wells was 14%. The report analyzed the impact of the more likely terminal decline rates and found that under a 14% terminal decline scenario, the short-term impact of the total permic input is relatively minimal, but by 2040 nearly 800,000 bbl / day of permic production is at risk. .
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Pioneer Natural Resources & # 39; Scott Sheffield calls back
In a recent conference call, Scott Sheffield, CEO of Pioneer Natural Resources, made this important comment on his views on future growth in Perm:
I lowered my expectations of Perm, reaching 1 Million barrels of oil per day growth yearly as in 2018. I am still confident that Permian will reach 8 million barrels a day at much slower pace with the Midland Basin as the only growing pool in the United States last 2025 … Delaware is being drilled aggressively by many more operators. The rig number and level 1 area are exhausted at a very fast rate. Similar reports have Delaware at its peak in 2024 due to the aggressive drilling and spacing because companies are essentially running out of inventory. The same reports show that the Midlands basin will not peak until the mid-2030s.
The above notes are not worthy of Mr. Sheffield had been an avid believer in Perm, and stated in 2013 that Sperry Wolfcamp could possibly be the largest oil and gas find in the world .
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Mark Papa (ex-CEO of EOG) skepticism
In a recent conference call, Mark had Papa, CEO of Centennial Resources (ex-CEO of EOG and one of the famous US shale pioneers) to say about growth in US oil supply by 2020:
It is already clear to me that 2020 total US oil growth will be significantly less than 1.2 million barrels a day year over year than most now predict.
It is worth noting that earlier this year Mark Papa expressed skepticism about the ability of the American slate industry to deliver the same type of productivity growth it did in the past:
"I'm not very optimistic about that over the next 5 years, the industry should be able to show year-on-year improvements in good recovery that we have seen over the last ten years, says Mark Papa, CEO of Slate Producer Centennial Development Resources, which is backed by equity. Dad said the two biggest factors in play are frac hits, or parent-child interference, and a shrinking inventory of high-quality drilling sites.
Concho Resources failed in distance between experiment  1. August Concho reported a disappointing outcome for their Dominator distance experiment in the Delaware Basin:
In the Delaware Basin, the 23-well Dominator project was designed to test logistical capabilities and good distance that were approximately 50% tighter than our current resource assessment. While initial rates were solid, current performance data indicates that we developed Upper Wolfcamp too closely.
Concho's failed experiment led to a sharp 22% decline in the stock price that day. It also led to questions about Permian (and American slate) growth potential from such as Goldman Sachs:
“Unfavorable distance tests and lower than expected capital efficiency raise reasonable questions about whether we are further down the road when slate is no longer equal relevant driving force for global supply growth, ”Goldman Sachs analysts wrote in a note. The investment bank said poor results from Concho provide evidence that the stock of remaining drilling site "stops rising and starts to fall." It may also be an indication that capital efficiency is degrading, which could mean that supply costs may rise in the future.
In a recent article, HFI research provided a strong warning of Permian productivity and future growth:
We see the Permian basin begin to stop Although we still expect Perm to be the largest growth contributor going forward, the speed and pace of growth will start to level off significantly. According to our estimate, if Permian does not see a significant step change upwards in completions, then we will see production growth levels by 2023/2024.
It is important to note that oil production in Perm will continue to grow for many years to come as super-majors like Exxon and Chevron continue to invest heavily in the pool, and as the fracking pace in the field continues to break records. However, the warnings of many experts and professionals highlighted in this article are clear: Permian productivity and growth are already declining and will decline substantially in the coming years. A slowdown in a single oil field in a single country may not seem significant to anyone, but knowing that the United States has been the source of nearly 100% of non-OPEC production growth since 2015 and that lion hair for that growth comes from Perm , a significant slowdown in Perm will have a disproportionate impact on global oil prices in the coming decade.
By Nawar Alsaadi for Oilprice.com
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