Permian Well Cost Trends – Reflation and Innovation, Divergence and Convergence

Wells costs in the Permian dropped in recent years as operators applied lessons learned to improve capital efficiency. In response to the plummeting commodity prices in mid-2020, activity across all shale plays hit the brakes, resulting in a substantial decline in service costs. This demand-driven service cost deflation occurred concurrently with continued operational innovation in the Permian. While public operators continue to highlight their shift in priority from production growth to cash flow generation, the recent rally in commodity prices spurred a rebound in activity in the basin. The increase will reveal the degree to which well cost declines of the past year have been driven by structural changes relative to deflationary forces. Our analysis of operator-guided 2021 well costs demonstrates divergent trends in the Permian between the Midland and Delaware basins. Drilling and completion costs are coming in 8% higher in the Midland but 4.8% lower in the Delaware compared to 2H20 values. The contrast indicates operators are anticipating further efficiency gains in the Delaware that more than offset service cost reflation; however, service cost increases in the Midland are expected to outpace operational improvements. The average per-foot cost to drill, complete and equip a well in the Delaware, among… continue reading

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Source: CTRM Center

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