North American Shale magazine's Permian Report by BBI International

THE

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2019/2020 ISSUE

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NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

INSIDE VOLUME 3

2019/2020 ISSUE

30 6 8 16

Focus of the Report Permianiaâ&#x20AC;&#x2122;s Next Chapter

The most prolific hydrocarbon producing play in the world has experienced unprecedented growth. With oil price volatility, infrastructure concerns and a new investor sentiment impacting operational decisions, the Permian is at the start of a new era.

22 30

14 Field Proven Solutions For The Permian 20 Winning With Shale Water

Shale Gas: Export Destinations, Players, Expectations To handle the historic amounts of shale gas produced across Southeast New Mexico and West Texas, developers are doing everything they can to build LNG processing and export infrastructure. Will it be enough to eliminate the shale gas bottleneck?

SPECIAL FOCUS

Understand The Permian: By The Numbers Look at the impressive numbers of the Permian, from drilling permits, rig counts, completions and volumes produced.

Well Spacing Watch

Forget trade war impacts or oil prices. In the Permian, the issue of proper well spacing has become one of the hottest topics.

Innovations Across The Permian

From the water segment to well casings to pressure pumping fleets, innovative technology or new-to-the-basin strategies are positively impacting production, efficiency and the future of the region.

ADVERTISER INDEX 27

D&L Oil Tools

Flogistix

Fox Thermal Instruments

FRACGEO, LLC

Hi-Crush LLP

Hydrozonix

North American Shale magazine Top News

NOV Completion & Production Solutions

Protectoseal Company

STV

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EDITOR'S NOTE NorthAmericanShaleMagazine.com VOLUME 3

Focus of the Report The 2019-'20 Permian Report, produced by our team at North American Shale magazine, is meant to provide an information-packed, near-term snapshot of the greater Permian Basin. Our research and content compilation efforts allowed us to create a multi-focused update on the general state of the Permian spanning from Southeast New Mexico to the vast acres of West Texas. This report includes a breakdown of the topics, issues, challenges and opportunities present across the world's most prolific hydrocarbon production area. Permiania's Next Chapter As the world’s most prolific hydrocarbon play evolves, new challenges—and opportunities—have emerged or remained. Learn how investor sentiment, base decline rates and infrastructure will impact the Permian’s next era. Shale Gas: Blessing Or Curse? With unprecedented associated shale gas production across much of the Permian comes a historic push to build and bring into operation liquified natural gas processing, storage and export infrastructure. Will it be enough?

2019/2020 ISSUE EDITORIAL Editor Luke Geiver lgeiver@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

PUBLISHING & SALES CEO Joe Bryan jbryan@bbiinternational.com President Tom Bryan tbryan@bbiinternational.com Vice President, Marketing & Sales John Nelson jnelson@bbiinternational.com Business Development Director Howard Brockhouse hbrockhouse@bbiinternational.com Senior Account Manager Chip Shereck hbrockhouse@bbiinternational.com Circulation Manager Jessica Tiller jtiller@bbiinternational.com Marketing & Advertising Manager Marla DeFoe mdefoe@bbiinternational.com

ART Art Director Jaci Satterlund jsatterlund@bbiinternational.com

Subscriptions Subscriptions to North American

Finding The Right Space With stacked pay extending to a distance equal of the Empire State Building, the greater Permian basin has a unique offering for completion engineers. As seen by issues present across the field today, finding the right approach to multi-well formation development is still in question. The Next Generation From satellites to blockchain to fluid tracers, this assortment of innovative technology or field-level strategy represents the foundation of the Permian’s future.

Shale magazine are free of charge to everyone with the exception of a shipping and handling charge for any country outside the United States. To subscribe, visit www. NorthAmericanShaleMagazine.com or you can send your mailing address and payment (checks made out to BBI International) to: North American Shale magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-7465367. Reprints and Back Issues Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising North American Shale magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about North American Shale magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. If you write us, please include your name, address and phone number. Letters may be edited for clarity and/or space. Send to North American Shale magazine/Letters, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203 or email to lgeiver@ bbiinternational.com.

Luke Geiver

EDITOR North American Shale magazine lgeiver@bbiinternational.com

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NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Please recycle this magazine and remove inserts or samples before recycling

Be er vapor control solu ons equal . . . be er EPA Compliance, period A study published by Environmental Science & Technology found in surveying more than 8,000 O&G well pads in seven U.S. basins, that over 90% of the detectable sources of VOC emissions stem from tank vents and hatches. A Compliance Alert issued by the U.S. Environmental Protec on Agency concluded that the primary reasons for detectable emissions were inadequate design and sizing of vapor control systems as well as the improper opera ons and maintenance prac ces associated with such equipment. Introducing the new Series 3908 Pressure & Vacuum Relief Thief Hatch - the be er thief hatch from The Protectoseal Company. Precision lapping of the valve seat ensures the best possible sealing characteris cs resul ng in a maximum allowable leakage rate of no more than 1 SCFH at 90% of pressure / vacuum set point. The Series 3908 is designed to deliver impressive flow performance, as validated through tes ng established under API 2000 / ISO 28300 guidelines. Each and every thief hatch is tested and shipped with its own performance cer ficate. Ease of opera on and low maintenance is achieved through the integra on of though ul design (i.e. large step pad, op onal locking pin) with careful material selec on (i.e. sparkfree aluminum housing, stainless hardware, anodized vacuum pallet).

