Concerns over remaining inventory
More than ever, inventory is strongly correlated with valuations, and investors are increasingly focused on the quantity and quality of E&P inventory, how much it costs operators to develop it and how the assets will perform.
The global demand for hydrocarbons, which are expected to increase 1 MMbbl/d from 2022, largely due to China’s relaxing COVID-19 restrictions and reopening of its economy, is driving the need for inventory. Meanwhile, natural gas has a bright long-term future, but prices are on a descending glide for the next couple of years. This price decline is driven mostly by the growth of gas supply from the Permian, while the Haynesville development and production are slowing but still increasing, setting up a perfect storm of oversupply and driving prices lower in the near term.
Producers have reached for new efficiencies and tools to do more with less, including co-completing an entire drilling spacing unit (DSU) pad. Traditional methods of drilling one well at a time presented a typical decline curve but resulted in poor performance to the wells completed after the initial parent well. While co-completed DSUs effectively drill out an area, and lead to better performance initially for the child wells, they can have steeper declines. This leaves producers looking for more inventory to backfill these declining wells to meet the global demand and take advantage of higher price environments.
A scramble for good rock
E&Ps will need to look beyond core plays to find affordable drilling inventory, especially the small to mid-sized independents. To address their inventory needs without diluting free cash flow yields, these inventory-hungry operators are being drawn to acreage in less well-known and potentially cheaper basins like the Permian Central Basin Platform and Eastern Shelf, Powder River Basin, Uinta Basin and the Eastern extension of the Eagle Ford.
What is becoming a hyperfocus from the market will also drive many operators to abandon ship, divest assets in favor of greener fields and leave their acreage to an operator who is a better fit. And for those fortunate operators with an ample supply of remaining well locations, the focus is asset optimization and tuning development models.
The billion-dollar question for the industry is: Should I buy, sell or optimize my remaining inventory?Traditional inventory valuations and potential forecasts can be time consuming and labor intensive across siloed geoscience and engineering teams. Buyers need to gain confidence and make quick decisions in acquisitions, sellers need assurance that they are not leaving money on the table, and development teams need clarity into remaining recoverable reserves.
To achieve this, we suggest four key steps:
Identifying remaining well locations
To screen acquisition opportunities or to assess the remaining potential of an asset, you first need to identify what remains, based on what has already been drilled, what spacing dimensions are optimal in that rock, and what will actually yield an economic well. Enverus Placed Well Analytics provides well “sticks” on a map of remaining inventory locations in the major plays across the U.S. The inventory locations account for DSU shapes for individual operators, along with constraints from leases, geological prospectivity and economic viability. Each stick on the Enverus PRISM® map encapsulates Enverus’ expert analysis backed by our completions sensitizer that analyzes optimal well spacing for single well economics. Identifying and prioritizing remaining inventory in and around your assets now takes hours instead of days, making sure you don’t miss an opportunity.
De-risking subsurface assets
Although there may be space for a well to be placed for development, it is important to consider the geological properties of the rock that well will be going into, to accurately predict its future production and success. This is where the geoscience team comes in with their curated subsurface models, which are leveraging as much public and private data as possible to de-risk the potential well locations and optimize the well paths for the engineers. However, bringing in data from multiple sources can take a lot of time to incorporate and standardize.
This is why it’s helpful to use a GG&E platform, such as Enverus Subsurface Studio, that can be easily updated with an extensive library of cleaned and aliased LAS data, and stops interpretations and petrophysical data to your models. This allows you to de-risk your models faster with the most complete data set, while still performing the deep workflows and analysis needed to confidently provide recommendations.
Forecasting production
Now that the well locations have been identified and the subsurface is better understood, your team can forecast production on those remaining wells. Having accurate pre-generated forecasts, economics and insights helps you understand the drivers of your competitors’ performance and costs. You can then evaluate deals and existing assets faster.
Adding firepower to this forecast workflow is Enverus Forecast Suite, which brings advanced capabilities to bear like modeling of thousands of wells in seconds, machine-learning auto-forecasts, and the ability to build different “what if” scenarios. Enverus’ clean, analytics-ready data and pre-built typecurves provide a starting point for rapid analysis. Additionally, for deeper technical due diligence, leverage your own production data and customize your decline curve analysis with your engineering parameters.
Tuning the development model
Bring your analysis together inside a development model where assumptions about influences on remaining drilling inventory can be put to the test (i.e., DSU co-completions, proppant, perforation intensity and drilling cadence) with P10, P50 and P90 forecasts automatically calculated. This allows you to model different cost/benefit multiple scenarios for optimal profitability and reduce risk when it comes time to put the bit to the rock.
How can Enverus help?
PRISM powers this extremely robust workflow with ease, delivering defensible analysis you can literally take to the bank to support your A&D or asset optimization thesis.
Under current market conditions and constraints, only the most rigorous assessments of remaining inventory will enable your team to make bold strides across U.S. basins.
To learn more about Enverus solutions to help you get ahead in identifying inventory, please fill in the form below and our experts will reach out to you.
