The Effect of New Drills

So laying down rigs is a pretty popular idea. Makes sense. If you stop drilling, you slow your production. It’s also one of the easiest cuts to be made. If you’re an active operator, all you have to do is…nothing. Ok, that’s not exactly true. You will need to make a PowerPoint explaining why your cash flow is in a nose dive. You might also have to get on a call and explain yourself. No big deal though. In case you haven’t noticed, we’ve got this whole global pandemic thing going on and you get a pass. But I digress…

The purpose of this post is to explore what the net effect of drilling looks like. Specifically, what will a new rig do to the production supply. The drill is towards the very beginning of a wells life, so it is important to note that rigs are not always directly correlated to production. If you’re me though, it is helpful to be able to put some context around the rig reports. That’s what we’ll try to do here.

If you haven’t read it yet, step back and check out our post, The Problem…The Whole Problem. This will give you a good basis for what we’re looking at.

Timeline for New Drills

Wells are being drilled faster than ever. There are very few wells now that take more than a week to drill. Completion times have also decreased over time. However, the practice of drilling without completing the wells became very popular in the last downturn. The first step in understanding the impact of new drills is to understand the timeline. By that I mean the time it takes from when drill hits the ground to when the production hits the market.

First, let’s lay out our search criteria. We’re going to look at the trend over the past 5 years. Additionally, we’re going to limit our search to wells that were spud before June of 2019. The reason we are putting the max date is due to the lag in reporting. If we include more recently drilled wells, the numbers of wells returned gets low and it skews the results. We’re also only showing wells that were spud and had their first reported production since 2015. This helps ensure we are looking at new drills. This will shrink our set, but will help provide the consistency we’re looking for.

Here’s the full set. The chart here shows the count of wells spud over time in this set and is grouped by when the wells started producing.

We went ahead and colored our well spots by vintage as well.

The majority of the periods in our search have over 1000 data points, so we’re pretty comfortable with evaluating these to come up with an overall trend.

Here’s link to the search we’re using – https://app.welldatabase.com/Browse/Public/Index/4ckpN

Now on the the timelines. Here we plot the average days from when a well is spud to when it is completed.

We flipped the well spots to be colored by well type.

What we see here is a trend towards shorter time spans from when wells are being spud to when they’re being completed. Five years ago it was around 200 days and the more recent wells are 120 days. With the amount of DUCs working their way down, it’s logical to see the times starting to shrink.

To get a touch more granular, we’ll whittle the results down to only wells where wells are actively being drilled. We’ll zoom out to catch Alaska as well.

Here’s a link to the search – https://app.welldatabase.com/Browse/Public/Index/YKF0x

So not a real noticeable difference. We’re still looking at around 120 days from when a well is drilled to when it is completed on average. We’ll keep this set though to help with the next steps.

Now let’s look at the days from when a well is completed to when we see production hit the regulatory agencies for this set.

We do see a downward trend here. This could be due to anything from operational efficiencies to changes in strategy with regards to completing multiple wells on a pad before letting them flow. It also could just be a factor of paperwork. With the average hanging around 10 days for the past year, we can just use that.

So now we have our timeline. For every well that is drilled, we will see that production around 130 days later. That means laying down rigs will not have an effect on production until about 4 months from now. That also means that there are thousands of wells in the drilled but not completed state. On the whole, we see about 8,000 DUCs of all types. EIA says ~7,600, so we’re all in the same ballpark. We’ll address completions specifically in another post.

Production

We have established the timeline, so now we’ll iron out the average production for these wells. We could go on for days diving into the details on how to accurately predict production, but for this post we’re going to keep it simple. In WellDatabase, we can just hop over to the State tab and see the type curve by state for the wells in our search. Here’s what we see.

It’s worth pointing out that we are grouping a number of well types, well bore profiles, formations, and more into these numbers. Fortunately, the vast majority of new drills are horizontal oil wells. For this purpose, it’s good enough.

Here’s a table that shows what the average new drill adds to the supply (in barrels of oil per day) by state.

123456789101112
Alaska465822737676682667646628593612599582
California293130302928282726252525
Colorado16527532330123320317115112912410392
Gulf of Mexico211531733442378638273715355635323553332133293249
Louisiana232322201817171414131313
New Mexico552831672547457401349308276252231214
North Dakota715859772683624563491442386349311285
Ohio7695105999181716149413936
Oklahoma79146123998271625549454137
Pennsylvania000000000000
Texas449499427361300263234210190175159151
Utah473528412345286240211182171165147130
West Virginia54129104897662524438322724
Wyoming23229122618215413112010191827569

For the rig count as of 4/17/2020, the affect on total production could look like this.

Aug-20Sep-20Oct-20Nov-20Dec-20Jan-21Feb-21Mar-21Apr-21May-21Jun-21Jul-21
Alaska139424652210202920462000193918851780183617971745
California229248238237231224220217212204200197
Colorado264343985170482137333249274224242070198016491470
Gulf of Mexico359575393958522643696505363157604576003860407564625659655228
Louisiana576578539503450419413362340329329317
New Mexico463706982456416459353836233712293192583323196211581941617978
North Dakota24313292082624523211212311913616688150141311611858105889690
Ohio684853944890822725642546440373347322
Oklahoma1904351429442385196517011488133211831075981899
Pennsylvania877675544433
Texas117126130213111399941997832168559609745474949686456714157939417
Utah2366264220611726142912021055908853824733650
West Virginia54412911043892761620521444378316268236
Wyoming1394174313551094922786718605548491449412
Total235509300922269093242297215332195497177181164362154214142578134935#####

These numbers assume that the new drills are completed along the timeline that we established earlier. Given the current economic environment, that is a very big assumption. These numbers are based on a weekly rig count as well. You can roughly 4x those numbers based on the new wells that are drilled over the course of a month.

The goal of this blog is to highlight how a new drill affects production on average. These numbers are just a snapshot in time as well. However, you can run this same process in WellDatabase at any time to quantify what the rig count means.

We will continue down the path of putting the production pieces together next by looking at completions. Feel free to comment below if you have any questions or additional insights.

Leave a Reply

Your email address will not be published. Required fields are marked *