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PERMIANIA'S NEXT CHAPTER As the world’s most prolific hydrocarbon play evolves, new challenges—and opportunities— have emerged or remained

NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

If the first chapter of Permiania included an acreage grab, drilling bonanza, infrastructure conundrum and other factors associated with the frantic, early stages of development for what has become the most prolific hydrocarbon producing play in the world, the next stage of the Permian’s near-term storyline already appears different. Since the introduction and acceptance by industry executives and investors of terms like “within cashflow,” exploration and production companies of all sizes have entered a new operating norm. Shareholders and lenders are now pushing for operators to focus on, or choose, dividend payments and stock buybacks in lieu of production growth, acreage buys or other non-shareholder return-based strategies. Strong financial operators still have the ability and support to make big deals, but the general consensus is that once production is maintained, additional revenue should be spent outside the oilfield. Throughout 2019, the number of Permian-linked E&P’s implementing their first-ever dividend programs or share buyback events steadily increased. In the present, nearly every producer is pushing a message that clearly indicates to investors and others that success in the Permian isn’t solely about asset growth, delineation in the field or midstream upgrades. Instead, Permian players from southeast New Mexico across West Texas are now conscious and clear about bringing the value in the field to those that have helped back it. Multiple factors, however—from oil prices to base decline rates to export options—will play a role in the near-future of the Permian’s development. All sectors across the play have had to navigate volatile oil prices. The combination of less-than-ideal oil prices with a producer mindset shift away from extreme growth at all costs has caused stress and created impact in the pumping and drilling sector. For much of 2019, the Permian rig count was in decline, along with the number of fracturing crews present. While the Permian boasts some of the best breakeven numbers in all of shale, the lack of infrastructure to handle produced

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gas or produced water along with the uncertainties of oil or gas takeway and processing capacity has made the allure of the Permian bright but not blazing. The presence of stacked pay and a better understanding of how to use lateral length and completion design to produce more continues to be a driving positive of the Permian. But, global factors, oil prices and a tight-margin world through every sector is pressuring all companies to focus on their core cash-flow generating assets and discard the others. To end the year, Basic Energy Services and PumpCo announced plans to shutter their respective pumping units. Both chose to focus revenue generated from the sale of pumping assets on other sectors in the Permian. The current play appears to be more about managing upside potential, immediate cash-flow and eliminating non-core assets until general market conditions (guided by oil prices and global economic factors) improve. The Permian, despite company moves, time-sensitive assessments on the state of the play, or headlines that seem to indicate a negative direction, is in a class of its own. With more than 350 active drilling rigs and a huge mix of global operators and independents, the play is still positioned to remain a

dominant force for global oil and gas pro- both large producers with financial issues duction, jobs, and opportunity for years to related to debt maturities and free cash flow, merged to focus on the Delaware and Eagle come. Ford. At the end of the year, WPX Energy Permian: Changing But joined with Felix Energy because in part, Staying The Same Felix leadership said the current operating Full-service credit rating agency Kroll conditions made their move very relevant at Bond Rating Agency believes that differen- the time. The deal was valued at $2.5 billion. tiation in the energy industry in terms of Apart from investor sentiment, Permoperational and financial risk management ian producers continue to navigate an infrahas increased. “Some companies are becom- structure- and midstream-world that can teeing more disciplined in response to the in- ter between enough and undersupplied. For dustry’s challenging headwinds, while other a play that produces roughly three barrels energy companies have remained static,” of water for every barrel of oil, the PermKBRA said. Because investors are seeking ian’s water handling and takeaway providers returns, many entities may face difficult op- have been up to the task of meeting induserating conditions that don’t allow for con- try needs. More than ten water firms made tinued debt use. KBRA believes distressed major moves, added technology, upgraded high-yield energy companies will continue existing facilities or built new water-based to look at mergers or acquisitions instead of infrastructure in 2019. Companies are findgoing it alone. ing ways to treat water with floating evaporaSeveral deals from 2019 indicate that no tors, track supplies with satellites or monitor entity is ever free from merging or acquisi- water-contracts with blockchain technology. tion plans. Carrizo and Callon Petroleum, A research study by the University of Houston Research Center indicates that after a difficult 2018 and early 2019, oil takeaway infrastructure is primed to meet demands by the end of 2019. However, oil export infra-

