Vertical Wells and “Conventional” Activity Update

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Most of our attention during the past 18-months of sliding oil prices has been on the impact on US unconventional operations, and for good reason. The very technological advancement that brings future energy security to our beck and call has a very specific price: cash money. For all the efficiencies that a modern pad-drill operation adds to the equation, each well drilled and zipper-fracked costs a not insubstantial amount of money. And even with the 30% cost reduction at the expense of oilfield service providers to do those frack-jobs, operators are still having to pay 70% of a lot of money for every horizontal multi-stage well.

Market Realist recently pegged the total cost to produce one barrel of crude oil in the US at $36.20, which puts us unfortunately high on the chart versus most other producing countries and, for the past month or so, on the wrong side of the price of oil.

Now that most of the long term high-value hedges have expired, the reduction of OFS costs has been baked into the balance sheets, and Q4 2015s series of redeterminations and write-downs have taken their toll, what else are operators doing to keep costs down and output up?

We have explored conventional E&P a little bit recently – Glenn R. McColpine’s excellent piece on optimizing stripper well performance and Mark Nibbelink’s great post on conventional E&P come to mind – but I thought it would be a good time to explore activity in the vertical/conventional realm.

Occasionally we’ll use vertical wells as a proxy for conventional activity, though in the modern oilfield we see operators discussing combining multi-stage hydraulic fracture jobs and comingled production with less expensive vertical drilling, particularly in areas that have heavily stacked hydrocarbon formations – like the Permian Basin. Rather than split hairs today we will just discuss vertical activity.

Vertical Permits are Visibly Down

The following two images show Vertical Permits for calendar years 2014 and 2015.

Vertical Wells and “Conventional” Activity Update

Vertical Wells and “Conventional” Activity Update

Year Over Year we see a fairly significant dropoff in Kansas, parts of the Permian, East Texas and Texas Gulf Coast.

Vertical Rigs continue to be fairly active

A quick look at current active vertical rigs in our Beta Production Desktop shows a lot of active rigs in the Permian, with a surrounding crescent of rigs starting on the lower gulf coast, swinging through Oklahoma, Kansas and ending in part of the Niobrara. Also we see some rigs in the Mississippi Gulf Coast, The Appalachian Basin, North Dakota, and California (where we discussed permits spiking last month)

Vertical Wells and “Conventional” Activity Update

In the following image we see how the decline in vertical rigs roughly matches the drop in the more directional brethren, while the chart on the right shows that the percentage of total active vertical rigs has also shrunk as a portion of the fleet.

Vertical Wells and “Conventional” Activity Update

Production from Vertical Wells

In a future post I plan to investigate vertical production to see what sort of impact technology is making on the production of vertical wells, so stay tuned.

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Eric Roach

Eric Roach is the editor of Drillinginfo's blog, which was selected as the Top Oil & Gas Industry Blog based on visibility, engagement and relevance. He also prepares a weekly newsletter of top industry news for blog subscribers, and would be grateful if you would subscribe and tell your friends. (There's a box on the upper right of the page where you can subscribe).