Drilling Deep

Drilling Deep:

Operators Continue to Work Hard to Get More Oil Out of the Ground.

Lower oil prices have forced operators to more carefully scrutinize well economics over the past 18 months. Drilling higher quality acreage and taking advantage of lower service costs are two of the more critical variables in the equation but changes to well design are certainly important components as well. At first it might appear that operators would "skimp" on well design to save money, but it is telling that operators continue to push forward with drilling longer laterals (Figure 1) which, while more expensive, generally offer better economics.

Indeed, falling service costs could actually accelerate this trend as the incremental cost for drilling and completing a longer lateral declines. In addition, the benefits of completing longer laterals are more meaningful for better acreage where there is more resource to be accessed and recovered through the horizontal leg. So the move to high-grade drilling locations may accelerate the shift towards drilling wells with longer laterals. This may already be evident in Figure 1 below. While the race towards longer laterals appears to have been quite steady from 2012 through most of 2015, a slight uptick in late 2015 and early 2016 may be a result of this dynamic.

Lower prices appear set to stay for some time, and technological changes will no doubt continue as operators seek to achieve the highest returns.

                    Figure 1: Average lateral lengths in Texas continue to rise even as oil prices have fallen.

                    Figure 1: Average lateral lengths in Texas continue to rise even as oil prices have fallen.


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