What Happened In 2023 Ain't Gonna Happen Again !
2023 was a big year for US tight oil production, particularly in the Permian Basin. It surpised lots of folks and the "buzz words" were the same hooey we've heard for 13 years... better technology and fewer rigs producing more oil.
Don't buy it. Rigs just drill holes in the ground.
Approximately 24% of all tight oil wells drilled in the Permian in 2023 were longer than 11,000 feet (Enverus, etal).
In spite of these longer laterals, more densely spaced perforations stuffed with more dirt, liquids productivity has been going down over whatever time frame you wish, even, we have to assume, EUR's.
Because of new, cash-flow-at-all-cost well designs, what use to be 53% first year decline rates in the Permian, are now 74%. The new stuff getting completed in 2023 was going out the back door (as in declining) almost as fast as it was coming in the front.
Rig counts started down, seriously, in May. Frac spreads yo-yo'd but for the most part stayed high and total completions in the Permian stayed high thru 3Q23. I don't think more wells were being drilled with fewer rigs nor do I believe longer laterals were the cause for the production surprise. I can't find any news, published or on the ground, of any knew new earth shattering technology...they stuff new wells with as much dirt as they can and produce 'em wide open.
It was DUC's that caused the big 2023 surpise in production.
You may click the image(s) to enlarge it
This is a very cool chart, above. There is LOT to learn from this chart.
Notice how fast DUC's were deducted from inventory, YOY-3Q22 to 3Q2023. I estimate 525 DUC's were completed in the Perman Basin during that time frame and at 170,000 BO average recovery rate at month 12 (Novi, IHS. right) that would have added 244,520 BOPD to 2023 production growth.
East Daley Analytics forecasts Permian oil production exited the year at 6,185 Mb/d, up 560 Mb/d (10%) from YE22 production of 5,625 Mb/d and a record high.
In other words, almost half the astounding Permian growth in 2023... came from DUC's and had little to di with technology or greater rig "efficiencies." Thats dumb...like this article from oilprice.com:
In the Novi DUC chart above, notice how steep DUC decline was in core counties I have identified from 3Q22 to 3Q23. The highest producing counties, like Lea, Eddy, Midland and Martin completed the most DUC's.
Notice how little decline in DUC's there were, for instance in Reeves. Reagan, Upton and Ward counties. Those are core counties in both sub basins. The number of DUC's in those core counties has been fairly constant for years, even in 2021 when oil was pushing $95 and natgas was $6. In 2023 the average price of oil was over $70. If a DUC was a good source of immediate cash flow, put on line of half the costs, it would have been completed by now, guaronteed. The great majority of DUC's are really TA'd wells likely awaiting more capital for side tracks or are on standby for the 'ol cement tombsone.
Notice how many DUC's there are in the goat pasture outside the core areas. Notice how many DUC's there are on the Central Platform, which are likely in short-lateral conventional benches. Those DUC's need $1o0/$6, sustained.
So, whats the point?
There use to be thousands of affordable, profitable DUC's that could be completed and that might account for future growth spurts in the Permian Basin going forward. No mas. They are gone. There may still be a thousand and change on the books but less than 25% of these DUC's are actually usable, I'm bettin'. DUC's played a vital role in the ability to book assets for reserve base lending paractices; thats all pretty much history now and there is no longer incentives to stack thousands of DUC's in inventory. With no more OPM, and those damn dividends to pay, cash flow is King !
Don't expect a lot more suprises to the upside anymore. Just the opposite.
The heart of the Permian Basin watermelon has been chomped.
