Global and Regional MarketsNews

Deloitte study: Optimization could boost Eagle Ford/Permian economics by 19-23%

New findings from Deloitte research suggests that if Eagle Ford and Permian Basin shale operators were to fully optimize their well designs, they could generate capital efficiency gains of 19% and 23%, respectively. This could represent a $24 billion CAPEX saving opportunity for US shale operators to strengthen their balance sheets and boost returns.

“When it comes to efficiency gains, the industry seems presently divided on the outlook for shale wells,” John England, Partner, Oil, Gas and Chemicals, Deloitte & Touche, said. “Some say gains have peaked, but Deloitte’s deepest foray into well-level data analytics revealed actionable insights which can help improve industry performance at a time when both investor sentiment and commodity prices are low. The findings clearly show that a one-size-fits-all approach to well design and completions is wasteful, and that it’s time for the industry to choose the right well design, not the biggest, to maximize efficiencies and profitability.” 

Key findings from the analysis include:

  • Rock quality is important but is not necessarily the main performance differentiator. According to Deloitte’s analysis of all drilled wells in the Eagle Ford and Permian, the ranking of acreage (e.g., Tier 1, Tier 2, Tier 3) does not influence well performance to the extent previously assumed. More than 40% of wells drilled outside the core of the western Delaware area reported initial 180-day normalized productivity of more than 1,000 BOED. In the Eagle Ford, a comparable number of high-performing wells exist across acreage tiers;
  • Bigger is also not always better. The statistical analysis further notes wells drilled over the past two to three years, with complex and intense completion designs (i.e., longer laterals, more proppants, etc) actually led to diminished productivity, explaining some of the concerns from investors and financial markets. During this period, more than 3,000 wells that were completed with massive volumes of proppant (in excess of 1,800 lb/ft) yielded productivity below 750 BOED per 10,000 ft of perforated interval. Despite an increase in completion intensity of more than 40%, approximately 50% of US horizontal wells had the normalized 180-day productivity of below 750 BOED in the past four years;
  • Optimizing well designs can boost capital efficiency. Deloitte found approximately 67% of wells in the Permian have been under- or over-engineered. A more balanced formation-and-engineering equation could improve the capital efficiency of Permian operators by approximately 23%. Similarly, approximately 60% of Eagle Ford wells have been under- or over-engineered. An optimal completion design strategy could increase capital efficiency of Eagle Ford operators by 19%;
  • $24 billion could be at stake via optimization. Improving well designs has the potential for US shale drillers to reduce capital requirements by $24 billion. If achieved, E&Ps could achieve economic targets in a broader range of price scenarios and thereby revive investor interest, per the analysis; and
  • To succeed, shale companies can utilize more sophisticated data analytics and balance experimentation and standardization. Technology is king, and knowing the reservoir is critical. Therefore, E&Ps should consider investing in advanced technologies such as microseismic monitoring, fluid tracking and tracer analytics, among others, to understand how and why the reservoir is behaving in a certain fashion and then augment the development approach.

Optimizing well designs is an important priority, but the industry shouldn’t stop there, Deloitte notes. To make truly sustainable improvements and build resiliency against future price cycles, operators should work with all stakeholders in the oil and gas ecosystem. For example, E&Ps should co-share the productivity benefits with oilfield service companies, and design new win-win contractual arrangements with infrastructure providers.

Importantly, E&Ps should also win back investors’ trust through more consistent transparency and reporting details of performance. Companies should standardize how they report well results and look to third parties to help. Large institutional investors, energy agencies, and shale industry associations along with data aggregators could play a big role in standardizing performance benchmarks for the shale industry and its investors.

“Even though we’re over 10 years into the shale era, the industry is actually in the early stages of understanding. As with any new resource, the early phase of growth is also the initial phase of evolution and experimentation,” Scott Sanderson, Principal, Deloitte’s oil and gas strategy and operations practice, said. “Now we are more aware of the challenges facing the viability of shales, and brute force is not necessarily the answer. E&Ps should use analytic insights like this to course-correct both operational tasks and commercial arrangements to bring sustainable benefits to shareholders and the extended oil and gas ecosystem.”

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button