Bakken Update: Adding To The Oil Glut, Part 4, Delaware Basin Production Increases 52.5% Per Well In 2015

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Summary

The Bakken, Eagle Ford, Delaware and Midland have all shown a very large increase in production per well for 2015.

Production per well improvements can be attributed to high-grading, but well design to a higher degree.

The increased production per well has helped to offset the decline in completions, and the reason US production remains higher than analyst expectations.

The Bakken, Eagle Ford and Permian are the main unconventional oil plays in the US. One could mention the Niobrara as the fourth. We could talk about emerging plays like the Powder River Basin, STACK/SCOOP, and Tuscaloosa. All differ in resource percentage, well costs and economics. Today the Bakken, Eagle Ford, and Permian see the largest cap ex. Therefore, the effect has been greater by the drop-in oil price.

(Source: Investing.com)

This drop didn't just affect commodity traders. Investors have taken a hit as well. The US Oil ETF (NYSEARCA:USO) has recovered from lows, but is still depressed when compared to early 2014. The oil market differs a great deal from other industries. E&Ps aren't valued by the PE ratio. EV/EBITDA is preferred, along with other metrics. Operators spend outside cash flows to grow production. Some would say this industry is rigged, or even a Ponzi scheme. If so, why invest? Oil isn't for the faint of heart, as prices can move a great deal in a short time. The beta is high, but a better fit for those who like risk. Oil prices whipsaw on changes in the value of the dollar, or economic indicators. When world economies are good, oil prices head higher. There is a great deal of speculation involved, which can reward or punish. There are no doubt operators are over extended. Low rates provided the perfect environment for oil production growth, as operators rushed to drill holes and get acreage held by production. With rates heading north, it could mean trouble is ahead.

When oil prices decrease, so does operator activity. Plays with the best economics will see the largest number of completions. Operators in those plays will be more successful. There are many factors to consider. Differentials are not equal. This depends how far the wells are from customers (refiners). Production taxes can be much higher in states like North Dakota, when compared to Texas. Depth of resource can increase drilling costs. Production drives revenues. The biggest producing wells are not necessarily the best, as costs are also a consideration. We have covered the decline in drilling from 2013 to 2015 in three papers. Although completions decreased, production per well continues higher. High-grading focuses on better geology, but data seems to suggest well design is causing the most change. Bakken oil production per well has increased 27.3%. The Eagle Ford increase has been better, at 46.5%. The Permian is divided into two basins. Midland is in the east and the Delaware in the west. Midland was developed before the Delaware, but we are finding the geology may be just as good. Midland improvements were the greatest at 262%.

The Delaware is like Midland but also very different. Both share the Wolfcamp, but the other intervals are not consistent.

(Source: Matador)

Matador provides insight into the differences in geology, and why the Delaware may be better. This is a huge, stacked basin with thousands of feet of vertical pay zones. Delaware and Midland operators are in an exceptional situation. It can complete the best intervals first, and when oil prices rise the others can be a focus.

(Source: Welldatabase.com)

The Midland increases have been substantial, but the same has been seen in the Delaware. The data below is from Lea, Eddy, Loving, Culberson, Ward, Reeves, and Pecos counties. There were 2,278 horizontals included. The top 20 producers in this play from 1/1/14 to 12/31/15 are listed below.

Name

Well Count

CUM Gas (MCF)

CUM Oil (BBL)

COG OPERATING LLC (NYSE:COG)

390

129,126,300

41,997,176

DEVON ENERGY PRODUCTION (NYSE:DVN)

206

64,825,880

24,002,624

CIMAREX ENERGY CO. (NYSE:XEC)

172

152,319,840

22,104,042

ANADARKO E&P ONSHORE LLC (NYSE:APC)

107

52,899,184

9,902,714

MEWBOURNE OIL CO

99

31,143,956

10,436,319

OXY USA WTP LP (NYSE:OXY)

69

6,128,155

4,424,031

BHP BILLITON PET(TXLA OP) CO (NYSE:BHP)

68

47,259,000

9,716,521

SHELL WESTERN E&P (NYSE:RDS.A)

66

16,014,103

5,835,016

EOG RESOURCES, INC. (NYSE:EOG)

65

24,350,360

6,901,421

YATES PETROLEUM CORPORATION

61

11,587,228

5,528,191

BOPCO, L.P.

53

15,089,911

6,312,376

OXY USA INC

53

5,731,489

4,675,952

EOG RESOURCES INC

51

22,207,200

6,887,661

APACHE CORP (NYSE:APA)

46

7,953,441

4,274,573

COG PRODUCTION, LLC (NYSE:CXO)

42

17,017,240

6,045,728

Apache Corporation

40

12,619,664

4,009,222

CENTENNIAL RESOURCE (NASDAQ:CDEV)

39

7,438,508

3,361,959

ENERGEN RESOURCES (NYSE:EGN)

37

12,838,488

2,801,601

RKI EXPLORATION & PRODUCTION LLC

33

12,224,498

2,972,033

ROSETTA RESOURCES(NYSE:NBL)

33

5,961,970

2,485,963

Totals

1730

654,736,415

184,675,123

(Source: Welldatabase.com)

Concho is by far the leading producer of the group. It is followed by Devon and Cimarex. There are significant volumes of crude coming from these counties. The EOG acquisition of Yates makes for an interesting marriage, as EOG rarely buys into plays. Although some believe it paid too much, I think it made an excellent deal.

