artem abramov, vp analysis rystad energy …...2017/11/16 · cost of rapid growth is steeper base...

Artem Abramov, VP Analysis

Rystad Energy

November 16, 2017

Permian Basin has been adding 40-90 MBbld of oil per month recently

Large upward shift from the average pace of additions from 2015-2016

0

500

1,000

1,500

2,000

2,500

3,000

0

200

400

600

800

1,000

1,200

1,400

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Horizontal spuds (LHS)

Horizontal completions (LHS)

Total oil production (RHS)

Source: Rystad Energy NASWellCube

2

Permian Basin: quarterly horizontal activity and oil production evolution

Number of wells Thousand barrels per day

3Q 17: +480 MBbld YoY

Horizontal activity in the Permian has shifted towards Northern Midland and Delaware, TX...

21%

13%

35%

16%

0

200

400

600

800

1,000

1,200 Delaware TX Midland North

Midland South Delaware NM

Central Platform Permian (non-core)


3

Permian Basin: horizontal completions by sub-basin

Number of wells

...and boosted well designs pushed all completion indexes to new all-time high levels

0

1

2

3

0

200

400

600

800

1,000

1,200 Delaware TX Midland North

Midland South Delaware NM

Central Platform Permian (non-core)

Completed lateral footage index (RHS) Frac stage count index (RHS)

Frac water use index (RHS) Proppant use index (RHS)

*All indexes take a value of 1 in 4Q 2014


4

Permian Basin: horizontal completions by sub-basin (LHS) and evolution of completion indexes (RHS)

Number of wells Index value*

Permian: DUC inventory by go-forward breakeven* (Oct 2017)

Number of wells

Permian: DUC inventory by sub-basin and age (Oct 2017)

Number of wells

Impact of service-side bottlenecks on the DUC build-up in 2017 is often exaggerated

Limited number of abnormal DUCs is observed and current price environment is acceptable

*Go-forward WTI breakeven oil price includes expected well productivity, completion costs, LOEs, production taxes, royalties, transportation costs, price differentials and G&A opex. A 10% discount rate is applied.


5

96%

70%

73%

85%

86%

85%

0 200 400 600 800 1,000

Delaware NM

Permian (non-core)

Central Platform

Midland South

Midland North

Delaware TX

Spud before 2017 Spud in 2017

91%

48%

77%

74%

88%

87%

0 200 400 600 800 1,000

Delaware NM

Permian (non-core)

Central Platform

Midland South

Midland North

Delaware TX

Driven by gas economics

Go-forward WTI breakeven below 50 USD/bbl

Go-forward WTI breakeven above 50 USD/bbl

Mainly abnormal DUCs

From a marginal activity perspective, operators in the Permian deliver at least 10% returns

*Decision breakeven oil price accounts for well drilling and completion costs, LOEs, production taxes, royalties, transportation costs and price differentials in the calculation. A 10% discount rate is applied.

Gas and NGL revenues are includes with 2 USD/mmbtu and 15 USD/bbl flat prices, respectively.

Source: NASWellCube, UCube, Rystad Energy research and analysis

6

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rato

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r 9

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r 1

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Ope

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r 1

1

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Ope

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6

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9

Ope

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Ope

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1

Ope

rato

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Ope

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Ope

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Ope

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6

Ope

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Ope

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r 2

8

Ope

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Ope

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0

Decision breakeven (IQR)

Decision breakeven (median)

Sample size (RHS)

Permian Basin: decision breakeven oil prices* for top-30 operators in 2016-2017

USD per barrel Number of wells

Are we capturing all costs?

20 30 40 50 60 70 80 90

Operator 30

Operator 29

Operator 28

Operator 27

Operator 26

Operator 25

Operator 24

Operator 23

Operator 22

Operator 21

Operator 20

Operator 19

Operator 18

Operator 17

Operator 16

Operator 15

Operator 14

Operator 13

Operator 12

Operator 11

Operator 10

Operator 9

Operator 8

Operator 7

Operator 6

Operator 5

Operator 4

Operator 3

Operator 2

Operator 1



7

Permian Basin: full cycle breakeven oil price decomposition for top-30 operators

USD per barrel

Oil price needed to deliver

10% return on a marginal well

8.0 USD/bbl42.4 USD/bbl 3.2 USD/bbl 53.6 USD/bbl

50

USD/bbl

40

USD/bbl

Facility, infrastructure and G&A costs boost breakeven prices by 20%

20 30 40 50 60 70 80 90

Operator 30

Operator 29

Operator 28

Operator 27

Operator 26

Operator 25

Operator 24

Operator 23

Operator 22

Operator 21

Operator 20

Operator 19

Operator 18

Operator 17

Operator 16

Operator 15

Operator 14

Operator 13

Operator 12

Operator 11

Operator 10

Operator 9

Operator 8

Operator 7

Operator 6

Operator 5

Operator 4

Operator 3

Operator 2

Operator 1


G&A + Facility


8


USD per barrel



Increment to cover associated

infrastructure and G&A costs

+


50

USD/bbl

40

USD/bbl

Acreage acquisition costs are sunk, but significant for the full-cycle picture of late entrants

