This USGS report and its 20 Billion BO number has created a very positive buzz among readers, but as I have done on this site multiple times in the past, I encourage readers to to look into the details to see just how accurate this report really is.
On a high level sense, the Wolfcamp D member being discussed here includes much of what used to be called the Cline Shale – especially in the eastern part of the study area.
And we know how that play has turned out.
The Northern Midland Basin is a puzzling inclusion to this resource report to those who are knowledgeable as to O&G issues in the Permian Basin. This area as outlined by the USGS has a much lower thermal maturity that the rest of the Midland Basin – and this fact is documented by multiple analyses and studies. Numerous operators have lost their shirt trying to chase the Wolfcamp in this area over the past several years.
And in diving into a more specific example, one can see how the USGS report is misleading in many degrees.
The Wolfcamp A is perhaps the most proven of all the benches in the Wolfcamp in the Midland Basin. The USGS report has a mean total of 4.1 MM prospective acres at this level with 86.3% being untested and prospective. This 3.54 MM acres would have 35,409 wells drilled in it using the 100 acre per well drainage area outlined in the mean numbers. These wells would have a probability of success of 95.3% - so one is looking at 33,745 successful wells.
These wells / laterals would cost about $6.5 MM apiece (drilled and completed) or a total of $230.2 Billion (for the full 35,409 wells). And this does not include pipelines, facilities, operating costs, work overs, conversion to artificial lift, marketing, transportation, etc.
The USGS is assuming mean per well reserves for the Wolfcamp A to be 167 MBO, 134 MMCF and 14 MB NGL per well. Using $50 oil, $2 gas and $12 NGL pricing and 75% NRI metrics, each successful well will generate $6.587 MM in cash flow on an undiscounted basis.
Considering that this O&G revenue will take 20 to 30 years to be generated, the time value of money is a HUGE issue that needs to be considering in any economic analysis. And if you do that in this example, this is an uneconomic play using these per well reserves.
On a total Wolfcamp A comparison, the successful wells (using the 95.3% P/s), generate $222.3 Billion in undiscounted cash flow.
This is $8 billion less than the $230.2 Billion needed to drill the wells included in this USGS example.
With all that being said, the Wolfcamp in the Midland Basin is a highly prospective unit. Multiple operators have proven this over the past several years with horizontal wells now having EUR’s up to 1 Million BOE. Recent deals in the basin have had per acre acquisition metrics in the $40,000 to $60,000 per net acre range.
And as others have noted, the Delaware Basin and to a lesser extent the Central Basin Platform will add additional Wolfcamp reserves to the Permian Basin picture.
But the numbers being cited by the USGS are very misleading as to the overall recoverable and economic potential of this section.
I would ask that readers keep these facts in perspective when reviewing this USGS report.