“All Permian, all the time” has increasingly become an industry mantra over the past couple of years, with Scoop/Stack thrown in. And with the Permian’s seemingly bottomless inventory pit of stacked pays, that’s unlikely to change. What’s the potential lifespan of its resources, and could this depress oil prices?
Recently, Bernstein Research’s Bob Brackett led an effort to define the Permian’s inventory—an amount the analysts termed “truly hard to fathom…but we tried.” The basin hosts multiple targets, but the key—or at least a critical key—is how many will work in various locations. The analysts looked at two cases: one where all horizons work, and one where just one horizon works at each location.
In the first hypothetical case, every layer works at every point in the basin, with the result of “near-infinite inventory.” In the second case, only one layer works at every point in the basin, and the Permian is a “one-shot-on-goal” play, making it more akin to the Eagle Ford, according to the report.
The analysts broke the basin into 1,000-acre boxes, identified those with more than 10 wells and showed the peak rate of each well in the boxes by depth. They then compared the difference in thickness from the top-most to the bottom-most well.
“The punchline is that although the Permian targets vary with depth across the basin, the interval over which it works in any given location is greater than 1,000 ft and even greater than 3,000 ft in places,” the analysts said. “And the industry hasn’t completed the process of de-risking up and down.”
Just taking into account the boxes that have already been tested with horizontals, and figuring on a “very conservative view” of 18 wells per section, the analysts estimated at least 100,000 drilling locations, or “40 years of inventory at either the 2016 drilling pace or even 2014 drilling pace.”
And despite all the drilling that’s been done, producers have still only put down about five wells per section, Bernstein noted.
“So our scary conclusion is that we see 100,000 to 200,000 targets yielding 0.2 to 0.5 million barrels of oil for a grand total of 20 billion to 100 billion barrels of oil recoverable [out of an in-place resource of one quarter of a million to 1 trillion],” they said.
This is an echo of the Marcellus Shale’s enormous potential. So, like the Marcellus, will the Permian’s inventory depress prices? The analysts are bullish regarding their expectations for oil prices longer-term, and they point out that regardless of whether prices are strong or weak, Permian producers stand to benefit because they will be the ones offering up that oil.
To this point, the analysts looked separately at whether the market could absorb the Permian bounty over time, using data points from past annual supply, whether from particular countries, cartel moves, massive new fields, demand, or other factors. All were significantly greater volumes than they expect the Permian to deliver this year or in 2018. They noted that such massive growth has no predictive power on prices because there are “too many other moving parts.”
They think there is “clearly room for Permian growth into the market” as long as non-U.S. and non-OPEC production struggles, OPEC maintains discipline, and robust demand continues.
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