RJ Update on oil well productivity - August 16

[dan_s]

New report from Raymond James Equity Research Team
dated 8/16/2021
Exploration and Production: Has U.S. Well Productivity Finally Peaked?

Send me an email if you'd like to see the full report: dmsteffens@comcast.net

Summary:
In years past, our belief was that well productivity was reaching its peak. The "bigger hammer" approach of longer laterals/higher proppant loadings was starting to see diminishing returns. In addition, aggressive downspacing was also resulting in parent/child well interference and thereby causing individual well productivity to suffer. These are both practices borne from the days of double-digit production growth and maximizing location counts (i.e. NAV focus). However, the strategic shift to maximizing free cash flow/shareholder returns has led the industry toward a heightened focus on well productivity. Those efforts have certainly helped absolute well productivity continue to move higher, but on a productivity-per-foot basis we appear to be hitting a wall (other than the Bakken, surprisingly). However, we'll be the first to admit that we made a similar statement a few years ago, only to be proven wrong by an industry that continues to search out and find every last efficiency gain.

Given the meaningful shift in the E&P industry, we wanted to analyze trends related to well spacing, lateral lengths, proppant loadings, and areas of focus to inform our view of well productivity. Much like previous iterations of our well productivity updates, we view productivity on a per-foot basis as the best metric. This time we took a deep dive into each of the major oil producing basins in the U.S. shale industry. The following pages contain further detail/analysis, but some highlights include:

* Absolute well productivity continues to increase, but the main driver appears to be increasing lateral lengths.
* Productivity per foot across all of U.S shale is flat y/y but largely due to growth in the Delaware and Bakken offset by declines in the Eagle Ford, DJ/PRB, and SCOOP/STACK
* Core focused development across all basins, with a higher percentage of wells being drilled in the 'core' compared to prior years.
* Spacing continues to widen in the Permian, the other basins do not paint such a clear picture.