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Deloitte: Optimizing Shale Well Designs Could Boost Eagle Ford and Permian Economics by 19-23%

New findings from Deloitte’s “Deciphering the performance puzzle in shales: Moving the shale revolution forward” research series suggests that if Eagle Ford and Permian Basin shale operators were to fully optimize their well designs, they could generate capital efficiency gains of 19% and 23%, respectively.

  • Meta-analysis of 80,000 Wells in the Permian and Eagle Ford reveals up to 67% of completions were either over- or under-engineered.
  • Fully optimized wells could unlock a $24 billion opportunity for E&Ps to improve financial returns from shale well operations.
  • New study series offers important steps to optimize wells, win back investor trust and build resiliency.

HOUSTON, October 23, 2019 — New findings from Deloitte’s “Deciphering the performance puzzle in shales: Moving the shale revolution forward” research series suggests that if Eagle Ford and Permian Basin shale operators were to fully optimize their well designs, they could generate capital efficiency gains of 19% and 23%, respectively. This could represent a $24 billion capex saving opportunity for U.S. shale operators to strengthen their balance sheets and boost returns.

“When it comes to efficiency gains, the industry seems presently divided on the outlook for shale wells. Some say gains have peaked, but Deloitte’s deepest foray into well-level data analytics revealed actionable insights which can help improve industry performance at a time when both investor sentiment and commodity prices are low,” said John England, partner, oil, gas and chemicals, Deloitte & Touche LLP. “The findings clearly show that a one-size-fits-all approach to well design and completions is wasteful, and that it’s time for the industry to choose the right well design, not the biggest, to maximize efficiencies and profitability.”

Key findings from the analysis include:

  • Rock quality is important but is not necessarily the main performance differentiator. According to Deloitte’s analysis of all drilled wells in the Eagle Ford and Permian, the ranking of acreage (e.g., “Tier 1, Tier 2, Tier 3”) does not influence well performance to the extent previously assumed. More than 40% of wells drilled outside the core of the western Delaware area reported initial 180-day normalized productivity of more than 1,000 barrels of oil equivalent per day (boed). In the Eagle Ford, a comparable number of high-performing wells exist across acreage tiers.
  • Bigger is also not always better. The statistical analysis further notes wells drilled over the last two to three years, with complex and intense completion designs (i.e., longer laterals, more proppants, etc.) actually led to diminished productivity, explaining some of the concerns from investors and financial markets. During this period, more than 3,000 wells that were completed with massive volumes of proppant (in excess of 1,800 pounds per foot) yielded productivity below 750 boed per 10,000 feet of perforated interval. Despite an increase in completion intensity of more than 40%, approximately 50% of U.S. horizontal wells had the normalized 180-day productivity of below 750 boed in the past four years.
  • Optimizing well designs can boost capital efficiency. Deloitte found approximately 67% of wells in the Permian have been under- or over-engineered. A more balanced formation-and-engineering equation could improve the capital efficiency of Permian operators by approximately 23%. Similarly, approximately 60% of Eagle Ford wells have been under- or over-engineered. An optimal completion design strategy could increase capital efficiency of Eagle Ford operators by 19%.
  • $24 billion could be at stake via optimization. Improving well-designs has the potential for U.S. shale drillers to reduce capital requirements by $24 billion. If achieved, E&Ps could achieve economic targets in a broader range of price scenarios, and thereby revive investor interest, per the analysis.
  • Myriad solutions to consider. To succeed, shale companies can utilize more sophisticated data analytics and balance experimentation and standardization. Technology is king, and knowing the reservoir is critical. Therefore, E&Ps should consider investing in advanced technologies such as microseismic monitoring, fluid tracking and tracer analytics, among others, to understand how and why the reservoir is behaving in a certain fashion and then augment the development approach.

Sustaining shale efficiency gains and building resiliency
Optimizing well designs is an important priority, but the industry shouldn’t stop there, Deloitte notes. To make truly sustainable improvements and build resiliency against future price cycles, operators should work with all stakeholders in the oil and gas ecosystem. For example, E&Ps should co-share the productivity benefits with oilfield service companies, and design new win-win contractual arrangements with infrastructure providers.

Importantly, E&Ps should also win back investors’ trust through more consistent transparency and reporting details of performance. Companies should standardize how they report well results and look to third parties to help. Large institutional investors, energy agencies, and shale industry associations along with data aggregators could play a big role in standardizing performance benchmarks for the shale industry and its investors.

“Even though we’re over 10 years into the shale era, the industry is actually in the early stages of understanding. As with any new resource, the early phase of growth is also the initial phase of evolution and experimentation,” said Scott Sanderson, principal, Deloitte LLP’s oil and gas strategy and operations practice. “Now we are more aware of the challenges facing the viability of shales, and ‘brute force’ is not necessarily the answer. E&Ps should use analytic insights like this to course-correct both operational tasks and commercial arrangements to bring sustainable benefits to shareholders and the extended oil and gas ecosystem.”

Connect with us on Twitter: @Deloitte4Energy, @JohnWEngland.

About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including nearly 90% of the Fortune 500® and more than 5,000 private and middle market companies. Our people work across the industry sectors that drive and shape today’s marketplace — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthy society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. Our network of member firms spans more than 150 countries and territories. Learn how Deloitte’s more than 312,000 people worldwide make an impact that matters at www.deloitte.com.

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Public Relations
Deloitte Services LP
+1 713 982 3108

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