Rystad Energy: Shale Newsletter - May 2019 - eng

Activity in many parts of the Permian Basin has already entered into large-scale manufacturing mode, but some elements of optimal development strategy have yet to be understood. One such area in the Permian Basin is found in Midland County. The horizontal unconventional development in Midland County started largely from the Wolfcamp B interval in 2011 and 2012, where a combination of depth and thickness of the pay zone offered the highest expected profitability. Over time, the stacked potential of Wolfcamp A and the Lower Spraberry/Jo Mill intervals have also been delineated, and the contribution of Wolfcamp B to total activity thus declined, although the original interval maintained its leading place in terms of total well completions even in 2018.

Some operators tested the Middle Spraberry and commercial results were achieved, but the trade-off between well productivity and costs suggests a sustainable preference toward the lower intervals. It is likely that the Middle Spraberry will become a more significant contributor to county activity only when the potential of the core layers has been exhausted. Finally, several tests of the Wolfcamp D/Cline interval have been conducted. However, this interval too will likely remain less profitable for major leaseholders in the county – in this case due to the gassy nature of the production stream.

The activity in Midland County has largely reached its manufacturing state with two-mile laterals being the standard as of 2018 across all key zones. Interestingly, while proppant intensity across the Wolfcamp A and B zones followed a logical depth differential pattern during most years, the typical Lower Spraberry completion has been more intensive from 2016 to 2018. To a large extent, this is explained by the operator mix, as operators that generally prefer higher proppant loading account for a larger share of Lower Spraberry activity than they do among the Wolfcamp A and B intervals.

In fact, there is a big difference between the “county master” Pioneer Natural Resources and most of the other operators. Pioneer’s latest frac completion technique – Version 3.0+ – became dominant in 2018, and the company has been pumping an average of 2,500 pounds per foot recently (2,800 in the Lower Spraberry intervals in 2017 and 2018). A lot of other operators – including Hunt Oil, Endeavor, ExxonMobil and Diamondback – still follow substantially more conservative frac designs, with proppant intensity ranging from 1,500 to 1,700 pounds per foot across all zones.

Midland is a good example of a county where normalized well productivity nearly reached today’s level way back in 2015. Further improvements in productivity per well were driven primarily by increases in average lateral length. Yet we see that 2017 was the best vintage ever for the Lower Spraberry and Wolfcamp B intervals, but normalized productivity seemingly declined last year. Meanwhile, Wolfcamp A’s normalized productivity remained robust in 2018.

In our view, this is largely explained by differences in well spacing experiments in different zones. In 2017 and 2018, we generally observe clear degradation in normalized productivity for child wells across the Lower Spraberry and Wolfcamp B zones. In particular, child wells in the Lower Spraberry intervals exhibit degradation of more than 20% compared to parent wells. Meanwhile, parent and child wells within Wolfcamp A wells performed at the same level in 2017 and 2018. This implies that there is still some potential for down-spacing within the Wolfcamp A interval in Midland. From a spacing unit value perspective, the inflection point is normally reached after productivity per well starts declining.