Delaware 2013

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Wells

1/31/2013

0.112

0.144

0.137

0.363

31

2/28/2013

0.352

0.652

0.464

0.888

73

3/31/2013

0.732

1.56

1

1.97

114

4/30/2013

1.01

2.6

1.46

2.52

153

5/31/2013

1.35

4.03

2.04

3.69

200

6/30/2013

1.61

4.75

2.43

4.35

239

7/31/2013

1.72

5.66

2.69

4.87

283

8/31/2013

2.07

6.57

3.2

5.58

323

9/30/2013

2.15

7.64

3.47

6.12

370

10/31/2013

2.52

8.94

4.07

7.08

410

11/30/2013

2.43

8.44

3.88

6.88

452

12/31/2013

3.1

9.95

4.81

7.47

611

Total

19.156

60.936

29.651

51.781

(Source: Welldatabase.com)

Just 31 horizontals were completed in January of 2013. There was more oil produced, but we did not include Wolfbone verticals. The number quickly climbed throughout the year. The Bone Spring and Wolfcamp were the main targets.

Delaware 2014

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Well

1/31/2014

0.248

0.45

0.326

0.685

76

2/28/2014

1.08

2.14

1.45

2.39

134

3/31/2014

2.06

4.76

2.88

5.66

216

4/30/2014

2.61

6.72

3.77

7.75

302

5/31/2014

3.44

9.36

5.06

10.12

392

6/30/2014

4.02

11.54

6.01

11.2

481

7/31/2014

4.78

14.02

7.19

10.04

723

8/31/2014

5.35

16.54

8.2

10.67

827

9/30/2014

5.06

14.73

7.6

9.92

936

10/31/2014

6.55

18.92

9.81

11.64

1,063

11/30/2014

6.93

20.62

10.48

11.36

1,159

12/31/2014

7.69

23.84

11.8

12.81

1,252

Total

49.818

143.64

74.576

104.245

(Source: Welldatabase.com)

The number of horizontal doubled in 2014, and this was consistent throughout the year. Oil production per well also climbed.

Delaware 2015

Month

Oil MMBO

Gas Bcf

MMBOE

H2O MMBbl

Well

1/31/2016

0.437

0.671

0.552

0.929

123

2/28/2015

1.41

2.53

1.84

2.62

220

3/31/2015

3.24

6.56

4.37

5.33

328

4/30/2015

4.31

10.36

6.09

6.26

429

5/31/2015

5.63

15.42

8.29

6.91

518

6/30/2015

5.59

17.25

8.56

7.1

583

7/31/2015

6.04

18.56

9.24

7.98

668

8/31/2015

6.91

21.84

10.67

8.23

783

9/30/2015

7.1

22.96

11.06

8.34

855

10/31/2015

7.47

23.8

11.58

8.09

903

11/30/2015

7.6

24.5

11.82

7.99

975

12/31/2015

7.35

22.15

11.17

7.12

1,031

Total

63.087

186.601

95.242

76.899

(Source: Welldatabase.com)

The number of 2015 completions were outpacing 2014 until July.

Bakken

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

104.417

110.12

123.41

1976

2014

120.365

+13%

137.4

+25%

144.06

+17%

2156

+9%

+5.7%

2015

101.22

-16%

135.39

-1.5%

124.57

-14%

1507

-30%

+19.6%

(Source: Welldatabase.com)

Only the Bakken saw a decrease in total oil production from wells in 2015. Keep in mind, this does not include production from locations outside that time frame. Total play production would be greater. By removing the production from previous years, it provides clarity to current well design. Decline rates change through well life, clumping all wells into the comparison changes the decline and skews the data of today.

Eagle Ford

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

93.312

248.36

136.13

2,002

2014

81.523

-13.3%

230.58

-7.2%

121.296

-10.9%

1,914

-4.4%

-8.5%

2015

92.178

13.1%

246.94

7.1%

134.78

11.1%

1,468

-23.3%

46.5%

(Source: Welldatabase.com)

The decline in the number of completions as a percentage was not as great as in the Bakken. Well productivity was better.

Midland

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

2.591

3.852

3.254

141

2014

15.522

499%

29.348

662%

20.582

533%

1213

760%

-28%

2015

33.51

116%

46.681

37%

41.551

102%

713

-41.2%

262%

(Source: Welldatabase.com)

Oil production per well increased more in Midland than anywhere else. The change in the number of completions were also the greatest. Although well productivity increased significantly, operators declined activity the most as a percentage.

Delaware

Month

Oil MMBO

Change

Gas Bcf

Change

MMBOE

Change

Wells

Change

Oil/Well

2013

19.156

60.936

29.651

611

2014

49.818

160%

143.64

136%

74.576

152%

1252

105%

29%

2015

63.087

26.6%

186.60

29.9%

95.242

27.7%

1031

-17.7%

52.5%

(Source: Welldatabase.com)

In summary, the decline in oil prices has had a significant effect on the oil and gas industry. The drop began late in 2014. Major decreases in activity were seen the following year. It has also pushed operators to improve recoveries. While some improvements were attributed to high-grading the majority was due to well design. Mega-Frac's continue to improve. It has increased usage of frac' sand per foot as well as frac' fluids. Decreased oil prices have increased how quickly newer designs have been implemented. This is being seen through all major core plays.

Disclosure: I am/we are long APA, APC, CDEV, CXO, EGN, XEC, DVN, EOG, OXY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Well data is provided by Welldatabase. Accordingly, the publication of articles should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. This information is provided for guidance and information purposes only. This information is not intended to provide investment, tax, or legal advice. The information contained herein has been compiled from sources deemed reliable and it is accurate to the best of our knowledge and belief. However, I cannot guarantee its accuracy, completeness, and validity and cannot be held liable for any errors or omissions. All information contained herein should be independently verified and confirmed. Hartstreet LLC does not accept any liability for any loss or damage whatsoever caused in reliance upon such information. Readers are advised that the material contained herein should be used solely for informational purposes. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Welldatabase.com provided the data for this article.