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Study finds Permian basin well fracking underreported by over 20%

24 July 2019

Hydraulic fracturing activity (fracking)—the process for producing light tight oil—was underreported by more than 20% in the Permian, the most prolific US basin, in 2018, according to a study by Houston-based analytics firm Kayrros.

Using optical and synthetic aperture radar imagery tracking together with algorithms to identify rigs and frac crews, Kayrros found that in 2018 alone, more than 1,100 wells were completed in the Permian basin but not reported through state commissions or FracFocus, a public repository for information on the chemicals used during fracking. The total figure of 6,394 completed wells counted by Kayrros for 2018 represents a 21% increase on the FracFocus estimate of 5,272 wells as of June 20, 2019.

US light tight oil (commonly referred to as “shale oil”) has been the world’s fastest growing source of oil supply in the last 10 years. Experts rely their analysis of the sector on data submitted by operators to state commissions and FracFocus. Kayrros findings suggest that public data fail to capture the full scale of fracking.

The macroeconomic implications of this underreporting are far-reaching. For one thing, the backlog of drilled but uncompleted (DUC) wells is considerably smaller than thought. In any given month, Kayrros evaluates the Permian DUC inventory at just around 1,000 wells.

The prevalent view among industry analysts is that shale operators sit on a large backlog of DUCs that could be quickly brought to production in the event of an oil crisis even without further drilling. This view is deeply misleading, according to Kayrros. There is just no such inventory, and the idea that the market can rely on this sort of de facto spare production capacity is an illusion.

The findings also transform the perception of light tight oil economics. According to the findings by Kayrros, the average well is both less productive and higher-cost than reflected in public data.

Andrew Gould, Kayrros advisory board chairman, said: “Misperceptions about shale oil in general and the Permian in particular have consequences, hence the importance of these measurements that show Permian production per well has been substantially overestimated. By the same token, average production costs per well are understated. With far more wells contributing to Permian and US oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed.”

The findings have significant implications for the assumed efficiency of the Permian basin. While oil production is accurately measured in monthly US statistics, it took many more wells to account for that production in 2018 than were reported.

Assuming a cost of $5 million per horizontal completion, 2018 operator capex is also underestimated by as much as $4.1 billion. Further, the sand and water intensity of Permian tight oil production in 2018 was 23% greater than previously recorded, with sand demand being underestimated by 9.2 billion pounds and water by 12.5 billion gallons.

Source: Kayrros