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Powder River Oil, Ready to Fight in Low-Price Environment

Back in August, BTU Analytics wrote about Rockies gas production benefiting from increased drilling for oil in the Powder River Basin (PRB).  Today, we wanted to take a quick foray back into Wyoming to look at some excellent oil production results in the Powder River and why this means that the Powder River should not be written off, even with the recent weakness in WTI.

It should come as no surprise that Converse and Campbell counties boast the highest oil IP rates in the Powder River Basin in Wyoming.  After all, almost 90% of the oil wells drilled in the basin in 2014 were drilled in these two counties.  In Campbell County, the average horizontal IP rate in 2014 increased to 447 b/d from average of 397 b/d in 2013.  In Converse County, the average Horizontal IP rate declined slightly from 429 b/d to 407 b/d.

Powder River Horizontal IP Rates by County

The major players in Campbell County include Devon, EOG and Yates.  Within Campbell County, the Turner, Parkman, and Shannon formations are the primary targets.  The Parkman formation lies about 6,900 to 7,500 ft below the surface compared to the Shannon formation at 8,000 to 8,700 ft and the Turner formation which has a depth closer to 9,000 to 9,800 ft.  To date in 2014, the average oil IP rate for wells targeting the Parkman formation has been 620 b/d which is significantly higher than the Campbell County average of 447 b/d.

Yates and Devon have shown the best well results, averaging 964 b/d and 848 b/d, respectively.  Preliminary data shows that the new Parkman wells in 2014 have a significantly steeper decline, at 74%, in the first six months rather than 65% for wells drilled in 2013, but it is still uncertain whether the second six months decline will be any steeper than previous wells.

Parkman & Turner Hz Oil Decline Curves

Parkman & Turner Horizontal Oil Decline Curves

However, all else being equal, these new high-IP rate wells should contribute significantly to producer economics, helping Powder River production grow despite a lower price environment. In fact, due to relatively low well costs that range from $5 million to $7 million per well, and an average oil IP rate of nearly 600 b/d, the newest Parkman wells stack up very nicely against average wellhead economics from other production regions in the Rockies.  Even with wellhead prices of $60 oil and $4 gas, producers like Devon, who have drilled several wells this year with oil IP rates in excess of the 580 b/d IP rates modeled here, are likely to be receiving over a 30% IRR for their Parkman wells.

As a result, BTU Analytics has not written off the Powder River yet, and neither should you.  If Devon, Yates, EOG and others are able to repeat their results, the Powder River could grow oil production for the coming years.  For more information on our production outlook for the region, see our 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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