American Oil and Gas Reporter - January 2020 - 59

Permian Growth Requires More Activity
HOUSTON-Drilling in the Permian
Basin will have to increase dramatically
merely to maintain current oil and natural
gas production levels, and even more to
increase production, an analysis by IHS
Markit warns. Production from wells declined by 34% in 2018, and by the time
all the data is in for 2019, base declines
in the Permian will show that rate intensifying to 40%, it predicts.
Data from IHS Markit's new automated
well forecasting technology shows that
the base decline rate of the more than
150,000 producing oil and gas wells in
the Permian Basin has increased dramatically since 2010, IHS Markit reports. It
notes the surge in shale drilling and output
has been accelerating that inherent production decline because newer, younger
wells decline much faster than older wells.
Base decline is calculated by identifying
the actual or forecasted production of all
the wells onstream at the start of the
year, then tracking their cumulative decline
by the end of the year, IHS Markit notes.
It adds understanding those base declines
is crucial for engineers and operators
who must determine what level of drilling
and production targets must be achieved
for a company to grow production.
"Base decline is the volume that oil
and gas producers need to add from new
wells just to stay where they are. It is the
speed of the treadmill," says Raoul LeBlanc,
vice president of unconventional oil and
gas at IHS Markit. "Because of the large
increases of recent years, the base decline
production rate for the Permian Basin has
increased dramatically, and we expect
those declines to continue to accelerate.
As a result, it is going to be challenging,
especially for some companies with cash
constraints, just to keep production flat."
Growth In 2020
IHS Markit's new production outlook
expects a major slowdown in growth from
U.S. shale to result in a flattening in total
U.S. oil production growth in 2021. The
outlook for oil market fundamentals for
2019-21 expects total domestic production
growth to be 440,000 barrels a day in
2020 before essentially leveling in 2021.
IHS Markit says modest growth is expected
to resume in 2022, but LeBlanc says those
volumes will still be in stark contrast to
the boom levels of recent years.
The analysis points to the Permian
Basin as an example of the difference
between traditional and conventional production. At the start of 2010, IHS Markit
notes, Permian production was 880,000
bbl/d, with conventional operations pro-

ducing virtually all the crude oil. By the
end of 2010, that group of wells produced
767,000 bbl/d, a decline of 110,000 bbl/d
(13%) of production.
By 2019, when most wells drilled in
the Permian were hydraulically fractured
shale wells with high decline rates, IHS
Markit says, the situation became even
more dramatic. That year, basin production
began the year at 3.8 million barrels a
day, 1.0 MMbbl/d higher than the year
before. The analysis predicts base pro-

duction will drop by 1.5 MMbbl/d by the
end of 2019, a 40% base decline rate.
"Unless intentionally choked back,
new individual unconventional wells decline very rapidly, often 65%-85% in the
first year, so companies with many young
wells in their inventories see significant
declines in production compared with
companies with a balance of younger
and older wells," LeBlanc says. "However,
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