Permian Basin 2018

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PERMIAN BASIN: MIDSTREAM 68 | October 2018 | to run four more rigs in the basin as it gears up for more high-intensity completions for some of its wells. John Freeman, an analyst from Raymond James & Associates, asked about the cadence of DUCs being worked down in 2019. "Our typical spud-to-POP timing is going to be, say, 150 to 170 days on a three-well pad. You can see that we're talking five months," Pioneer CEO Timothy Dove said. "So we really won't even be completing wells until probably January from the additional rigs. … It'll affect the cadence of 2019 POPs basically or DUCs. We'll start to reduce that count of DUCs starting early next year." Others like Noble Energy are also adjusting completion activity as they work to secure long- term out-of-basin takeaway capacity to the Gulf Coast with export opportunities. "Our decision to moderate some of our com- pletion activity in the near term aligns with the timing of additional takeaway capacity later next year," Gary Willingham, executive vice president of operations for Noble, said on the company's latest earnings call. "This deferral of activity also provides the opportunity to transition our development utilizing the row concept, slightly earlier than we originally planned. Our row-style development mit- igates the potential for interference that has been faced by multiple operators across multiple basins." Coping Companies with less exposure to pipeline bottle- necks are typically the largest operators that have a greater share of firm transportation commitments, according to Abramov. To cope with infrastructure constraints, most operators have focused on securing growth through such commitments with gatherers and pipeline owners. For those unable to secure all volumes, long-haul trucking combined with crude-by-rail are seen as temporary relief—something some gather- ers have already built toward Wichita Falls and the Gulf Coast, Abramov said. "So Permian Basin oil production is not stuck at all," he said. "It will continue growing, but the pace of growth will likely slow down a bit. … The main relief will come in second-half 2019 when 2 million barrels per day of pipeline capacity is expected to be added." In the meantime, Rystad hasn't noticed any Permian players lowering production guidance due to pipeline constraints. And, shutting in wells is a last resort, he added. However, a "few operators indeed decided to prioritize development of other plays this year (mainly applies to those who have competitive acreage quality in other basins), but overall indus- try sentiment remains as follows: 'If I have acreage in the core are of the Permian, upside potential is yet to be seen amid significant multistack poten- tial yet to be unlocked, so I will continue focusing on the Permian.'" The main implication of the massive DUC buildup is the ability to ramp up production quickly when significant takeaway capac- ity expansion happens in second-half 2019, Abramov said. "This will require some additions on pressure pumping side, but service compa- nies and proppant suppliers have one year to prepare for this properly on both labor and equipment side." As for whether delayed completions could lead to well productivity issues later Abramov doesn't believe that will be a problem. Citing the downturn of 2015-2016 as an example, Abramov explained how some major operators in the Bakken, Den- ver-Julesburg Basin and Eagle Ford delayed a signif- icant number of completions. "Most of these wells were completed in second-half 2016 to 2017 with modern completion techniques performing as well as new drilled wells when controlling for acreage quality," he said. Q "Since first-quarter 2018 we started observing somewhat abnormal DUC buildup in the Permian Basin. Some of these delayed completions (especially for small private operators and new entrants) are clearly related to severe pipeline bottlenecks." — Artem Abramov, Rystad Energy

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