10 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

structure and gas takeaway, treatment and downstream customer options continue to be an issue. Apache Corp. made headlines in 2019 when it hired a third-party vendor to handle its gas. The E&P ended up paying for an outside party to take its produced gas for a price greater than the gas was worth. The University of Houston Research Center believes that the continued lack of gas takeaway and export infrastructure will harm small, independent producers the most. “While refineries have increased processing to keep up with production, supply of crude oil will soon outstrip demand and the producers will need to find new customers,” said Ramanan Krishnamoorti, co-author of the research. “Even though there is more than $90B in construction projects for terminals, LNG, refining and petrochemical facilities along the Texas and Louisiana Coast right now,

and another $200 billion planned for the next decade, construction can’t keep pace with the supply of oil coming out of the Permian.” The rapid growth of production doesn’t appear to be falling below current levels either. Global information firm, IHS Markit, ran the numbers on base decline rates in the Permian and found that wells drilled in the past 1 to 2 years will show a production decrease after the first year of up to 85 percent. But, the research team also said that well production during the first year of a Permian well is so great that the decline rate formula for brining a new Permian well online always makes sense. IHS describes base decline rates this way. “Base decline is calculated by identifying the actual or forecasted production of all the wells onstream at the start of the year, then tracking their cumulative decline by the end of

ONE OPERATOR’S IMPACT IN NEW MEXICO ExxonMobil’s Permian development efforts will have a $64 billion impact on the New Mexico portion of the play. As part of ExxonMobil’s Permian Basin growth plans, the company plans to expand its operations to produce more than 1 million oil-equivalent barrels per day as early as 2024. This push will require roughly $55 billion in capital expenditures in Eddy and Lea counties. At current funding levels, those contributions would translate to the following: $6 billion for higher education: Enough to pay college tuition for more than 827,000 New Mexico students $10 billion for health and human services: Equal to the salaries of more than 146,000 nurses $18 billion for New Mexico’s public schools: Equal to the salary of more than 309,000 elementary school teachers $6 billion for other state government services: Which is almost equal to the entire 208 New Mexico state budget

Efficiency Through Engineering and Design STV Energy Services, Inc., provides engineering, design, procurement, project management and construction management services to the natural gas, liquid petroleum, and pipeline transportation markets for projects from concept to completion. Strategically located throughout the U.S. to provide continuous services to our oil and gas clientele. • • • • • • • • •

Oil, gas and water processing and treatment facilities Pipelines and gathering systems Construction management Commissioning/start-up Storage and loading facilities Control system programming & integration Permitting – construction, air, natural resources UL 508A-listed electrical and control panel fabrication shop Metering/measurement services Contact: Steven M. Sottung, LEED ®AP Vice President, Director of Business Development STV Energy Services, Inc. (610) 385-8262 / steven.sottung@stvinc.com www.stvinc.com

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Workforce Spotlight To help promote available positions and connect available talent with oil and gas employers, the Texas Independent Producers & Royalty Owners Association outlined the job outlook in the Permian early in 2019. n From January through February, the crude petroleum extraction sector had the highest number of job openings n Houston, followed by Midland and San Antonio had the highest number of job postings. n The top hard skill listed for open oil and gas positions was oil and gas (19 percent), followed by valid driver’s license (15 percent), and good driving record (10 percent). n The top common skill listed for open oil and gas positions was management (42 percent), followed by operations (32 percent), and communications (29 percent). n The top qualification sought for listed open positions was commercial driver’s license (979), followed by Master of Business Administration (226), and Transportation Worker Identification Credential (TWIC) Card (181). n The leading posting source for open oil and natural gas positions was Nexxt.com (6,491), followed by Workintexas. com (5,218), and My.jobs (3,170).

the year. Understanding those base declines is critical for engineers/operators who must determine what level of drilling and production targets must be achieved for their company to grow production, and hopefully, maintain performance and provide returns to investors.” According to the information giant, oil and gas operators in the Permian Basin will have to drill substantially more wells just to maintain current production levels and even more to grow production. Well spacing and completion strategies could have an impact on the number of wells needed, however. Although there are continued issues with infrastructure takeaway, pressures from investors, a diminished participation of certain funding silos, well spacing questions, and other factors to overcome, the opportunity in the Permian remains clear. The massive formation holds more than six (double that depending on who you talk with) known and proven tight oil and gas producing benches. At more than 4 million barrels of oil per day produced, the Permian produces more oil than any shale-based formation. Oil prices will fluctuate for various reasons, but technology continues to improve and extracting hydrocarbons becomes more feasible and efficient every month. The service providers in the drilling, completion, midstream or production sectors that remain fluid and able to meet the ongoing demands of operators will continue to thrive. Operators in strong financial positions will continue producing and growing—either in the field or by acquisition. The first chapter of Permiania may be over. Although there is still acreage that needs to be held by drilling, a majority of the play is transitioning from the initial land grab and prove-out of initial wells and benches. The next era appears to be unmatched in a new way because of the technology entering the play and infrastructure coming online that will drive down operational costs. All of it is best described by an old saying that says big oilfields just keep getting bigger. PR 12

NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

UNDERSTAND THE

PERMIAN

7,000

New Mexico

FIELDS

242,193

Midland idland asin Basin Delaware Central Basin Basin Platform

288,130 40,840,845 27,724,216

174,608

24,515,651

TOP 10

Texas

159,544

Permian Basin

TEXAS OIL PRODUCERS

24,411,491

(Daily average production in barrels)

75,000

Total Footprint

West Texas & Southeast New Mexico

SQUARE MILES

145,227

COUNTIES

POTENTIAL

HISTORY

More than Produced Hydrocarbons 33.4 billion for more than barrels of oil 100 years

PERMIAN OIL PRODUCERS

113,783

NEW MEXICO OIL PRODUCERS

More than 118 trillion cubic feet of gas

4.7 million barrels per day

7,668,403 6,598,508

90,081

More than 50 billion barrels of oil

8,318,679

(In total annual barrels)

104,790

CURRENT

8,749,481

TOP 10

111,987

PERMIAN PRODUCTION

17,974,008

TOP

87,974

5,691,297

16.4 million cubic feet per day

Oil

Gas

Main Producing Formations: Wolfcamp, Yates, San Andres, Clear Fork, Spraberry, Yeso, Bone Spring, Avalon, Canyon, Morrow, Devonian, Ellenberger

TEXAS COMPLETION

TEXAS DRILLING PERMITS

TRENDS BY DISTRICT

TOTAL COMPLETIONS

TEXAS RIG COUNT MOVEMENT

57 30 29 39

JANUARY

485 475 MARCH 461 APRIL 462 MAY 455 JUNE 442 JULY 441 AUGUST 438 SEPTEMBER 419 OCTOBER 418 NOVEMBER 408 DECEMBER ?

JAN. FEB.

FEBRUARY

17 15

MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV.

RE-COMPLETIONS

2 2

0 1 0 0

11 11

MAY JUNE JULY

SEPT. OCT. NOV.

TOTAL COMPLETIONS

28 29

16 21 AUG.

SEPT.

18 OCT.

NOV.

24 26 24

12 15 17

DISTRICT 8

(Counties El Paso, Hudspeth, Culberson, Reeves, Jeff Davis, Presidio, Brewster, Pecos, Loving, Ward, Winkler, Crane, Ector, Andrews, Martin, Howard, Mitchell, Midland, Glasscock, Sterling)

MAR. APR. MAY JUNE

JULY

AUG. SEPT. OCT. NOV.

106

73 81 79 75

NEW MEXICO

WELLS

70 72

914 WELLS SPUD

4 3

1 1 3

DISTRICT 8A

5 5 8

JAN. FEB.

603 484 542 383 492 464 468 468 347 479 471

MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV.

1,905 APDS FOR NEW DRILLS 50,613 PRODUCING WELLS 492 OPERATORS FILING PRODUCTION CHAVES COUNTY:

1,099,298 OIL VOLUMES PER YEAR 2,401 WELL COUNT EDDY COUNTY:

95,038,288 OIL VOLUMES PER YEAR

RE-COMPLETIONS

JAN. FEB.

42 41

AUG.

MAR. APR. MAY JUNE JULY

(Counties Upton, Reagan, Terrell, Crockett, Sutton, Kimble, Menard, Schleicher, McCulloch, Concho, Tom Green, Irion, Coke, Runnels)

RE-COMPLETIONS

260 180 MAR. 253 APR.

DISTRICT 7C

JAN. FEB.

104 TOP 2019 RIG COUNT

JAN. FEB.

435 502 497 386 518 327 416

TOTAL COMPLETIONS

458

NEW DRILL PERMITS BY DISTRICT

(Counties Bailey, Lamb, Hale, Floyd, Motley, Cottle, Cochran, Hockley, Lubbock, Crosby, Dickens, King, Yoakum, Terry, Lynn, Garza, Kent, Gaines, Dawson, Borden, Scurry)

JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV.

23 18 33

20 28

14,191 WELL COUNT LEA COUNTY:

134,531,514 OIL VOLUMES PER YEAR 14,464 WELL COUNT

44 NorthAmericanShaleMagazine.com

NOV COMPLETION & PRODUCTION SOLUTIONS SPONSORED CONTENT

Field-Proven Solutions For The Shale Industry National Oilwell Varco’s Completion & Production Solutions segment continues to live up to its name. Created to provide safe, efficient and innovative solutions to help shale oil and gas producers maximize the flow of hydrocarbons and direct production streams anywhere its customers operate, NOV has introduced several innovative technologies in the modern shale era. While some service entities are unable to provide a full-suite of products or offer new solutions to trending challenges across the Permian and other plays like the Bakken, NOV’s product and solution list is long. PR

Well Construction And Completion Components

-Premium Connections -Liner Hangers -Cementing Equipment -Downhole multistage fracturing tools -Pumpers -Blenders -Sand Storage Solutions

With its Bullmastiff system, NOV provides an openhole ball-drop-activated multistage fracturing system that incorporates proppant and formation debris control. The system uses sand screens, which are exposed post-fracture, to prevent proppant flowback. By using a mechanical method of sand control, the Bullmastiff enhances well economics over a well’s life cycle by reducing surface facility requirements and improving production efficiency.

