Newer wells in the Permian see their oil and gas production declining much faster than older wells, and operators will need to drill a large number of wells just to keep current production levels, an IHS Markit analysis showed on Thursday.
IHS Markit has analyzed what it calls the “base decline” rate, calculating the actual or expected production of all the operating wells at the start of the year and tracking their cumulative decline by the end of the year. Over the past decade, the base decline rate of the more than 150,000 producing oil and gas wells in the Permian has “increased dramatically,” according to the analysis.
“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,” Raoul LeBlanc, vice president of Unconventional Oil and Gas at IHS Markit, said in a statement.
“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.
Last month, IHS Markit said it expects U.S. production growth to be 440,000 bpd in 2020, “before essentially flattening out in 2021.”
“Going from nearly 2 million barrels per day annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” LeBlanc said in early November.
With capital discipline required by investors and WTI Crude prices expected to average around US$50 in 2020 and 2021, IHS Markit expected in November capital spending for onshore drilling, and completions to have fallen by 10 percent to US$102 billion this year, by a further 12 percent to US$90 billion next year, and by another 8 percent to US$83 billion in 2021.
By Tsvetana Paraskova for Oilprice.com
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