Permian Production Boom to Continue, Says Laredo CEO

Permian Basin drilling rigs have achieved tremendous productivity increases since 2014. Source: Laredo Petroleum.

Production in the Permian Basin will continue to boom and grow by more than 25% by next year, said Randy Foutch, CEO of Laredo Petroleum, in a talk held by the Independent Petroleum Association of America (IPAA) and the Texas Independent Producers and Royalty Owners (TIPRO).

Speaking at the IPAA/TIPRO Leaders in Industry luncheon, Foutch said that the 395 drilling rigs operating in the Permian region are as productive as the 641 rigs that were operating there before the collapse in oil prices in late 2014.

“This is very pivotal and we’re not done,” Foutch said. “We’re still making improvements. There are a lot of people in the Permian making money at today’s price, and they’re making money at less price. I think a lot of people miss how good the Permian Basin and other shale basins are.”

While the US rig count dropped sharply as expected with the fall in prices, Foutch said that production dropped less than expected. Since the downturn, Permian Basin operators have reduced their breakeven point to USD 40/bbl, he noted.

In a New Game

“We’re in a new game now,” Foutch said. “You know, it’s a different world, we’re going to grow production very, very efficiently. Shale now represents half of the US production. It’s going to grow another 27% in the Permian by 2018.”

He contrasted the comments by Saudi Arabia’s oil minister Ali Al-Naimi, at the 2016 CERAWeek conference in Houston with those by the country’s new oil minister, Khalid al-Falih, at the same conference in 2017.

With oil prices barely above USD 30/bbl in 2016, Al-Naimi’s message to oil producers was “lower costs, borrow, or liquidate.”

A year later, with prices above USD 50/bbl, Al-Falih noted the staying power and resurgence of the US shale producers, saying, “We welcome the return of investors to US shale, regardless of what you hear.”

“We heard the same thing from the CEO of [Saudi] Aramco; we heard the same thing from the general secretary of OPEC,” Foutch said. “They all three mentioned the Permian by name. And they basically were saying, “We recognize that you’re there. We recognize that you’re part of this. I think they really are surprised with the strength of what happened.”

Building Acreage Blocks

Laredo began building acreage blocks in the Permian’s Midland Basin in 2009 but quit buying land leases when the price reached USD 1,000/acre. “We had all we wanted, but I thought prices were getting a little high,” Foutch said and drew laughter from the audience when he added, “I wish I had rethought that.”

The company focused on obtaining contiguous acreage and made substantial investments in well coring, data acquisition, and infrastructure, which included crude oil and water gathering systems and water recycling and storage facilities.

“So we went through a period of about 3 years where we were really spending money on data, spending money on infrastructure, went public, so it made it look like we were a high-cost operator,” Foutch said. While Laredo was building a very efficient operation through the process, he acknowledged that the narrative was “a hard sell” for investors to accept.

Today, Laredo has more than 2,000 locations drillable for 10,000-ft laterals. The company has drilled 12 laterals of at least 13,000 ft, including some extending almost 16,000 ft, Foutch said. Most of its acreage is held by production.

Four Rigs Do Work of Nine

Laredo’s four rigs operating in the basin are collectively drilling about 700,000 ft of lateral hole per year, which Foutch noted was a major efficiency gain from the just less than 800,000 ft drilled by nine rigs in 2014.

An enhanced multivariate earth model has enabled Laredo to select the best well landing points and customize completions after drilling. Through the modeling and company infrastructure investment, Laredo has lowered its finding and development cost for proved development to USD 5.12/BOE, Foutch said.

At the beginning of the year, the company established a new type curve for its planned wells, with an estimated ultimate recovery (EUR) factor increased to 1.3 million BOE. Foutch said that wells drilled since then, incorporating earth modeling and optimized completions, have been exceeding that EUR factor by 36%.

Recently drilled wells that have incorporated enhanced multivariate earth modeling and optimized completions have beat their type curve by 36%. Source: Laredo Petroleum.

Gathering Systems Bring Benefits

He also stressed the benefit to Laredo of having its own crude and water gathering systems. In its 2016 basin operations, 73% of the company’s oil production and 65% its water production, on a gross-operated basis, “never saw a truck, it went straight to pipe,” Foutch said. “That’s a huge savings we can keep.”

The gathering operations eliminated road transport needs estimated at 95,000 truckloads for water and 41,000 truckloads for crude, he said. At the end of last year, Laredo had reduced lease operating expense by 53% from the first quarter of 2015.

Concluding his talk, Foutch said, “I think, OPEC and others missed the resiliency of the US oil and gas industry. They missed how proficient we can be.”

Permian Production Boom to Continue, Says Laredo CEO

Joel Parshall, JPT Features Editor

19 May 2017

Volume: 69 | Issue: 7