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5 min read

The Effect of New Drills

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.

  1 2 3 4 5 6 7 8 9 10 11 12
Alaska 465 822 737 676 682 667 646 628 593 612 599 582
California 29 31 30 30 29 28 28 27 26 25 25 25
Colorado 165 275 323 301 233 203 171 151 129 124 103 92
Gulf of Mexico 2115 3173 3442 3786 3827 3715 3556 3532 3553 3321 3329 3249
Louisiana 23 23 22 20 18 17 17 14 14 13 13 13
New Mexico 552 831 672 547 457 401 349 308 276 252 231 214
North Dakota 715 859 772 683 624 563 491 442 386 349 311 285
Ohio 76 95 105 99 91 81 71 61 49 41 39 36
Oklahoma 79 146 123 99 82 71 62 55 49 45 41 37
Pennsylvania 0 0 0 0 0 0 0 0 0 0 0 0
Texas 449 499 427 361 300 263 234 210 190 175 159 151
Utah 473 528 412 345 286 240 211 182 171 165 147 130
West Virginia 54 129 104 89 76 62 52 44 38 32 27 24
Wyoming 232 291 226 182 154 131 120 101 91 82 75 69

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

  Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21
Alaska 1394 2465 2210 2029 2046 2000 1939 1885 1780 1836 1797 1745
California 229 248 238 237 231 224 220 217 212 204 200 197
Colorado 2643 4398 5170 4821 3733 3249 2742 2424 2070 1980 1649 1470
Gulf of Mexico 35957 53939 58522 64369 65053 63157 60457 60038 60407 56462 56596 55228
Louisiana 576 578 539 503 450 419 413 362 340 329 329 317
New Mexico 46370 69824 56416 45935 38362 33712 29319 25833 23196 21158 19416 17978
North Dakota 24313 29208 26245 23211 21231 19136 16688 15014 13116 11858 10588 9690
Ohio 684 853 944 890 822 725 642 546 440 373 347 322
Oklahoma 1904 3514 2944 2385 1965 1701 1488 1332 1183 1075 981 899
Pennsylvania 8 7 7 6 7 5 5 4 4 4 3 3
Texas 117126 130213 111399 94199 78321 68559 60974 54749 49686 45671 41579 39417
Utah 2366 2642 2061 1726 1429 1202 1055 908 853 824 733 650
West Virginia 544 1291 1043 892 761 620 521 444 378 316 268 236
Wyoming 1394 1743 1355 1094 922 786 718 605 548 491 449 412
                         
Total 235509 300922 269093 242297 215332 195497 177181 164362 154214 142578 134935 #####

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.

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