PREVIEW FundamentalEdge Report April 2018

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Transcription:

THE PERMIAN BASIN PREVIEW FundamentalEdge Report April 2018 learn more at drillinginfo.com

Contents This is a PREVIEW of a 40+ Page Report INTRODUCTION AND KEY TAKEAWAYS 03 UPSTREAM ANALYSIS 04 Rig Count 05 DUCs 08 Breakevens for Key Producers 09 Efficiencies (IP and Cost Sensitivities) 11 Frac Activity 13 INFRASTRUCTURE UPDATE 17 Crude Oil Pipelines 19 Natural Gas Pipelines and Basis 22 NGL Pipelines and Processing Plants 25 FINANCIALS 27 DRILLINGINFO Drilling Productivity Report (DPR) 31 APPENDIX 38

Introduction and Key Takeaways The Permian Basin is the latest installment from our FundamentalEdge Series. This Drillinginfo update covers the dynamics of the formation and the key drivers making the basin one of the largest contributors of oil, gas and NGL production in the short term. Production of hydrocarbons in the Permian basin is not new, records show that the first well was drilled in the 1920s. A revival of activity over the past few years has been possible as the oil and gas industry s attention focused on unconventional resources. Over the past five years, output from the Permian basin has doubled. Strong production growth is expected to continue due to favorable economics and Drillinginfo expects an additional 50% increase in oil and gas production over the next five years. The total rig count remains about 13% below the 2014 high, but the horizontal rig count reaches new highs every week leading the production gains. Over 30% of all US fracs in 2017 were located in the Permian. A shift in frac strategy is increasing the use of certain chemicals changing the way new wells are being completed across the basin. Infrastructure additions are falling behind production growth in the basin pushing price basis to historical lows. Many projects have been announced that will help alleviate this constraint in the mid to longer term. The financials review of key E&P operators in the basin shows CAPEX has increased by 20% in the past year supporting the upcoming production gains in the Permian. Drillinginfo DPR, first introduced in the January edition of this service, shows steep production growth in the short term (next three months) for the Permian basin.

Crude Oil Production (MBbl/d) Dry Gas Production (Bcf/d) Production At Record Highs Despite Lower Rig Count Permian production of crude oil and natural gas sets record highs every month even though the number of active rigs remains below historical levels. CHART 3 Historical Permian Oil and Gas Production Apr.2018 = 432 Rigs In addition to further analysis of reservoir and petrophysical data that led to more efficient and sweet spot drilling, producers increased efficiencies further by increasing their lateral lengths chemical usage for hydraulic fracturing and completions techniques. Higher IP rates and bigger wells have therefore allowed us to see the current high levels of oil, gas and NGLs outputs. 3.5 3.0 2.5 2.0 1.5 Oct.2014 = 499 Rigs 16.0 14.0 12.0 10.0 8.0 6.0 1.0 4.0 0.5 2.0 0.0 0.0 Crude Oil Dry Gas Source: DI ProdCast 4 The Permian Basin

Permian Producer - Tier Oil Price = $60/Bbl Oil Breakevens by Producer The Permian basin holds some of the best breakevens economics in the U.S. As shown in Chart 5, most producers are in-the-money at crude oil prices below $60/Bbl. CHART 5 WTI Breakeven ($/Bbl) Assumes $2.75/MMBtu HH RSP Permian-Tier1 Centennial-Tier1 Parsley-Tier1 Pioneer-Tier1 Matador-Tier1 Apache-Tier1 Anadarko-Tier1 Callon-Tier1 Cimarex-Tier1 Energen-Tier1 Encana-Tier1 Noble-Tier1 BHP-Tier1 EP Energy-Tier1 Conoco-Tier1 Matador-Tier2 Diamondback-Tier2 Centennial-Tier2 Pioneer-Tier2 Cimarex-Tier2 Callon-Tier2 Exxon-Tier2 Occidental-Tier2 Laredo-Tier2 Energen-Tier2 Noble-Tier2 BHP-Tier2 Shell-Tier2 Chevron-Tier2 Matador-Tier3 RSP Permian-Tier3 Parsley-Tier3 Centennial-Tier3 Pioneer-Tier3 SM Energy-Tier3 Cimarex-Tier3 Laredo-Tier3 BHP-Tier3 Devon-Tier3 Chevron-Tier3 Jagged Peak-Tier3 Noble-Tier3 Shell-Tier3 EP Energy-Tier3 $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 WTI Breakeven ($/Bbl) Source: DI ProdCast 5 The Permian Basin

Permian Crude Oil Production (MMBbl/d) Efficiency Gains Offset Cost Increases Thanks to efficiency gains, an average well today is much more productive than ever before. This offsets the effects of increased service costs. The purple line in Chart 7 shows a 20% increase in service costs to be more than compensated by a 10% increase in IP (initial production) rates. CHART 7 Permian Oil Production Sensitivity to IP & DC Costs 6 +10% Service Costs +20% Service Costs 5 +20% Service Costs & +10% IP Rate Current DI Forecast 4 3 2 1 0 Source: DI ProdCast 6 The Permian Basin

The Permian Frac Completion transformation The Permian is a key driver for frac activity in the United States with over 30% of all fracs in 2017. CHART 9 Permian Frac Activity since 2016 By Field About 45% of these were in the more wellestablished Midland Basin, closely followed by Delaware (33%) and Central Basin Platform (13%). Cost effective frac strategies have seen Slickwater become the most commonly used frac type in the Permian Basin. This shift in frac strategy has driven the use of certain chemicals up and has lead to a change in how new wells are being completed across the basin Source: DI Chem Analytics 7 The Permian Basin

Natural Gas Pipelines Existing and Proposed Projects Source: DI, Rextag 8 The Permian Basin

PE LPI SD EPE PXD CHK DVN ECR NFG NFX SN EGN WLL PDCE SBOW QEP SM CPE OAS FANG RRC RSPP UPL MTDR ESTE PVAC MRO APC AR EOG XEC REN SRCI APA CXO WPX Hedging Activity As of 4Q2017 Out of 36 E&Ps, 4 of the top 5 most hedged producers are Permian players. However, Permian players also accounted for 4 of the 5 least hedged. Producers focused in other basins collectively averaged 65% hedged, as opposed to Permian players averaging 59% hedged. CHART 19 Industry Oil Hedge Summary 100% 90% 80% 70% 60% Average Other - 65% Average Permian 59% 50% 40% 30% 20% 10% 0% % Hedged Other % Hedged Perm Source: FactSet and DI Analysis. Based on 2018 midpoint of gas guidance and hedges as of 4Q 17. If not provided, based on average consensus production. 9 The Permian Basin

Crude Oil Production (MMBbl/d) Gross Gas Production (Bcf/d) Permian Production Forecast CHART 23 CHART 24 Crude Production Gross Natural Gas Production 3.5 EIA DrillingInfo 12 EIA DrillingInfo 11 3.0 10 2.5 9 8 2.0 7 1.5 6 5 1.0 4 Source: DI ProdCast 10 The Permian Basin

Contact This is a preview of the full report. If you are interested in learning more, please contact your MarketView account manager of businessdevelopment@drillinginfo.com, and for immediate help: 1 (800) 282-4245 x1 Additional Publications Thank you!