On the future of serving the Permian and other shale plays, NOV says: “We deliver a field-proven, highly-engineered, comprehensive resource for artificial lift, midstream and production equipment. Our expertise in engineering and project management allow us to deliver quality products manufactured to meet the most demanding customer requirements.” 14 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Well Intervention Tooling

-Coiled Tubing (reels, trucks and trailers) -Wireline equipment NOV has in worldwide operation more than 1,300 coiled tubing units, 1,500 nitrogen units and 200 snubbing units. For areas that require long string lengths the company developed its trademarked Hydra Rig trailer that carries nothing but the tubing reel. The reel can be used with any other trailer designed for extended reach laterals.

Production Equipment -Artificial Lift -Pumps -Separators -Composite Piping For production of shale oil and gas, the team says that its “breakthrough innovations in hydraulic rod pumping systems, progressing cavity pump systems and automation controls and monitoring are changing the way operators view their long-term production through artificial lift.”

Can you handle the pressure?

We’ve W e’ve expanded expanded our our high-pressure high-pressure artificial equipment a rtificial llift ift e quipment lline ine # ) -$''$)" ./*+. ) +-* 0 /$*) ./ -/.Ǽ 4*0- / # ) -$ -$''''$) $)" " ..//*+ *+. ) ) + +--* * 0 0 /$ //$$*) *) .// --//..ǼǼ 4* *0 0- / ( ( ($"#/ $)# ( ($" $"#/ #/ $)# )# -$ --$/ $/ ' ..Ȑ/# )Ȑ+ ..ȐȐ//# .. # ) )ȐȐ+ -! -! / 2 / 2 ''ǻ ''ǻ #)*'*"$ '' #) # )*' *'*" *"$ . '$& . '$& *0- *00- - 0' -- 0 0 0' . -**& 0' . --* **& * *!!! -- 0)$,0 0) 0)$, $,0 .*'0/$*). /* # .*' *'0 0//$* /$$* *) ).. /* * # '+ 4*0 .*'1 '+ 4* '+ *0 0 .* *''1 *((*) +-* ' *( *((* (*) + +--* * ' (. '$& (.. '$& ( *!! -**& 2 .ǻ '.* 1 $' ' -** **& +-* 0 /$*) .$)" *- -**& ++-* * 0 0 /$ /$*) *) . .$$) .$) )" " * *-- -* -**& *& 2 '''# '# '# ..ǻ '. '.* 1 1 $ $'' $' '' $. *0- $. *0 *0- *0- - 0' -- 0 0'' .. )$1 ) )$1 $1 -. ' -. . ' ''# ''''# /* .0++*-/ /# /* * .0 .0++ ++* *--/ //# # !0'' '$! !!0 0 0'' '''' '$! $! 4 ' 44 ' *! /# *! /# 2 2 '' '''' ' 4 # 1$)" *) 4 4 # 1 1$)" $$) )" *) *) 2 2 '' '''# '# !*- (0'/$+' !* *- (0 0''//$$+ +'' !*-(. *! -/$!$ $ ' '$!/ǻ !!* *-( -(. *! *! --//$! $!$ $ $ $ ' ''$$$!/ !/ǻ ǻ !/ ȇȇ- # # - /* # /* # ''+ + 4* *0 0 *+ +//$( $($$55 +-* 0 /$*) ) +-*1$ +--* + * 0 /$ 0 //$$* 0 *) ) ) ) +--* *1$ 1$ 0./*($5 0./* 0.//* 0. *( ($$5 '+ 4*0 *+/$($5 .* *'0 '0//$$* *) ) 2$$//# /# * *0 0- ..///0! 0!!!!$ 0 !!$$)" )" *3 *3 .Ǽ 2 .Ǽ Ǽ 2 ''# ''# .Ǽ .Ǽ ) /0 $)" -*/ /*-. '' ..ǼǼ .Ǽ .Ǽ ) ) /0 0 $) $)" " -* *// / /* *--. .*'0/$*) 2$/# *0- ./0!!$)" *3 - )" )"$$) )" !!-* *( ( '* *2 2 +- ..0....00- /* #$"# + //* /* #$$" "# ++- ...0..0 .00- ǻ ǻ ǻ - )"$)" !-*( '*2 +For nov.com/artificiallift Fo or more mo m ore re information, inf nfor ormati ma m attiion ion on, vi vvisit isit ssiit n no ov. v.co .cco om/ m/a arrttiifi fici cia allli lift

