In 2017, Permian E&Ps began to actively downspace wells in the Delaware and Midland basins, believing that would increase productivity.
According to BTU Analytics, in the Delaware, well spacing went from 979 feet in 2016 to 675 feet in 2018. Average Midland spacing dropped from 601 feet in 2016 to 547 feet in 2018. However, this did not lead to the hoped-for jump in productivity.
BTU Analytics reported that “In the Delaware, where well spacing has tightened much quicker than in the Midland, productivity on a per lateral foot basis declined across the basin in 2017 and 2018 relative to 2016. . . . initial production rates per 1,000’ lateral were 6% lower in 2017 and 10% lower in 2018 compared to 2016. In addition, EUR per 1,000’ lateral after 12 months of production is 9-10% lower in 2017 and 2018 wells compared to 2016 wells. However, while productivity per lateral foot has declined, well productivity has actually increased as longer lateral lengths have helped offset the declines in productivity per lateral foot.”
That decline in productivity per lateral foot has led some companies to reverse course and increase spacing. For instance, Laredo Petroleum announced it had lower productivity in the more tightly spaced wells and would be increasing the spacing.
One cause for concern with this reversal is the fate of Permian Drilled but Uncompleted Wells (DUCs). DUCs almost tripled from 600 in 2016 to 1,800 at the end of 2018.
“This has raised concerns that the large backlog of DUCs may be primarily composed of potentially under-performing wells,” BTU Analytics wrote. “While some operators who aggressively downspaced saw an increase in DUCs (Apache, Cimarex, Concho), others had few, if any DUCs added in 2018 (Laredo, WPX). In addition, most 2018 DUCs were drilled in the second half of 2018. This likely indicates that this increase was tied to the increased pace of drilling activity in 2018 rather than the impact of poor well performance results.
“Additionally, operators in the gassier portions of the Permian such as Cimarex have seen their DUCs increase as percentage of the wells drilled. Indicating that some of these operators may have held off completions in the weak natural gas and oil pricing environment at the end of 2019. So while operators are shifting strategy on spacing for new development, it seems likely that as operators cut rigs from the field, the DUCs already in place will get worked through to help meet production guidance while spending less money on drilling.”