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IHS: Wolfcamp Delaware economic for development

The Wolfcamp Delaware has the economic potential to sustain select producers despite low oil prices, says IHS.
IHS: Wolfcamp Delaware economic for development

The Wolfcamp Delaware, an emerging hydrocarbon play in the western Permian basin that straddles the Texas-New Mexico border, has the economic potential to sustain select operators through this period of distressed oil prices, reports industry information firm IHS

Unlike its more developed cousins, the Eagle Ford and the Bakken, the Wolfcamp still has some growing to do to be considered mature, according to the IHS Energy Wolfcamp Delaware Review. The Wolfcamp Delaware, notes the IHS analysis, has some of the best normalized production of any US onshore play, with average peak production rates of about 120 boe/d per 1000 feet of lateral well drilled, which is nearly double that of the Wolfcamp Midland basin with an average of about 63 boe/d per 1000 feet of lateral well drilled.

In the central gas and southern liquids subplays, two early sweet-spots now developing in the play, IHS says normalized productivity has increased by more than 40% since 1Q 2013. The southern liquids subplay has had more activity, with nearly twice the producing horizontal wells of the central gas subplay (127 wells and 60 wells, respectively).

“The Wolfcamp Delaware has promise, but right now, it is considered an adolescent in terms of its maturity,” says Reed Olmstead, manager of the North American Supply Analytics Service at IHS Energy, and the principal analyst behind the analyses. “The sweet spots are still being defined because these normalized production rates have not shown signs of flattening, which means the limits of the play have not yet been fully delineated and operators are still learning how to best produce from this reservoir.”

As of May 2015, more than 3200 wells were producing in the Wolfcamp Delaware, with nearly 75% of those drilled as horizontals. Of these 3200, more than 475 began production since January 2014.

“Additionally, a very high number of operators, about 150, have produced from the play to date, as compared to fewer than 90 operators in the Eagle Ford shale,” Olmstead says. “Despite that high number, you have just two operators who are dominant in the play Concho Resources and Cimarex Energy—who are delineating and testing the limits of the various sweet spots and production streams of the play.”

Concho Resources has been active in the southern liquids subplay, while Cimarex has been focused on the central gas subplay. Economics for both operators in their respective subplays are sufficient for drilling through the pricing downturn, but future delineations and possible expansions might be halted until oil prices recover or costs fall even further.

As a result, IHS Energy expects significant movement as more operators enter the play. Those who lack quality assets need the financial stamina to wait for better breakeven prices. Those who don’t consider the play core to their strategy will exit.

Cimarex, Concho, Occidental Petroleum and Clayton Williams still have relatively low well counts in the subplays that are expected to drive future production, despite being major operators in the play. Thus, while their well economics are representative of average historical returns, operators could be able to significantly improve their economics as the play is further delineated and developed.

Occidental’s president and chief executive, Steve Chazen, states his company’s bullish enthusiasm for the Permian Basin and its subplays, where 10 billion to 20 billion bbl could be produced, he says.

“The potential in the Permian is enormous,” Chazen says. “I think we’re on the edge of a major revolution in production in the Permian, and 25 years from now, I think the Permian will still be the premier basin.”

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