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SHALE GAS:

EXPORT DESTINATIONS, PL AYERS, EXPECTATIONS The International Association of Oil & Gas Producers Director of EU Affairs, Francois-Regis Mouton, believes the EU needs more U.S. shale gas. In a

joint effort with the American Petroleum Institute, the IAOGP is working to help the EU and the broader world understand the value and need for liquified natural gas produced from U.S. shale fields. “If we really want to reach our climate objectives in Europe, we need our policymakers to acknowledge the value and role of gas in both the short and longer term,” Mouton said. “By making a smart use of Europe’s own gas resources and the LNG supplied by partners such as the U.S., we can bring about a system combining renewables and gas.” The U.S. is doing its part to meet the current and oncoming demands of Europe and other countries looking for LNG. Since 2017, the U.S. has exported more natural gas than it imports. The Permian—and the Texas Gulf Coast—is playing a major role in shale gas production and the justifiable presence of new LNG production or export facilities.

FERC’s LNG Approvals As the main regulatory entity responsible for approving LNG export facility buildouts in the U.S., the Federal Energy Regulatory Commission has been busy the past two years. FERC has approved 21 new facilities to date, eight of which are currently under construction. The vast majority of the new facilities are located along the U.S. Gulf Coast. While many are land-based facilities, some of the new LNG production or export sites will be utilizing a floating vessel.

NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

SEE SIGNIFICANT ' WE OPPORTUNITIES IN

THIS MARKET AND WE WILL CONTINUE TO PURSUE STRATEGIC PARTNERSHIPS WHICH ENABLE US TO MEET RISING GLOBAL DEMAND FOR LNG. AMIN NASSER CEO AND PRESIDENT, SAUDI AR AMCO

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Operators Become Partners Although the price of natural gas has at times required some Permian operators to pay a third-party to offtake their produced gas, most believe in the future demand and use for shale gas. Apache Corp. signed a first-of-its-kind agreement with Cheniere Energy for the E&P’s shale gas volume. Under the 15-year deal, Apache will supply and sell 140,000 MMBtu per day of gas to Cheniere’s Corpus Christi III project, one of the largest LNG production facilities in the world. Cheniere will pay the global indices price for the gas. Altus Midstream will handle the gas and get it to Corpus Christi. Jack Fusco, president of Cheniere, said the deal with Apache will give the company flow assurance for its gas stream.

Foreign Entities Invest In US LNG U.S. operators and project developers are not the only groups interested in LNG. Several non-U.S. firms have made a financial play or stake into shale gas from the Permian. Aramco Services Inc. signed a 20-year offtake agreement with Sempra Energy in a deal that would provide Aramco with 5 million tons per year of LNG. Amin Nasser, Saudi Aramco’s CEO and president, said Aramco hopes to become a long-term player in LNG. “We see significant opportunities in this market and we will continue to pursue strategic partnerships which enable us to meet rising global demand for LNG.” Mubadala Investment Co., the Abu Dhabi-based sovereign investor, agreed with NextDecade in an all stock deal valued at $50 million. NextDecade is working on the largest Permian LNG production and export facility called Rio Grande LNG. Westbourne Capital, an Australian investment firm, infused Freeport LNG with more than $1 billion for Freeport’s fourth LNG facility. PR 18

NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

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Magnolia LNG Sempra—Cameron LNG Lake Charles, LA Hackberry, LA

ExxonMobil Sabine Pass, TX

Texas

Southern Union Lake Charles, LA Mississippi

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Freeport LNG Dev Freeport, TX

Cheniere Corpus Christi, TX

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Eagle LNG Partners Jacksonville, FL

Driftwood LNG Calcasieu Parish, LA

Freeport LNG Freeport, TX

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Louisiana

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Southern LNG Co Elba Island, GA

Gulf LNG Liquefaction Pascagoula, MS

Sempra--Cameron LNG Hackberry, LA

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Georgia

Alabama

Florida

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Sabine Pass Sabine Pass, LA

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Venture Global Calcasieu Pass Cameron Parish, LA

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Venture Global LNG Plaquemines Parish, LA

North American LNG Export Terminals Approved -- Not Under Construction

Approved -- Under Construction

Top 8 US LNG Export Destinations (Volumes In Million Cubic Feet)

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UNITED KINGDOM

ǪǱǫȢǱ MEXICO

South Korea ǲǩȢǭ

CHINA

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HYDROZONIX SPONSORED CONTENT

