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Geology vs. Technology: How Sustainable is Permian Production Growth?


Permian production growth has been relentless. Acreage high-grading and new completion techniques helped support 700,000 b/d of supply growth from early 2016 to mid-2017. Operators became more bullish on the region's long-term potential too, setting themselves up to exploit the Permian at an unparalleled pace over the next few years.

Technology gains have played a huge role in production over-performance, and they are not expected to stop. Burgeoning completion enhancements, such as low-temperature diverters, are being coupled with superior reservoir modelling and modern data analytics. The potential impact of the latest budding technologies yields production upside of 500,000 b/d above a simple Permian tight oil forecast built from static type curves with fixed expected ultimate recovery (EUR) values.

An alternative, more pessimistic view incorporating performance risks that increasingly dense developments may pose to reservoir deliverability is also presented involving the unintended consequences of high-intensity, long-lateral, close-proximity drilling and fracturing. Tightly spaced infill development and well interference during completion events could reduce future EURs by 30% compared with today. These reservoir issues could begin to manifest within five years as sweet spots become exhausted, ultimately reducing total Permian production by over a million barrels a day.

For perspective on this potentially lower peak, countless other shale plays have proven that the first few years of growth are typically the easiest. Beyond that, producers require more breakthroughs to keep their barrels at the bottom of the cost curve. The Marcellus hit regulatory and midstream bottlenecks, the Bakken contended with huge differentials, the Haynesville dealt with a massive cyclical downturn, and the Eagle Ford sweet spots ended up being much smaller than

originally modelled. In the Permian, the growth challenge could relate to industry ultimately finding hard subsurface limits for tight oil recovery.

Less Permian supply in the medium term would intensify the future global supply gap and the market would need to incentivise other sources of production, including higher cost conventional investment. The Permian's ability to keep a lid on oil prices may run out early next decade.