Shale Oil Is Growing on Trees Again
Just like goats.
Break evens are now down to $35 in many places. Everywhere shalecos are finding drillable locations they never had before, more free cash flow, greater efficiency with fewer rigs, fewer burdensome regulations, more take away, more export facilities, new proppant, AI directed frac technology, new record production highs and guidance for 2026 that is going thru the roof...regardless of oil and gas prices! One press release after another, every hour, on the hour.
It's, it's...a miracle.
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Some of the remaining drillable location stuff I'm reading these days for the Delaware Basin is plumb nuts. Anywhere between 35,000 more profitable locations to 125,000, depending on product prices, which is always the caveat, isn't it? The tight oil sector can do anything as long as there is enough money to be made.
Something like one third of all the rigs running in the Permian right now and over half the rigs running in the Delaware Basin are located in Lea and Eddy Counties in New Mexico. The Texas side of the Delaware has been in decline since 2021. Its over-cooked. When the little button pops out of the New Mexico turkey indicating its done, so will the Permian be done.
Above is a current Novi lease hold map for the Delaware Basin and as I have proven to you with overlaying HZ well location maps, the leasehold map represents the productive limits of HZ unconventional play in the Delaware. There are close to 25,000 HZ wells currently in the play and new well productivity is declining in each of the primary pay benches, the Wolfcamp A and Bone Springs 2 and 3. Pressure depletion is underway there, which I will get to later; in many ways parent/child interference and ensuing rock degradation is just as bad over here as it is back east in the Midland.
There are physical limitations to there being 15 more years of future drilling in New Mexico, stuff like flaring gas, which they can't do, injecting produced water, which they can't do, nuclear waste dumps; minor stuff like that. Oh, and potash set asides.
O&G leasing restrictions in potash areas are right dead center of the best Bone Springs/Wolfcamp wells there are in Eddy and Lea County. The hydrocarbons under those mines can be leased but the Lessor cannot access those minerals from the surface. So, the big boys are drilling laterals as far under the restricted areas as they can reach. There has been some new easing of surface restrictions of late, to create little islands where rigs can be packed in like sardines; we'll see how that works. In the leasehold map above you can see where accessing hydrocarbons is a problem.
I wrote a few days about $50MM Federal BLM lease bonus paid for 280 acres, a ten-year term; that might have actually been for one of these drilling "islands," I don't know.
Exxon, I think has a lot of potash stuff leased, and it's going to have to figure out a way to drill six-mile laterals to get to it. It's having trouble with 4-mile laterals at the moment. They kinda suck.
One of the reasons that pressure depletion is just as prevalent in the Delaware is that 48% of all the HZ wells drilled in the Basin are Bone Springs wells and that is an entirely different beast that Wolfcamp mudstone (shale). Bone Springs has a lot of 25% porosity in it and those wells drain much bigger areas. Lots of Bone Springs wells are known to have up to 35-40% recovery rates of OIP in them...if they are actually producing in zone, from an isolated zone. There are some significant vertical communication problems with the two lower BS benches.
If water has a negative effect on the Delaware Basin's future, they have BIG problem out there. Yipes.