Permian Basin 2018

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PERMIAN BASIN: PRODUCTION FORECAST 74 | October 2018 | the Bone Spring will exhaust its inventory of top-class locations in the early 2020s. The Bone Spring remains limited by its relatively small areal extent. Breakeven prices for the Wolfcamp are some of the best around. Hence, we refer to this play as the MVP of the Permian. That said, the Wolfcamp Midland is no slouch. In recent years, the play has posted some of the best improvements seen. Hence, the Wolfcamp Midland is our MIP, or most improved play. For those wondering about Alpine High, the play is included with our Wolfcamp Delaware wells. Notably, Alpine High production, while growing rapidly, is a relatively small part of the Wolfcamp Delaware. It is important to remember that Alpine High is only a couple of years old. The play is in the early stages of its life cycle. That said, the play has an ardent champion in Apache Corp. Apache is driving fast and has already invested about a billion dollars on infrastructure alone. Elsewhere, Wolfcamp Delaware operators are building out infrastructure at a rapid pace. Anadarko Petroleum recently announced the startup of its Reeves County Oil Treatment Facility (ROTF) and the imminent startup of a second facility nearby in Loving County. Other operators have installed water recycling facilities. In aggregate, these investments open the door for more efficient and cost effective logistics in the basin. Collectively, the ongoing buildout of infrastructure is key to long- term growth potential. At press time, long- term production rates are tracking toward 6 MMbbl/d due in large part to these and other infrastructure investments. In the Midland, year-on-year production growth is estimated to grow by almost 20%, with year-end production settling at a little more than 1 MMbbl/d. As we mentioned previously, we con- sidered the Wolfcamp Midland the most improved play based on breakeven economic terms. Unfor- tunately, headwinds in the Midland appear to be intensifying due to some extent on bottom- hole conditions. A natural solution to this is to drill longer laterals. Several operators announced intentions to do just that. FIGURE 3. US Spud Trends % of Total Count of API No. (14-digit, formatted) Month of Date: Spud-Main Rig Stratas expects Permian spud activity to closely track recent levels in 2019.

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