Permian sees slowdown in drilling but increase in natural gas production

Production of unwanted natural gas is increasing the Permian Basin where new-well drilling activity is slowing. As a result of the glut of natural gas, profits are being undercut, putting more pressure from investors on the producers.

As the wells age in the Permian, the production of natural gas increases while oil production slowly declines. It’s the same situation in most shale plays across the U.S. including the SCOOP and STACK where new wells typically see a quick reduction from their initial production. Some wells can drop initial production by up to 70% in the first year.

The new year likely won’t bring an improvement in the challenge of what to do with increased production of natural gas. The Permian Basin is becoming increasingly gassy in the drilling slowdown.

“Activity levels are no longer what they were,” explained Artem Abramov, who heads shale research at Rystad Energy. “The oil ratio is no longer sufficient to offset gas in older wells, so we’re seeing some increase in basin-wide” gas-to-oil ratios.

The average well in the Midland portion of the Permian Basin produces an estimated 2,000 cubic feet of gas for each barrel of oil in its first year according to Tom Loughrey, a former hedge fund manager who started the shale data company Friezo Loughrey Oil Well Partners LLC.

He told Bloomberg News that over the lifetime of the wells, the gas production increases to an average of 5,000 cubic feet of gas. In the gassier Delaware, the average can be 7,000.

Who’s hit hardest? The smaller producers like Approach Resources Inc. which reported oil production less than a quarter of its total output. It led to Approach filing for bankruptcy protection last month.

As a result of the increased natural gas production, more and more flaring is being used by producers. The Texas Railroad Commission granted nearly 6,000 permits allowing producers and explorers to flare or vent natural gas in 2019. That’s more than 40 times as many permits allowed at the start of the supply boom ten years ago.

Source: Bloomberg News