Permian Defies Production Decline Trend

By Velda Addison, Hart Energy

Looks like the slowdown in U.S. oil and gas production is expected to continue in December 2015, but don’t look for the Permian to be included in this downward trend.

The latest drilling productivity report released Nov. 9 by the U.S. Energy Information Administration (EIA) shows that oil production in the major shale plays tracked could fall by 118,000 barrels per day (bbl/d) to about 4.9 million in December. But the Permian is bucking that trend. Oil production in the Permian could jump to more than 2 million barrels per day (MMbbl/d) in December as the basin continues driving the nation’s oil production growth.

And some producers are increasing production with fewer rigs.

Pioneer Natural Resources Co. (NYSE: PXD) is among them. During Hart Energy’s Executive Oil Conference on Nov. 18, Joey Hall, executive vice president at Pioneer, explained how the company can increase production with less equipment. The company plans to increase its production by 15% over the next three years with fewer rigs, as stated in an article posted on Hart Energy’s Unconventional Oil & Gas Center.

Currently, Pioneer has 18 rigs in the Spraberry/Wolfcamp shales, where the company is the largest producer. Since 2011, Pioneer has boosted production in the Permian from 45,000 barrels of oil equivalent per day (boe/d) to 134,000 boe/d in third-quarter 2015, up 13% sequentially. The gains were attributed to horizontal and multiwell pad drilling along with optimized completions, better casing designs and dissolvable plug technologies.

The success has prompted Pioneer to slightly increase its 2015 full-year production forecast for the Spraberry and Wolfcamp area from 22-24% to 25-26%.

“Several of our wells hold records for highest initial production rates delivered from a specific interval,” Pioneer said. “Even better, production data proves many have a resource potential of more than 1 million barrels of oil equivalent each.”

Pioneer’s lateral lengths in the Permian range from 7,500 ft to 10,000 ft across the acreage. When it comes to generating value the longer lengths has payoff potential. In its latest earnings report, Pioneer said horizontal wells drilled in the Wolfcamp B interval with lateral lengths of 10,000 ft generate net present values of about $8 million compared to about $2.3 million generated by wells with lateral lengths of 5,000 ft.

However, that is based on an oil price of $60 per barrel (bbl) and a gas price of $3.25 per thousand cubic feet. As of 10 a.m. on Nov. 11, the price for a barrel of WTI crude was going for about $43.22/bbl, while natural gas was trading at $2.31/MMBtu.

Lower commodity prices have been hitting budgets and denting profits of oil and gas companies, forcing cutbacks, reduced spending and a push toward greater efficiency. Many have said they are planning to slow production and cut spending further in December as the downturn continues.

If the EIA forecast holds true, the Permian region will see higher gas production in December as well. The EIA reported gas production in the Permian could increase by 9 million cubic feet per day (MMcf/d) to about 6.9 billion cubic feet per day (Bcf/d) in December.

The only other region that could see higher production in December, compared to November, is the Utica. Oil production here could increase slightly to 80,000 bbl/d. The Utica is also forecast to produce about 66 MMcf/d more than November, bringing its gas output up to about 3.1 Bcf/d.

Velda Addison can be reached at vaddison@hartenergy.com.