Eagle Ford Shale–A Preview of Permian Decline
The Eagle Ford Shale was the hottest play in the United States a little more than a decade ago. In mid-2012, there were twice as many rigs drilling horizontal wells in the Eagle Ford as there were in the Permian basin.
Now its decline is probably a preview of what to expect from the Permian basin a few years from now.
The Eagle Ford still produces more than a million barrels of oil (mmb/d) and 5 billion cubic feet of gas per day so that’s the first thing to expect about the future Permian. Plays don’t crash and burn but follow an undulating path downward over years or decades.
Eagle Ford production climbed steeply after 2010 and peaked at 1.6 mmb/d in September 2015 (Figure 2). Much of its decline over the years that followed were because of low oil prices. Although output increased again in 2018 and 2019, it never reached its 2015 level. The Pandemic in early 2020 resulted in a second period of decline and recovery. Production has fallen about 6% since August 2020.
Many people think that advances in technology and ingenuity will somehow reverse the inevitable decline of shale plays like the Eagle Ford. Indeed, those factors have made some difference. The estimated ultimate recovery (EUR) for the average well increased through 2021 despite falling field production levels (Figure 3). That was mostly because operators drilled longer laterals and used more effective fracking methods. The advances were impressive but the technology wasn’t free and well costs increased.
Since then, however, well performance has fallen below levels before 2021. Wells that began production in 2022 will produce about 26% less than 2021 wells and the most recently drilled wells will probably produce more than one-third less oil.
Initial production rates have also declined. Figure 4 shows that 2022 maximum rates (in green) were lower than rates in 2021 (in gold) and that 2023 rates (in red) are lower still.
Over-drilling is probably the main reason for poorer well performance. There are currently almost 25,000 horizontal wells producing in the Eagle Ford play (Figure 5). The green symbols show predominantly oil wells and the red symbols, gas wells. The blue lines show the horizontal well paths.
Figure 6 is a close view of the map from Karnes County, the most oil-productive portion of the play. There are so many wells in Karnes County that its title is obscured in Figure 5 (it is north of Bee and Goliad counties and south of Wilson County on the map).
There are 14 wells per square mile in some areas of the Eagle Ford play (46-acre spacing). Bottom hole locations average about 300 feet apart.
The problem is that when wells are too closely spaced, their reservoir drainage areas overlap and wells “cannibalize” each other’s production. Optimum well spacing is a complex reservoir engineering problem and it is simplistic to assume that there is correct distance between well paths. Nevertheless, a report by SLB in 2017 indicated significant interference when laterals were 660 feet apart. A 2021 study suggested that well spacing should be almost 1600 feet.
Earlier this month, I wrote a post titled “Beginning of the End for the Permian” in which I showed the same trends of declining EURs, initial production rates and over-drilling. Many people asked me, “when will the Permian start to decline and what will that look like?”
That’s hard to answer but a few things are clear from comparing the Eagle Ford and Permian plays. Shale wells and fields don’t last forever. They are fields and just like any other fields, they peak and decline. Producers are smart and will find ways to boost well performance until they can’t. Technology can help but it is unlikely to reverse declining output for very long—and it comes at a cost.
In both the Eagle Ford and the Permian, smart operators sacrificed long-term results for short-term gains. They over-drilled the plays despite strong engineering evidence that wells should not be drilled so closely together.
I expect the Permian to roughly retrace the trajectory of the Eagle Ford. It will peak in a few years and then decline in an uneven path that is modulated by oil price and available capital. Like the Eagle Ford, the Permian will continue to be an important source of oil supply many years after it begins to decline. At the same time, relatively small changes in supply often have an outsized effect on world prices.
U.S. shale plays have been the only source of global supply growth for a decade. Markets didn’t react strongly when the Eagle Ford began to decline because Permian supply more than offset the loss. Permian decline will reverberate loudly through global markets when it happens.
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