Winning With Shale Water Hydrozonix fears no water. The Conroe, Tex-

as-based water management company has adapted to the changing needs of the shale energy development industry by altering or enhancing its equipment, pricing structure and offerings. In 2019, Hydrozonix was recognized by Frost & Sullivan for its work with frac water and its strong overall performance. In its explanation of the award, Frost & Sullivan pointed to a bacterial disinfection and recycling method created by Hydrozonix called HYDRO3CIDE. “Realizing that the hydraulic fracturing industry was a cyclical as conventional oil and gas operations, Hydrozonix embarked on a radical transformation with the development of its flagship solution,” the global information and consulting firm said. “Instead of being hampered by the commitment to acquire technology patents, Hydrozonix took a whiteboard approach and completely redesigned the solution to lower the capital cost to under $1 million, reaching roughly $700,000, which is a 70 percent cost savings that benefits customers.” After redesigning and upgrading its technology, the company sold two units in 2017, 15 units in 2018 and is now on track to sell up to 30 units in 2019. In addition to rental offerings of the HYDRO3CIDE technology package, the company has also began consulting work and more complex custom projects. Knowing the industry was pushing for automation, the water-team designed a platform that can be completely automated. Some customers wanted completely automated facilities with pumps and valves integrated into their own systems. “Today the HYDRO3CIDE operating system is a platform allowing for complete facilities to be automated and controlled from a PC or cellphone,” Frost & Sullivan said. PR

Earning the 2019 Competitive Strategy Innovation and Leadership award for frac water quality management required Hydrozonix to stack-up well across a wide range of criteria.

20 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Strategy Innovation Criterion 1: Strategy Effectiveness Requirement: Strategy effectively balances short-term performance needs with longterm aspirations and vision for the company. Criterion 2: Strategy Execution Requirement: Adoption of best-in-class processes supports the efficient and consistent implementation of business strategy. Criterion 3: Competitive Differentiation Requirement: Unique competitive advantages with regard to solution or product are clearly articulated and well accepted in the industry. Criterion 4: Executive Team Alignment Requirement: The executive team is aligned with the organization’s mission, vision, strategy, and execution. Criterion 5: Stakeholder Integration Requirement: Strategy reflects the needs or circumstances of all industry stakeholders, including competitors, customers, investors, and employees. Customer Impact Criterion 1: Price/Performance Value Requirement: Products or services offer the best value for the price, compared to similar offerings in the market. Criterion 2: Customer Purchase Experience Requirement: Customers feel they are buying the optimal solution that addresses both their unique needs and their unique constraints. Criterion 3: Customer Ownership Experience Requirement: Customers are proud to own the company’s product or service and have a positive experience throughout the life of the product or service. Criterion 4: Customer Service Experience Requirement: Customer service is accessible, fast, stress-free, and of high quality. Criterion 5: Brand Equity Requirement: Customers have a positive view of the brand and exhibit high brand loyalty.

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22 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Well

Spacing Watch

Why well spacing and completion design are among the hottest topics in the Permian

Well spacing is dominating the thoughts of completion engineers, CEOs and investors connected to the Permian. With acreage positions continually being solidified, knowledge of formation potential increasing, and infrastructure constraints being dealt with, the issue of spacing wells appropriately for maximum production and return on investment is now a leading topic. From research studies to startup companies to new initiatives by executives, every segment of the Permian is focused on addressing the issues—or opportunities— associated with well spacing.

The Spacing Challenge A recent study by Shell Exploration & Production Co. outlines the dilemma with well spacing in the

Permian. “Due to the heterogenous distribution of rock properties, fluid types, uncertainties in fracture geometry, multiphase flow, operating conditions and economic criteria, it is very challenging to get a reliable solution for optimum well spacing,” the researchers said. “Although there are more than 4,000 wells that have been drilled in the Wolfcamp formation, it is not clear to the industry what is the optimum well spacing of long-term field development.” As operators rush to develop multi-well pads across the Permian that place well bores into multiple formations, many are struggling with the issue of parent-to-child well interference. Well productivity across some wells placed too close together has been compromised to the downside,

NorthAmericanShaleMagazine.com

and long-term production has been forced to be redrafted. Several operators are now addressing the presence of parent-child well issues. Noble Energy included a detail description of its multiple zone well pad design in a 2019 investor call to help show that, above all, its well row development strategy “has helped to reduce parent to child well interference.” In Q3 2019, Diamondback Energy explained issues the company had with frac-hits in Howard County, Texas. The Midland-based company lost an estimated 12,000 gross barrels of oil per day due to offset completions with other operators completing large pads on acreage to the east and west of Diamondback’s acreage. Diamondback told investors that production has since returned to normal, but the extent and duration of the impact was unprecedented. Since then, the company has said that spacing assumptions presented are not universally applicable in all areas of each basin.

Tudor, Pickering, Holt & Co., a major investment group, issued a report in 2019 that explained its stance on well spacing across the Permian. Oil producers are risking up to 20 percent of production potential by spacing wells to close, the report said. “Child wells get progressively worse relative to their parent well with tighter spacing.” The answer to the well spacing question has taken many forms in the last two years. Artificial intelligence firms, geophysicists, investment bankers, oilfield service firms and nearly every other entity in the Permian world have created solutions. Some believe right-sizing fracture size (fluid volumes, proppant packs) is the area to focus on. Others believe understanding the in-place geometry better before fracking will help. No matter the focus area for well spacing, the topic will remain relevant across the play for months, quarters and potentially years to come.

