The return on investment from oil and gas wells in the most popular shale hotspot in the Permian Delaware basin peaked in 2017, according to a new study by Rystad Energy, an energy research and business intelligence company.
To better understand the profitability of modern shale wells across the most prospective U.S. liquid basin, Rystad Energy analyzed the historical well vintages in the Wolfcamp A zone in the Delaware Basin from 2014 to 2018.
At first glance, these Delaware wells seem like a sure bet for investors, providing over 20-percent net return on average. However, the corporate-level financials don’t tell investors the whole story, which is why Rystad Energy has begun analyzing wells by their “vintage”—an aggregate sum of the wells that were brought into production in a single year.
“It will be a tall order for Wolfcamp operators to beat their 2017 after-tax well results. The 2017 vintage was arguably the best in the history of the Delaware Wolfcamp A play, and it also got a boost by higher oil prices in 2018,” says Artem Abramov, head of shale research at Rystad Energy. “In turn, the vintage from 2018 faced both modest service cost inflation and a decline in oil prices throughout the fourth quarter of 2018, which resulted in a degradation of after-tax returns. Nevertheless, they remained at a level of 20 percent and above, with overhead costs included.”
While the vintages from 2014 and 2015 have already recovered a major part of their lifetime present value and cash flows, this is not yet the case for more recent vintages.