2018 Permian Production Trajectory Impacted by Changing Spud-to-Sale Times

January 11th, 2018 |

Permian producers shifting towards development mode have been advocating the efficiency gained by drilling larger pads. Pad drilling allows producers to cut down on individual well costs through decreased downtime of rigs and crews as well as through shared facility costs. Pad drilling is a logical step in oil and gas development, but does have an impact to production and cash flow timing due to its impact on spud-to-sale times.

The chart below shows a comparison of potential oil and gas production profiles in the Permian Basin using current rig activity and differences in spud-to-sale times. Neither of these scenarios represents BTU Analytics’ official Permian production forecasts, which take into account additional considerations such as  infrastructure constraints, DUCs, commodity prices, etc.

Incorporating a 6-month spud-to-sale time results in a dramatic difference in average 2018 gas and oil production of 1 Bcf/d and 367 Mb/d, respectively. In a play where oil, gas, and NGL pipeline constraints loom on the horizon, forecasting the timing and magnitude of production growth is paramount. Thus, understanding changing spud-to-sale time dynamics is critical to correctly forecasting Permian Basin production growth in 2018.

Today, BTU Analytics estimates that 85% of wells in the Midland and 65% of wells in the Delaware were drilled on a pad in 2017. Compare this to the DJ Basin and the Bakken, both much older horizontal plays, where pad drilling accounts for 96% and 94% of horizontal drilling, respectively.

As more Permian producers shift to pad drilling and increase the size of their well pads in 2018, BTU Analytics expects average spud-to-sale times to increase. To estimate by just how much, let’s examine data on single-well spud-to-sale times in 2017 and the size of well pads in the Permian. The Delaware Basin had the longest drill time of 24 days compared to 17 days in the Midland and just 7 days in the DJ Basin. Layer on completion time and the average spud-to-sale time in the Delaware Basin was 36 days in 2017. This does not include any downtime to move rigs, crews, and equipment between well sites or the time to tie into midstream systems.

Extrapolating these single-well drilling and completion times to multi-well pad shows that in the Midland and Delaware basins, a 3-well pad would have an average spud-to-sale time of 3 months compared to 2 years for a 20-well pad (assuming only 1 rig and 1 completion crew per pad). Historical data shows that the maximum pad size drilled in the Permian to date was over 30 wells. However, the average pad size for 2017 remains closer to three wells with 95% of pads having five or fewer wells.  As producers continue to shift to drilling larger pads, correctly estimating changing spud-to-sale times will be increasingly important to production forecasting and understanding the timing of impending infrastructure constraints in the Permian.

For BTU Analytics’ proprietary Permian Basin production outlook which accounts for changing spud-to-sale times, infrastructure constraints, economics, and prices request a sample of our Upstream Outlook Report.

Author: Erika Coombs

Erika Coombs is a Senior Energy Analyst and manages BTU Analytics’ consulting practice. The consulting team delivers customized energy-market analysis to BTU Analytics’ customers, providing critical information for a variety of energy markets including oil, gas, and NGLs from wellhead to downstream markets. She also leads research on upstream analysis, crude oil midstream infrastructure, breakeven economics, and commodity pricing dynamics for several BTU Analytics’ reports. Prior to joining BTU Analytics, Erika was a lead oil analyst at Bentek Energy. She holds a M.S. in Mineral and Energy Economics from the Colorado School of Mines