Read Our Latest Energy Market Insights – Go There >>

DJ Basin Oil Drilling Economics Raising the Bar

Despite languishing prices throughout 2015, producers like Noble (NBL), PDC Energy (PDCE), and Anadarko (APC) continue to invest capital in the DJ Basin at the expense of other regions.  There are several reasons for this, but the main driver is that fact that even from a wellhead economics perspective, the DJ Basin has some of the lowest breakevens not only within these producers’ portfolios, but also in the country.  Looking at wells that were drilled and completed between Jan 2014 and Oct 2015 shows significant portions of the region that breakeven below $35/Bbl wellhead (before transportation and quality adjustments) based on current well $3.7 MM average well cost.  Bonanza Creek (BCEI) and Anadarko lead the way with over two thirds of the wells drilled and completed during this period breaking even at or below $30/Bbl.

DJ Basin Breakevens

In addition to having some of the lowest well costs and shortest drill times in the country, DJ Basin operators have started to increase lateral lengths in order to maximize acreage value.  Using BTU Analytics’ Completions Analyzer to pull lateral lengths, it is easy to see that in 2015, lateral lengths are increasing.  Marrying the lateral length data to initial productions rates (IP), it becomes clear why producers are moving to longer laterals.  Long laterals wells, defined as having a lateral length between 9,000’ and 10,500’, that were drilled between Jan 2014 to 2015YTD show an increase of almost 150% in both oil and gas IP rates compared to short laterals drilled in the same period.  Furthermore, PDCE is estimating that in 2016 its 9,500’ lateral wells will only cost $5.0 MM, compared to a short lateral well cost of $2.9 MM.

DJ Basin Lateral Lengths and IP Rates

As producers continue to grapple with volatile and lower pricing, completion timing will also play a critical role to how producers allocate capital budgets in 2016.  Not only will they be drilling the best acreage within their portfolio and continuing to optimize drilling and completion techniques, but they will also look to properly time working off the large backlog of Drilled and Uncompleted Wells (DUCs) that have accumulated in the DJ.  Using BTU Analytics’ Completions Analyzer, paired with drilling data from RigData, to calculate the ratio of completions to wells drilled for the top five most active producers, shows that each producer has its own completion strategy and obstacles.  For example, Bonanza and Whiting (WLL) both significantly increased completions relative to wells drilled in 2Q2015 to capitalize on the brief stabilization of WTI above $55/Bbl.  The same jump in completions is absent during that period for Noble and Anadarko who were waiting for DCP Midstream’s (DPM) Lucerne II and Anadarko’s Lancaster gas processing plants to be completed to relieve processing constraints.

DJ Basin Completions vs Drilled Ratio

Looking forward, the trend of drilling activity outpacing completions is expected to reverse.  With the latest round of weak oil pricing, producers are quickly reaching a point where aggressively deferring completions in anticipation of higher pricing is becoming increasingly difficult as they try to maintain cash flow from operations. In 2016, BTU Analytics expects that producers will rely heavily on DUCs to hit production targets and to work off much of the inventory built over the last year.

Share This Article

Share on facebook
Share on twitter
Share on linkedin
Erika Coombs is Senior Manager of Energy Markets at BTU Analytics. She leads the team to deliver 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 oversees BTU Analytics’ oil and gas product suite which includes research on upstream, midstream, breakeven economics, and commodity pricing dynamics. She holds an M.S. in Mineral and Energy Economics from the Colorado School of Mines.

Recommended for You

Log In

Energy Market Insights

Receive Free Energy Market Insights When They Are Published