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Wolfcamp Shale to see $12 billion worth of investments this year

Corey Paul | The Odessa American (Odessa, Texas)

Capital investment in horizontal drilling operations targeting the Wolfcamp Shale should exceed $12 billion this year and surpass the amount invested in the booming Bakken Shale of North Dakota by 2017, according to a recent analysis by the firm Wood Mackenzie in Houston.

That compares to about a $9 billion capital expenditure last year in the Wolfcamp, which is the most prolific of the Permian Basin’s six tight rock formations that produce most of the region’s crude. The amount reflects increasing horizontal drilling exploration and well production that continues to dominate the overall oil and gas activity in the region, including Wolfcamp activity in New Mexico.

Combined production of crude and lighter condensate will grow to an average 200,000 barrels per day.

Two other booming onshore regions — the Eagle Ford and the Bakken — saw a ramp-up of horizontal drilling sooner than the Permian Basin, where more conventional vertical drilling still remains economical for many producers.

But the Permian Basin is in the midst of the horizontal exploration stage as the other two regions see efficiencies that lessen the amount of capital investment, according to Benjamin Shattuck, an upstream analyst for Wood Mackenzie.

“There are pockets of development that are happening on pads throughout the Wolfcamp,” Shattuck said. “Some operators are there. Some are getting close. Some are still a ways away.”

Related: Keep a lookout for the Wolfcamp play

The Permian Basin, including New Mexico, had 555 rigs on July 27 and about 60 percent of those rigs drilled horizontally, according to the most recent Baker Hughes rig count. That continues a trend of drilling activity beyond the boom of the 1980s, supported by higher-than expected oil prices amid unrest in the Mideast and Ukraine.

The Permian Basin rig count is projected to increase by up to 10 percent through the rest of the year. Wood Mackenzie reported that an influx of new entrants into the area caused the firm’s analysts to raise its capital expenditure forecast for next year by more than $4.3 billion, to $13.9 billion.

At current prices in that $100-barrel range, Wood Mackenzie estimated that there is $30 billion worth of production left in the Wolfcamp. On Wednesday, the price of West Texas Intermediate crude was $104.91

Shattuck advised a “cautious optimism” about advancements in the Wolfcamp, stacked in several benches, commonly described as A, B and C but also the D, which is otherwise known as the Cline Shale.

Improvement in performance approves across all those benches, Shattuck said, but “we are still waiting for an operator to effectively develop multiple benches over a sizeable acreage position.” Such developments are considered ways to bring down costs of horizontal drilling, which vary based on location but more than double the cost of conventional drilling.

Wood Mackenzie estimates more than 40,000 remaining drilling locations in the Midland Basin, which they expect will drive production for the next two decades. By comparison, the portion of the formation in New Mexico, called the Delaware Wolfcamp, sees a lesser percentage of oil in the hydrocarbons it produces, higher well costs and worse supporting infrastructure.

Wood Mackenzie estimates Wolfcamp production will grow to 200,000 barrels per day in 2014, mostly because of the rapidly increasing rig count and improved results in the northern Midland Basin.

The other five formations providing the bulk of Permian Basin production are the Spraberry, Bone Spring, Glorieta, Yeso and Delaware formations.

Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.