Appalachia Drillers Stretch Lateral Lengths To Improve Economics

With the 12-month forward strip for natural gas averaging $2.29/MMBtu in the first half of 2020, major Appalachia operators have been forced to drive well costs lower in a bid to support activity and maintain production under razor-thin margins. Rig counts in Appalachia dropped 48% from a year ago to 33, and the deterioration of in-basin activity resulted in significant service cost deflation, accelerated by the collapse of rig counts across North America. Supplementary to third-party concessions, operators increased drilling and completion efficiencies across their assets to maximize lateral footage drilled and stages completed per day. Increasing horizontal length can boost drilling and completion efficiency, while the increased reservoir contact generates incremental production and return to offset the sunk cost of drilling vertically to formation depth. Target-normalized costs disclosed by operators (Figure 1) show a 15% average decrease from 2019 levels for laterals exceeding 10,000 feet. Enverus’s data captures the lateral length of permitted, drilled and completed wells. By aggregating to both operator and completion date, we can create a dataset that benchmarks Appalachia operators’ realized ability to capture the benefits of drilling longer. Based on completion date, operators have increased lateral lengths significantly from 2018 to date, with all… continue reading

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