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Explaining the Permian Pivot to Single-Bench Development

Bio
Author

Stephen Sagriff, Senior Associate

Author Biography

Stephen joined RSEG’s analyst team in January 2018 and is a member of the Permian Intelligence team. He has a reservoir engineering background in a business development capacity, having previously worked at RimRock Oil & Gas and interning at ConocoPhillips, both in Calgary. Stephen earned his bachelor’s degree in chemical engineering from the University of Calgary in 2016.

The recent collapse in oil prices is pushing operators into survival mode, resulting in a massive reduction in activity across major oil plays in the US. While the depth of high-quality resource in the Permian Basin is unrivaled across the L48, the Texas-New Mexico play is not immune to the severe plunge in oil prices. RSEG believes operators still drilling will be forced to focus on optimizing single-well economics, trying to make the most of every dollar of capital spent.

Generating the most attractive single-well economics means making the decision to high-grade to both the best acreage and best intervals. It is equally meaningful to choose an appropriate development strategy; either multi- or single-bench development. Prior to the crash in prices, most operators planned for multi-bench or cube-style development, but we believe operators must pivot to single-bench prioritization if they want to survive 2020.

RSEG leveraged its proprietary spacing model to classify wells based on three broad categories of vertical boundness: unbounded, half-bounded and fully-bounded. Vertically unbounded wells are those developed in a single bench, while half- and fully-bounded wells fall under the multi-bench development umbrella. When the Wolfcamp A, a productive zone long targeted by oil companies, is developed on its own, half-cycle breakevens are 6-25% lower than when it is developed alongside adjacent benches, depending on the region (Figure 1).

Although single-bench development results in the strongest economics, it usually comes with a future cost. Multi-bench development helps limit parent-child interactions, where subsequent wells fail to match the results of initial ones, and preserve the quality of future inventory. However, multi-bench drilling often decreases single-well economics enough to tip the scales, making it a less favorable development strategy in today’s environment.

FIGURE 1 | Wolfcamp A Breakevens by Vertical Boundness

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Source | RSEG

 

 


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