Shale's Shrinking Red Queen?

Dear Subscriber,

This week, we want to remind you of our upcoming webinar featuring Ted Cross, who will delve deep into our latest data product update: Novi's Automated PDP Forecasts. Secure your spot by registering here!

In addition, we're thrilled to share that it's been a dynamic week for us as our Netherlands and US teams joined forces to work on new things for you.

Continuing our theme from previous newsletters, our VP of Product Management, Ted Cross, presents two must-reads: "Shale's Shrinking Red Queen?" and "The Kevin Durant of Oil and Gas?"

But wait, there's more! We're eager to highlight how Novi is empowering our customers in their decision-making processes with invaluable insights in a snippet of the Wicked Energy Podcast.

[Webinar] Novi's Automated PDP Forecast

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Witness firsthand how we're reshaping asset screening and valuation in the industry.

Shale's Shrinking Red Queen?

The "Red Queen Effect" is a concept related in Alice in Wonderland: "It takes all the running you can do, to keep in the same place.*" The metaphor has been applied to shale to describe the need to continuously drill to maintain production, a natural consequence of shale wells' high decline.

In our discussions with clients, we routinely hear this brought up as a concern, often in conjunction with fears of an inventory wall that could cause shale production to plummet.

So why are we still optimistic about the future of shale? We have written at length about emerging plays and depth of inventory (especially in the Permian), but one little-discussed item is the changing makeup of our base production wedge.Yes, shale wells decline rapidly early in life, but those declines moderate as they age, settling in somewhere between 5% and 10% per year. As the collective population of shale wells gets older and older, the "base decline" gets lower and lower.

At the end of 2023, only 43% of production came from wells drilled in 2023, a number which seems large until you compare it to previous highs like the end of 2014, when 63% of production was from new wells. The base decline rate has followed, from 51% annually in 2014 down to 44% today.For older plays, the numbers moderate even further. The Bakken was able to post impressive growth in 2023 in part because wells in the play from 2022 and before only declined 33% in aggregate.

By the way for gas, the base decline is way lower--we are modeling just under 30% for our current population of shale wells in L48. That's a major reason why US shale gas production is 13 BCF/d higher than pre-COVID.

*technically the quote is from "Through the Looking-Glass", Lewis Carroll's sequel to "Alice in Wonderland"

The Kevin Durant of Oil and Gas?

For years, the NBA player Kevin Durant has been famous for scoring at a high volume WITH high accuracy. When I shared our operator oil productivity chart, many people brought this up – it’s not just per-well performance, it’s well count. Sow how do Lower 48 operators stack up?

Here, I’m plotting per-well average performance (1 year cumulative oil production) vs. well count, with each dot representing those numbers for a given operator and basin (the color). For our NBA comp, "shooting percentage" would be on the y-axis, and "shots taken" on the x-axis. Top acreage quality can average out over a larger area, and it's more of a challenge to optimize a thousand-well program than it is thirty!

Presenting the data this way, you can see that it’s difficult to have top productivity while drilling a lot of wells, but there are some notable performers. All operators at the ‘frontier’ are Permian, with Kaiser-Francis, Oxy, EOG, and Pioneer leading at their respective well count tranches. Generally, the Delaware operators rank above the others, though operators from the Midland, Williston, Uinta, Eagle Ford, and Utica all rate well.

From this chart, you can see why operators with DJ basin in their portfolio drop compared to the other basins (see the teal group highlighted with the oval). Economics in the basin are great with low well costs, but per-well performance really lags, especially when looking at oil alone. This is why Oxy and Chevron didn’t show up in the top oil productivity chart!

There are many ways to evaluate well performance, and this is just one of them. Nevertheless, very interesting!

[Podcast] Wicked Energy Podcast

Unlocking actionable insights from engineering analytics data is the key to success.

Learn how at Novi we're rolling out new advanced insights to empower our customers.

Novi's Team Meeting

Wrapping up an incredible reunion in Austin with the Novi Team!

Our Netherlands and US teams have spent the past three days collaborating, innovating, and making memories together.

From insightful sessions to eating a lot of tacos and enjoying amazing views from the Capitol cruise.

Get ready for what we are preparing!

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Book your personalized demo with our team: https://novilabs.com/request-for-demo/