WoodMac: Bone Spring, Wolfcamp will drive Permian growth

Wood Mackenzie

Total Capex in both plays to reach US$22 billion in 2018

Horizontal drilling is successfully unlocking the production growth potential of the mature Permian basin according to Wood Mackenzie’s new in-depth analysis on the key plays in North America. The new analysis highlights two plays that will drive production growth in the region - the Bone Spring and the Wolfcamp. Wood Mackenzie estimates that together the plays will produce over 1 million barrels of oil equivalent per day (MMboe/d) by 2018 – 38% of total Permian production. The amount of capital invested annually in both combined is also set to grow to reach US$22 billion in 2018 from just US$14 billion in 2013.

"We estimate that production from the Bone Spring alone will more than double to exceed 600,000 boe/d by 2018 and that this will be 70% liquids," said Benjamin Shattuck an upstream analyst who concentrates on in-depth analysis of the Permian basin.

"And there is still work to be done in the Bone Spring. Only 11% of the capex required to fully develop the play has been spent, and another US$145 billion is still to be invested in its development," explained Shattuck.

Wood Mackenzie believes that a play can only be effectively analyzed if it is broken into sub-areas that each display different attributes. The Bone Spring is split into four distinct sub-plays, with the Pecos River and the Northwest Shelf regions generating the highest returns and the lowest average breakevens per well of US$70/bbl and under.

Legacy positions and the benefit of proprietary knowledge allow companies such as Concho, Devon, Anadarko, and Cimarex to dominate production. But Apache, Chevron, Occidental Petroleum, BHP Billiton and ConocoPhillips are expected to ramp-up activity to lead production growth over the next five years.

In the Delaware Basin, the development of the Wolfcamp play has been slow, due the presence of the shallower and more productive Bone Spring play which successfully competes for capital. "However, in the Midland Basin, the Wolfcamp has moved out of its pilot phase and into full-scale development and we expect play-wide production to reach 400,000 boe/d in 2018," explained Shattuck.

"By 2018, we also expect annual Wolfcamp spend to more than double to over US$11 billion," noted Shattuck. "And only 3.5% of the total capex required to develop the play has been spent so far, leaving at least another US$75 billion to be invested."

Of Wood Mackenzie's five Wolfcamp sub-plays, the Ozona Arch area in the southern Midland basin is the most attractive, with an average per well breakeven of US$66/bbl.  Operators with acreage in this area will outperform the competition, due to repeatable liquids production from the B-bench and the upside potential of the A- and C-benches.  In contrast, the Cline is an emerging opportunity that stretches onto the Eastern Slope northeast of the Ozona Arch area, but operators are still working on cracking the code by experimenting with lateral lengths and completion techniques.

Even though deal flow in the Permian has been muted, Wood Mackenzie expects to see activity pick up pace. Shattuck noted that "JVs and smaller scale consolidation are the most likely deal types, as operators move into full scale development mode. But the Wolfcamp and Bone Spring's complexity and uncertainty around the ultimate potential of other stacked producing formations could deter some potential entrants.  Even seasoned unconventional operators require 15 to 20 wells to successfully climb the learning curve." 

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