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Oil producers in the Permian basin and elsewhere could soon find themselves facing the oilfield equivalent of trying to walk up the down escalator.
The oil industry, and particularly the Permian, is in the midst of a boom. But analysts say new hints that maturing wells are falling well short of projections are prompting fresh worries that the industry may not be able to meet robust demand moving forward.
It’s a concern that could add new strength to an oil ally that’s been building since January, largely driven by volatile geopolitical issues. A study by Wood Mackenzie Ltd. found maturing wells in some parts of the Permian’s Wolfcamp shale were losing almost 15% of output annually five years after startup. That compares with the 5% to 10% initially modeled.
“If you were expecting a well to hit the normal 6% or 8% after five years, and you start seeing a 12% decline, this becomes more of a reserves issue than an economics issue.,†said R.T. Dukes, a director at industry consultant Wood Mackenzie Ltd. It means “you have to grow activity year over year, or it gets harder and harder to offset declines.â€
Globally, Wood Mackenzie has predicted annual decline rates offshore will rise to 6% from 2020, from 5% now.
The newest hints of production shortfalls in maturing wells follows a two-year price rout that put the brakes on costly offshore drilling, and a more recent push by oil-company investors for payback over growth. While U.S. shale fields have been booming, analysts are now starting to wonder if long-term U.S. projections will hold up, offsetting decisions to hold off exploration elsewhere.
Older well declines “are a topic that oil market analysts and investors are always trying to wrestle with,†Jamie Webster, a senior director for oil at the Boston Consulting Group Inc. in New York, said by telephone. “It’s hard to get a good sense of it because of a lack of good, real time data. But my sense is that they are starting to increase.â€
The Permian basin “has had an amazing year, †he added. “But it’s really started to slow down.â€
Growth in the Permian has, in fact, been shrinking, down almost every month this year, while declines in older wells are trending higher, according to the U.S. Energy Information Administration. In October, the organization’s data shows declines offsetting output by about 18%, compared with 4% at the start of the year.
The concerns, though, go beyond the Permian.
Perhaps the best example of declining production in older wells comes from Brazil’s Campos basin, which has been producing oil for more than 30 years. The region, which is traditionally responsible for more than 80% of the nation’s oil, has seen a 30% decline in output over just the last five years, the country’s oil regulator said last month.
In response, Petroleo Brasileiro SA, the country’s state-controlled energy company, will be redirecting investment into new drilling in the region.
“Decline rates are dramatic and there is a lot to be done,†said Marcelo Castilho, at the sidelines of the Rio Oil & Gas Conference last month. But there’s more to track than just the big producers, said Boston Consulting’s Webster.
While production declines being seen in smaller countries such as Turkey and Pakistan may not have a lot of immediate impact, “as a whole, the result could be quite stunning.
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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