Permian Fracking Activity Underreported in 2018

Hydraulic fracturing (fracking) activity was underreported by 21 percent in the U.S.’ most prolific basin in 2018, according to Kayrros, a data analytics company serving the energy markets.

In findings released Tuesday, Kayrros claims that 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 chemicals used during fracking.

Kayrros said it uses optical and synthetic aperture radar imagery tracking along with proprietary algorithms to identify rigs and frack crews. Using those methods, they counted a total of 6,394 completed wells in the Permian in 2018 – a 21 percent increase from the FracFocus estimate of 5,272 wells as of June 20, 2019.

Impact to Shale Oil Economics     

The discrepancy in the reported wells means the industry has failed to capture the full scale of fracking, Kayrros contends. This implies two things:

• Oil inventory is smaller than believed – Kayrros estimates the Permian’s drilled but uncompleted (DUC) wells inventory is 1,000 wells each month with most of the rolling inventory coming from regular drilling and completions operations. Over time, the number of drilled wells matches completed wells, leaving DUC inventories unchanged. The belief that shale operators have a large backlog of DUCs that can quickly be brought to production in the event of an oil crisis without further drilling is misleading
• Transformation of perception of light tight oil economics – Based on Kayrros’ measurements, the average well is less productive and of higher cost than what is reflected in public data

“For all its revolutionary impact on the oil industry, shale remains poorly understood,” Kayrros chief analyst and cofounder Antoine Halff said in a release sent to Rigzone. “Publicly available data based on old-fashioned company reporting have their limits. Hard measurements unlocked by new data technologies show that contrary to public belief, there is no great buildup of DUCs just waiting to be brought online. The whole idea that the market can rely on this sort of de facto spare production capacity is an illusion. The industry is actually running on a much tighter leash than that.”

Kayrros also contends that their findings imply the Permian may not be as efficient as assumed. This is due to the fact that it took more wells to account for 2018 production than what was reported. Assuming a cost of $5 million per horizontal completion, 2018 operator capital expenditures (CAPEX) is also underestimated by as much as $4.1 billion.

Andrew Gould, former BG chairman and chairman CEO of Schlumberger and current Kayrros advisory board chairman, added, “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 U.S. oil production than accounted for, current shale oil production is substantially more water- and sand-intensive than is commonly believed.”

According to its analysis, Kayrros believes the sand and water intensity of Permian tight oil production in 2018 was 23 percent higher than previously recorded with sand demand being underestimated by 9.2 billion pounds and water by 12.5 billion gallons.