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In the Oil Business, What Goes Up ALWAYS Comes Down

"We're on the express elevator to hell...going down!"

Private Hudson, from the move, Aliens

Shale oil production in the Eagle Ford peaked in 2015 and that's pretty much all she wrote in S. Texas. Bakken production in the Williston Basin has plateaued the past 12 months and, barring some oil price miracle, that play will soon be peaking and rolling down the hill also.

Folks sent eight rigs to the barn in N. Dakota just last week. Our remaining shale oil eggs in America are all pretty much now in the Permian Basin's basket.

As we can see in the chart above well productivity in both the Delaware and Midland sub-basins of the Permian has been steadily improving since 2013. Sixty seven percent (67%) of the Permian Basin's 3.2 MM BOPD (thru 3.19) from horizontal, shaley carbonate benches now comes from 4,832 wells that started production in 2018. Think about that for a second; its an astounding statistic!

The remaining 1.056 MM BOPD from Permian unconventional sources comes from 16,548 HZ wells drilled since 2009. Those wells average 64 BOPD and you'd absolutely have a cow if you knew how many of those 16,548 wells are making less than 40 BOPD and appear to be on a path to 20% annual decline rates.

Terminal decline rates for wells making <50 BOPD in the Permian Basin

"Look into my eye, Hudson..."

For the all the hubbub about higher IP's and higher productivity the first 24 months of well life, ensuing decline rates from longer laterals, stuffed with more frac sand, are much steeper than we have been led to believe they would be. EUR's reported by shale oil companies in the Permian are therefore vastly exaggerated. Some of us have suspected this for a long time and the Wall Street Journal finally got onto it in January 2019. Its not getting better, it's getting worse...

"Decline rates in Permian wells are accelerating. Continued down-spacing, more intensive completions, higher stimulated rock volumes, and aggressive lift strategies have resulted in positive impacts to early well life productivity, but they may be coming at the expense of late life volumes." Wood MacKenzie, URTeC; July, 2019

"How do I get out of this chickenshit outfit, sir?

"Aggressive lift strategies," by the way, means operators are gutting new wells during flow back, with little regard for pressure preservation, then putting them on high-rate ESP (electrical submersible pumps) as soon as possible. Cash flow is king these days; optimizing ultimate recovery, not.

Above is a chart of Delaware and Midland Sub-Basins in the Permian, Texas and New Mexico, 2008 thru March of 2019, showing month to month oil production declines. First of month to end of month production drops can no longer be slid down, like a day at a water now have to rappel down them.

4,832 wells added in the Permian Basin in 2018 were producing 2,046,032 barrels of oil by year end.

By the end of March 2019 those same 4,832 wells had declined 514,863 BOPD

to 1,531,169 BOPD, or 25.17%. If you happen to be standing behind that sort of well decline you'd get sucked plum off your feet. Lots of analysts like to call this stuff "legacy" decline and its staggering to image what might happen to America's shale oil "revolution" if no more wells were ever drilled...

That won't happen, of course; wells will keep being drilled regardless of profitability. So, what's the point in all this decline hooey?

Its that "type curve" EUR's, derived from shale oil company "surveys" and poor decline curve methodology used by the EIA and the United States Geological Society (USGS) to estimate technically recoverable reserves in the Permian Basin, are now clearly overstated. All those reserve estimates need another second-look and a major adjustment. Downward. America does NOT have the remaining oil resource reserves that we are being led to believe we have.

Clearly somebody needs to get with the President on this because he seems very confused about hydrocarbon "abundance" in America. The more Permian Basin decline rates accelerate the faster the United States needs to be putting the brakes on exporting our last remaining oil resources and the irresponsible act of flaring associated gas from shale oil wells.

"Maybe you haven't been keeping up with current events but we just got our asses kicked, pal!"


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