Production from the average US shale oil well is declining more rapidly every year, with the biggest losses by far in the Delaware Basin, according to a report from Enverus.
Increasing rapid declines by many thousands of older wells are obscured by the rise in total production from new wells as the industry engineers completions to maximize early production.
On a chart comparing average decline curves by year, each year begins higher and plunges at a steeper rate than the previous year.
“The US shale industry has been massively successful, roughly doubling the production out of the average oil well over the last decade, but that trend has slowed in recent years,” said Dane Gregoris, report author and managing director at Enverus Intelligence Research.
The production decline rate has grown steeper at a rate of more than 0.5% annually since 2010, the report said.
“We’ve observed that decline curves, meaning the rate at which production falls over time, are getting steeper as well density increases. Summed up, the industry’s treadmill is speeding up and this will make production growth more difficult than it was in the past,” Gregoris said.
The steepest declines are seen the Permian’s Delaware Basin, where the annual drop is nearly triple the 0.4% rate in the Midland Basin.
The report predicts declines will continue to accelerate because every well added within a section significantly steepens the decline rate for wells in that area.
The fact that new wells produce less than older ones is not a surprise. Historically, infill wells are less productive than the initial ones.
But if the decline curves on these already short-lived wells gets steeper, that will magnify the challenge of drilling and fracturing enough wells to deliver on predictions of continued growth.
More-intensive fracturing and tighter spacing can maximize the initial rate of production which represents much of the ultimate production of these short-lived wells.
After years of intensive development, the vast majority of the wells drilled now are near older ones that have depleted the surrounding reservoir, reducing the production from new wells.
Generally, the Permian’s profile is looking more like other oil-rich shale plays where development began sooner and there was far less to develop than in the Permian Basin.
Rapid declines will push up the breakeven oil price needed for new oil wells by reducing the potential production and revenue of these wells which are well on their way to becoming gas-only producers.
While gas will provide steady cash flow, it is worth less than oil, even in periods when the value of gas is not depressed as it has been recently.
Enverus still expects continued drilling will allow US oil production growth, but accelerating declines will limit how high that can go.
While the struggle to eke out production from infill wells is a popular topic for SPE papers, the numbers in this report—most of which are restricted to paying customers—offer a graphable assessment of the problem.
The US Energy Information Administration (EIA) Drilling Productivity Report for August said production added by new Permian wells will be 3,000 B/D short of the production declines from older wells. The 1-month snapshot in this volatile sector does not change the EIA’s Permian production growth prediction for the year.
But the new-well gains that have allowed growth now seem increasingly hard to come by. The EIA said that current new-well productivity is less that the high reached in 2021.
It attributed the strong new-well numbers that year to operators limiting development to the best wells during a year when tight budgets set after the 2020 COVID-19 pandemic oil-price crash limited development to only the best spots.
Looking ahead, the EIA predicts higher oil prices, which could spark more well development. A drilling rebound will depend on whether oil prices are high enough to justify increased spending.
A recent survey of oilfield experts by the Federal Reserve Bank of Kansas City concluded that a barrel of oil (West Texas Intermediate) would need to be worth $86 to justify a substantial increase in drilling. That price is higher than the price on 15 August, though the EIA Short-Term Outlook said it could get there by year end.
