We illustrate how the current downturn could be setting a foundation for future tight oil metrics to outperform. Today's tight oil wells are better producers than those drilled only a few years ago. Expected ultimate recoveries (EURs) have grown by over 10% each year with the application of better drilling technology, more robust basin modelling and experienced asset teams.

Despite this, the 55% drop in onshore US oil rig count from 2014 levels presents an opportunity to study how a less aggressive pace of activity coupled with sharper operator focus could improve future EURs even more.

The slowdown has some marked similarities to the Gulf of Mexico (GoM) lull following the Macondo well incident in 2010 when a federal moratorium on GoM drilling activity was enacted. Operating practice and company psychology changed when players stopped running on a 'leasing treadmill' and increased their focus on basin science. This is evident in the discovery data.

GoM Discovery Sizes

Average post-Macondo discovery size grew by 30% - even as the discovery count fell by roughly half – demonstrating how producers were able to capitalise on slower paced projects and leverage the additional time they were afforded to vet prospects and design wells . Although the US tight oil slowdown is market-driven rather than regulatory based, we believe that post-slowdown improvements will be replicated within the onshore US asset class.

Our expectation that the tight oil 'pencil sharpening' exercise will improve future EURs has been built by studying the latest onshore well data and comparing it to pre-slowdown activity. Using our North America Well Analysis Tool, we analysed data for the Bakken Fort Berthold and Eagle Ford sub-plays and the gain in EUR for newer onshore wells in each sub-play before and after the 2014 oil price fall is noticeable.

In the Eagle Ford example, initial production rates for newer wells (drilled after July 2014) fell but the EUR has increased due to better reservoir management. Across both sub-plays, EURs increased by roughly 25% pre and post slowdown.

We believe that the tight oil slowdown could result in a more positive long-term outcome for tight oil plays assets, particularly a few years in the future. In that timeframe, a step change in EURs – alongside a steadily improving price environment – could allow tight oil metrics to yet again surprise on the upside.
Source: Wood Mackenzie