• Permian operators will expand activity in second-half 2016.
  • Wolfcamp gains marketshare as a primary target.
  • High-density completions and longer laterals are becoming standard procedure.

The Permian Basin is leading the way for those seeking the first green shoots of rising oilfield activity. News of improving conditions in the oil patch has been a long-anticipated event in a sector beset with 18 months of grim headlines.

But recent coffee shop talk—and a host of E&P acreage transactions—suggest the Permian Basin has become the San Juan Capistrano swallow that signals a new season for energy producers.

Roughly half of Heard in the Field survey respondents identified an uptick in both inquiries and work volume at the end of second-quarter 2016. Furthermore, pricing appears to have bottomed across all service lines, ending a long, painful journey for beleaguered contractors. True, service pricing remains abysmal and has yet to improve, but contractors see a positive in the fact that pricing is no longer deflating.

Well stimulation firms appear to be first on the call list as operators tackle the drilled but uncompleted (DUC) well backlog. The price of oil has reached a threshold where it makes sense to bring production online from an estimated 470 wells comprising the Permian DUC backlog.

Commodity prices need to move higher for drilling to accelerate significantly. Still, other stimuli are at work besides attrition of the amorphously defined DUC portfolio. In the Delaware Basin, operators are moving from delineation in one of the most sparsely settled areas of the U.S.—and the attendant lack of infrastructure—to optimization, which is evident in steadily increasing lateral lengths and higher proppant loading.

Basically, Delaware Basin operators have defined where the hydrocarbon goody is. Now they are deploying best practices from mature unconventional basins to increase the size of the harvest and reduce well costs on a “per unit” basis.

Responses to Hart Energy’s Heard in the Field survey program identified instances of proppant loading approaching 2,000 lb of sand per linear foot on extended laterals in second-quarter 2016 (vs. 1,200 lb or less previously). Furthermore, Permian oil service providers are witnessing a recent increase in batch completions as zipper fracks rose from 35% of completions in the commodity price challenged first-quarter 2016 to 41% at the end of the second quarter.

As one top tier operator told Hart surveyors, “The use of the zipper frack will go way up. It saves about 15% on multiwell fracks.”

Indeed, the completion recipe has not changed materially in technique, though it is evolving rapidly in lateral length extension in the Delaware and in greater proppant loading in both the Midland and Delaware basins.

Overall, operators are reducing Bone Spring targeting in Lea and Eddy counties in New Mexico in exchange for multiple extended-length laterals in one or more benches of the Wolfcamp Shale in Culberson, Reeves and Loving counties in Texas along, or close to, the New Mexico border. Wolfcamp targets now account for 31% of Permian wells, and the nominal level of Wolfcamp drilling—and its marketshare—rose, even as all other geological targets declined. The Spraberry remains the No. 1 target at 35% of Permian well starts.

Also of note, several privately held operators are adapting unconventional drilling and completion methodologies to legacy conventional reservoirs in the Central Basin Platform.

For oil services, the sum of all parts is rising crew count and hydraulic horsepower capacity in the Permian, though this trend represents consolidation of services from other regions with contractors providing people and equipment out of the Permian as needed. Define it any way you want. At the end of the day, it finally feels like spring in the oil patch.

Richard Mason can be reached at rmason@hartenergy.com.