Thread by @BurggrabenH

1/19 We ask: when will Shale "blink" & go into permenant decline?

Our answer: by 2021. Which is why we see a supply gap in 2022.

Here is why, i.e. a brief summary on the Permian from David Hughes' latest report postcarbon.org/how-long-shale…. @drillinginfo @Bob_McNally @kingofcrude

2/ Shale growth is all about the Permian. But there, sweet spots have been defined & are being drilled off. Since 2009, 4 counties out of 61 have accounted for 45% of cumulative oil production of which four counties have accounted for 24%. #oott @ericnuttall @anasalhajji @chigrl

3/ Individual wells in the Permian decline quickly. The average HZ well declines 86% over the first 3 years of well life, so continual drilling is necessary to maintain field production. #oott @HFI_Research @Hedgeye @2020Upstream @staunovo

4/ Overall Permian field decline, incl. legacy wells, is 24% per annum. Assuming every new well produces oil at the most recent 12 months average, 2,121 new wells pa or 51% of the estimated 4,133 wells drilled in 2018 are neeeded to offset field decline. #oott @billpowers1970

5/ At an average cost per well of $7.5m for the Permian, this requires an annual expenditure of $15.9bn just to stay still and keep oil production flat at the current rate of 3 mb/d crude oil. #oott @pisgahpartners @energyaspects @azvalor @PlattsOil

6/ Since 2012, horizontal lateral lengths in the Permian have increased by 59% to an avg of 6,860 feet in 2018, and water and proppant injection has increased by 329% per lateral foot. @RSEnergyGroup @WMALHittle

7/ Total water injection per well in the Permian has increased 585% to 13.2 million gallons from 2012 to 2018. What a waste! As a result, a 2018 well accesses on avg 323% more reservoir rock than a 2012 well. #oott

8/ This has meant large cost-savings for operators but is unlikely to increase the ultimate recovery of the play (or EUR per well). It simply allows the play to be drained with fewer wells. #oott @nigelpm_uk @GNSensay

9/ The limits of increased lateral length and increased water and proppant injection volumes appear to have reached their peak. Horizontal lengths, water and proppant injection have declined slightly in 2018 in the Permian. #oott @RSEnergyGroup @PeakOil @staunovo

10/ Oil production per lateral foot over the first 12 months of well life declined on average in 2016 (most recent full year data available), despite increased volumes of water and proppant injections. Remember, higher IP rates does not mean more oil (EUR). #oott @RystadEnergy

11/ Three of the top four counties declined significantly: Eddy County, the top oil producer, declined by 35% and Midland and Lea counties declined by 5% each. #oott @RSEnergyGroup @Artha_Vidya

12/ Countering this was an increase of 35% in Lea County and an increase of 12% on average in counties outside of the top four. This suggests that in 3 of the top 4 counties, sweet spots are reaching their limites - as Mark Pappa suggested. #oott @Ed_Crooks @RealJohnny_Cage

13/ And so the parent-child problem is manifesting itself: frac-hits from overcrowding wells and/or drilling in lower quality parts of counties has decreased productivity in spite of increased water & propp injections. #oott

14/ However, increased gas production has increased productivity slightly on a boe basis, but hardly on a realized price per boe basis! Hence why we only invest in conventional reservoirs. #oott @ericnuttall @HFI_Research @chigrl

15/ Drilling rates estimated for 2018 will allow significant growth in the overall Permian Basin production. In all, @energyaspects assumes 1.3 mb/d to 12.25 mb/d in 2019, mainly driven by the Permian with 0.8 mb/d. #oott

16/ But declining well productivity as sweet-spots are exhausted will require higher drilling rates and expenditures in the future to maintain growth and offset field decline. #oott @JavierBlas

17/ The latter will need higher oil prices as the times of easy access of capital markets (equity, junk bonds or P/E drillcos) are all but over. After 10y of capital distruction, Wall Street has moved on and will NOT fund a new drilling frenzy from overspend. #oott @adsteel

18/ So, remember, when bad geology meets new technology, it is the geology that wins. So please tell us - when do you think Shale will "blink" and reach its production plateau? Please share this poll. Thank you #oott @Bob_McNally @kingofcrude @RSEnergyGroup @RystadEnergy

19/ If you feel like drilling deeper, please review our presentation that we published (link below). It feels like nothing's changed. Groundhog day?
#OOTT
seekingalpha.com/article/417044…