Current Prices Challenge Even the Best Permian Operators

Despite relatively strong balance sheets and ever-improving production results, producers, like Pioneer, in the Permian are finally being forced to slow drilling programs.  Since the initial decrease in activity between December 2014 and April 2015, Permian drilling has remained flat even as areas like the highly economic Eagle Ford has continued to see declines.

Eagle Ford and Permian Horizontal Wells Drilled

The stabilization in activity was driven by producers like EOG, Energen, Diamondback, and Exxon who all increased drilling activity enough in 2015 compared to 2014 to offset slowing activity from other regional producers.

Supporting continued investment in the Permian is a better understanding of the underlying formations and continually improving IP rates for both oil and gas.  Leading the improvements in oil IP rates is the Midland Basin where the average 30-day oil IP rate increased from 457 B/d in 2014 to 572 B/d in 2015.  In Midland County, where Pioneer is the most active operator, the average IP rate in 2015 was 700 B/d, and Pioneer’s IP rate was 885 B/d.  On the gas side, Delaware Texas continues to lead the way with an average 30-day gas IP rate of 1,639 Mcf/d.  Within Delaware Texas, Culberson County has the highest average gas IP rate of 3,811 Mcf/d with Cimarex and Concho leading the way.

Permian 2015 Type Curves

Pairing these stronger well results with lower well costs is helping to drive regional breakevens down in the Permian Basin.  Whereas in 2013, less than 10% of the wells drilled would have been economic at today’s prices, in 2015, that number increased to 40%.

Permian Wellhead Breakeven Distribution

However, for many top producers like Pioneer, at $2.50/MMBtu wellhead gas, the average oil breakeven in the Permian is still closer to $40/Bbl, leaving razor thin margins at today’s prices.  Thus, without higher pricing, further reductions in drilling plans are on the horizon, even for the Permian.

Permian Operator Average Breakeven

For more information on Permian Basin production, request a sample of BTU Analytics’ Upstream Outlook.

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Erika Coombs is Manager of Consulting Services at BTU Analytics. She leads the team to deliver customized energy-market analysis and provides BTU Analytics’ customers with 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. She holds a M.S. in Mineral and Energy Economics from the Colorado School of Mines.

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