Experience RS

High Grades for US Drilling? This Test Must Be Rigged!

As we approach the new year, it’s worth reflecting on US activity levels in 2019. Over the course of the last 12 months, the US lost over a quarter of its onshore rig count; ~250 horizontal rigs have taken a tumble to the lowest levels in nearly three years. Not surprisingly, the reduction focused on regions where the underlying resource didn’t have the economics to maintain going concern status in the unforgiving commodity price environment. Relatively, the SCOOP | STACK, Utica and the Marcellus experienced the biggest blows, while the PRB, Bakken and the Delaware (though still at a lower rig count than the beginning of the year) stood sturdiest against the storm.

Naturally, this leads to the next question – where is the current composition of the active rig count? In light of the high-grading that has taken place, Figure 1 shows the majority of the rigs are drilling inventory that breaks even below $50/bbl. The colors of the bars represent different plays, the width of the bars indicate the size of the rig fleet and the vertical left axis corresponds to the half-cycle breakeven of the targeted resource. The dominant colors at the low-end of the cost curve are shades of green – the Permian behemoth. Midland and Delaware basins post the lowest average breakevens in North America, so it's no surprise that over 50% of current US horizontal rigs reside in these plays.

Figure 1 also addresses the productivity of the drilled resource through the observed production additions, typically called ratable adds. We define this term as the average production of a logical grouping of wells over the course of 12 months, or in other words, the annual average production rate of the well group’s type curve. Moving from the left side of the chart to the right, this series illustrates the amount of ratable production contributed by the cumulative play rig counts. For example, the 400 horizontal rigs drilling resource that breaks even under $45/bbl are targeting inventory that contributes ~2,250 Mbbl/d of ratable oil adds, or ~58% of all ratable oil adds across the US onshore landscape.

FIGURE 1 | US Horizontal Rig and Ratable Add Dispatch Curve

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