20 30 40 50 60 70 80 90

Operator 30

Operator 29

Operator 28

Operator 27

Operator 26

Operator 25

Operator 24

Operator 23

Operator 22

Operator 21

Operator 20

Operator 19

Operator 18

Operator 17

Operator 16

Operator 15

Operator 14

Operator 13

Operator 12

Operator 11

Operator 10

Operator 9

Operator 8

Operator 7

Operator 6

Operator 5

Operator 4

Operator 3

Operator 2

Operator 1


G&A + Facility

Land acquisition


9


USD per barrel



Increment to cover associated

infrastructure and G&A costs

Typical M&A costs distributed

across all wells

+ +

Real full-cycle breakeven for

a 10% return

=


50

USD/bbl

40

USD/bbl

For E&Ps implied proppant costs per well increased by 47% from 3Q 16 to 3Q 17

Lower spread between proppant costs and realized proppant prices from a supplier perspective

0

0.1

0.2

0.3

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20

40

60

80

100

120

140

160

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Operators, implied proppant costs per well (RHS)

Proppant suppliers, revenue per ton (LHS)

Source: NASWellCube, Rystad Energy research and analysis

10

U.S. Land: proppant prices and costs

USD per ton Million USD

Price

QoQ1% 0% -3% -7% -18% -20% -11% -3% -16% 0% 8% 14% 9% 11%

Price

YoY-8% -26% -41% -46% -44% -42% -28% -12% 5% 36% 50%

Costs

QoQ7% 11% 6% -3% -2% -9% -7% 2% -2% 9% 10% 16% 5% 9%

Costs

YoY22% 11% -9% -20% -16% -16% 1% 19% 35% 46% 47%

In 2017, drilling and completion works are still dominated by old cheap service contracts

Yet cost escalation gradually becomes visible in the high-level picture – more to come in 2018

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1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17

Midland

Delaware

Midland (8,000 ft lateral)

Delaware (6,000 ft lateral)


11

Midland 9% -3% -10% -4% -6% 5% 13% 17% -2% -12% -15% -24% -13% -15% -13% -4% 0% 11% 16%

Delaware 7% 9% 0% 3% -3% -10% -9% -13% -13% -10% -11% -13% -6% -13% -16% -6% -6% 10% 21%

Midland

8,000 ft-13% -13% -7% 1% -8% 8% 16% 13% -1% -18% -23% -31% -18% -19% -22% -10% -12% 4% 12%

Delaware

6,000 ft 0% 9% -7% -6% -6% -17% -14% -23% -18% -18% -15% -15% -16% -21% -28% -21% -18% -3% 9%

Permian Basin: drilling and completion costs per horizontal well by quarter and YoY changes

Million USD

Decision breakeven prices increased by 5 USD/bbl from 3Q 16 to 3Q 17

This is not a portfolio effect as breakevens for Tier 1 locations are trending upwards

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1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

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3Q

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4Q

15

1Q

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2Q

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3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

Median

Tier 1

Tier 4




12

Permian Basin: decision breakeven oil prices for horizontal wells by completion quarter

USD per barrel

Decision breakevens are set to trend towards 48-50 USD/bbl in 2018 in a 50-55 USD/bbl price environment

Complex interaction between service cost inflation and additional efficiency gains is expected

0

20

40

60

80

100

120

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

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3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

Median

Tier 1

Tier 4




13

Permian Basin: decision breakeven oil prices for horizontal wells by completion quarter

USD per barrel

Optimized well design

Development phase of activity

In-basin proppant penetration

Expiration of cheap service contracts

Moderate cost escalation for new contracts

Higher degree of vertical integration (E&Ps)

Supply chain bottlenecks

New activity in non-core

Cost of rapid growth is steeper base decline

First-year base decline increased from 500-550 MBbld in 2015 to 1,000 MBbld in 2018

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1,000

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2,500

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4,500

Base (2017)

Base (2016)

Base (2015)

Base (pre-2015)


14

Permian Basin: oil production outlook

Thousand barrels per day

Need to offset more than

1.6 MMBbld in 2018-2020

If the WTI price collapses into mid-30s, inertial growth will still be observed throughout 1H 2018

0

500

1,000

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2,500

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4,500

New (WTI@35)

Base (2017)

Base (2016)

Base (2015)

Base (pre-2015)


15



Peak at 2.9 MMBbld

Stabilization at 2.6 MMBbld in the medium term

45 USD/bbl is a requirement for sustainable moderate growth in the medium term

In a 55 USD/bbl world, 3.2 and 3.9 MMBbld are set to be reached by YE 2018 and 2020, respectively

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500

1,000

1,500

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2,500

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3,500

4,000

4,500

Incremental New (WTI@55)


New (WTI@35)

Base (2017)

Base (2016)

Base (2015)

Base (pre-2015)


16



A move from 55 to 65 USD/bbl unlocks a lot of additional production potential

Further upside is constrained by service-side and logistics bottlenecks

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4,500





New (WTI@35)

Base (2017)

Base (2016)

Base (2015)

Base (pre-2015)


17



4.5 MMBbld is seen as maximum

production potential at YE 2020

artem abramov, vp analysis rystad energy …...2017/11/16 · cost of rapid growth is steeper base...

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