The Hamster Wheel

Ted Cross is a geologist, I believe, and heads up public relations at Novi. This graphic above is a recent post of his on Twitter. The graph covers all HZ shale oil production in the United States and shows that 50% of that HZ production is less than 18 months old.

65% of all US shale oil production comes from the Permian Basin, where 61% of production comes from wells less than 18 months old. Wells in the Permian roar in like lions, with no regard for pressure preservation/long term reservoir management, and make US production appear to grow like crazy.

I'm with Mr. Cross, its sort of breathtaking to think that 50% of all HZ tight oil production in the US comes from wells that are just 18 months old.

What "staggers" me, however, is how quickly those new wells now decline. In the chart above, from the mighty Permian, all wells drilled 18 months ago in 2022, by mid 2023 had declined 80%, from 848 BOPD down to 177 BOPD. 2023 wells appear to have even higher decline rates. They come on like lions but it isn't very long before they are getting lamby.

Growth then, is fleeting, to say the least.

If we ever stopped drilling this stuff it'd be gone before you know it, as evidenced by the two charts below, the first from Berman, the second from shaleprofile.com years ago.

Yeah, yeah, I know...we'll never stop drilling this stuff; I got that.

I think.

The thing is, how many more years can we go on drilling one $11 MM shale oil well after another, 24 hours a day, seven days a week? In the same Basin, in the same counties, in the same sweet spots?

Its getting crowded out there, folks...

Midland County

So, when Novi argues that the drilling hamster wheel in US shale oil plays has fewer RPM's today than in 2014...I'm struggling with the meaning of that given the 18 month, 80% decline rates of new, longer laterals stuffed with more sand (dirt) scheme. In the Permian Basin, the only shale basin that matters, the Red Queen is getting bigger, not smaller.

Regardless, as one of my astute readers points out, Novi's chart above may be true but the volume of oil needing replacement in 2024 is much greater. 51% of 4.6 MM BOPD in 2014 was 2.3 MM BOPD, today that number is 44% of 9.3 MM BOPD, or 4.1 MM BOPD.

Its remarkable how close this 5 year old Raymond James chart is to Novi's.

Anyway, try to get your head around the idea that in three years, by 2027, US tight oil production will grow to 12 MM BOPD, not the 9 MM it is now. Thats what the "experts" say. So every year for the next three years we'll have to replace 4.4 +/-MM BOPD before we grow another 1.0 MM BOPD the same year. Man, that is a slew of new wells, most all of which will have to be drilled in the Permian Basin.

Where?

Where is the money going to come from, the frac source water, the steel (there is already enough pipe in the Permian HZ play to go around the earth 15 times)...where are we going to put all the produced water?

I use to drill conventional wells that would payout in 12-18 months and produce 60 years or more, with returns on initial investment of 1,000-2,000%. If I went years without drilling a replacement well, or a step out well, or an infill well to increase my R/P ratio, I was fine. I didn't sweat it and racked back the net revenue for rainy days.

Not these shale fellas. They can't ever stop. For 150-200% rates of return over 12 years. They literally can never take a break.

It's got to be exhausting...

Wore plum out