24 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Piecing Together The Shale Puzzle In Deloitte & Touche LLP’s take on shale oil and gas development, the oil and gas team issued a bold statement about well spacing, completion design and the overall mood investors and others might hold for the future. If Permian operators were to fully optimize completions and well spac-

Rock Quality Is Not The Main Differentiator Tier-level acreage doesn’t influence production as much as previously assumed. More than 40 percent of wells drilled outside the core of the Delaware Basin posted 180-day production volumes greater than 1,000 bopd.

ing, they could generate capital efficiency gains of roughly 23 percent. While some say efficiency gains have peaked, John England, partner for the oil and gas sector at Deloitte, said otherwise. “It’s time for the industry to choose the right well design, not the biggest, to maximize efficiencies and profitability.”

According to Deloitte, nearly 70 percent of all Permian wells are either under- or over-engineered. Permian operators could improve how well their money is spent (through well optimization) by up to 23 percent.

Optimization Optimization

Qualiity Quality

The Ultimate Stake

How Optimization Effects Efficiency

Size Size

Rethink The Role Of Size Wells drilled with complex fractures (more proppant, larger fluid volumes) aren’t better producers in many cases. “Despite an increase in completion intensity of more than 40 percent, approximately 50 percent of U.S. horizontal wells had the normalized 180-day productivity of below 750 boed in the past four years,” Deloitte said.

Should operators improve well design and spacing assumptions, they could collectively save up to $24 billion in capital efficiency gains. If that is achieved, Deloitte said, “E&Ps could achieve economic targets in a broader range of price scenarios, and thereby revive investor interest.”

Improvemen Improvements Im nts ts Solu Solutions utiions

Solutions To Consider More data, fluid tracers, better geologic understanding and anything else that will help operators know what their individual well is going to do once completed.

NorthAmericanShaleMagazine.com

Beating The Curve The dilemma with well spacing isn’t just about capital efficiency. Using a new ariticial intelligencebased research system, global firm IHS Markit has outlined a relatable issue for operators and investors to consider when thinking about shale: well decline rates. Because U.S. onshore wells decline by 35 percent (some up to 60 percent) in the first year of production, there is a need to harness production

opportunities in order to maintain or grow volumes over time. “The treadmill that producers are fighting is moving very fast,” said Raoul LeBlanc, vice president of North American Unconventional Oil & Gas at IHS Markit. “As producers come under pressure to restrain investment, this decline rate is becoming the main factor that promises to slow explosive U.S. production we’ve witnessed the past few years.”

Truth About the Curve Base production declined by 1.8 million barrels of oil per day (28 percent) in 2017 Base production will decline by 3.5 million barrels of oil per day (35) percent in 2019. High IPs offset steep absolute declines Wells drilled today show similar curves of the past. Operators are not pulling wells harder today and more intense fracking is not leading to faster decline rates. Overall base decline varies depending on how rapid production expanded in previous one to two years.

Bring In The AI To help operators and their completion engineers determine the best-case scenario for all wells, IHS and others have developed artificial intelligence that helps cover multiple data sets, criteria and well packages in quicker time. “Most engineers don’t have the time they once did to conduct in-depth, well-level, decline-curve analysis on a handful of wells, so the prospect of rapidly analyzing thousands of wells is attractive,” said Russell Roundtree, vice president of Upstream Data Analytics at IHS. Roundtree and his team have created an Automated Well Forecasted Technology that uses reserve estimations and engineering software. The system can be 26 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

used to assess play, reservoir, field, company, competitor performance and future production on an individual well level. According to IHS, the system uses smart technology to learn from adjacent wells in the same reservoir to improve accuracy. The system can also account for well interventions after initial completion to predict changes to production assumptions. A Silicon Valley start-up turned Houston oil firm, Tachyus, is also bringing artificial intelligence to the Permian to help with production assumptions. The company provides an AI-software that analyzes reservoir and downhole changes from fracking, waterfloods or steamfloods. The Tachyus option allows E&Ps to monitor or change the amount of fluid being pumped, choke settings impacting IP rates and other factors that will help optimize production of a well over time. The company earned a Series B round of funding worth $15 million.

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Going Digital With Sensors Investors are on-board with other forms of digitized, sensor-based, data-based oilfield technology. Rice Investment Group provided Calgarybased Cold Bore Technology Inc. with a second round of strategic funding in 2019 to help the company further its work with completion optimization technology. The company has created what it calls SmartPad, a technology that relies on a combination of valve positioning and pressure monitoring sensors, field data collection systems and proprietary software. The goal is to fully digitize completion operations. During a six month period

in 2019, Cold Bore signed several contacts for its SmartPad system, including six contracts with major Permian producers. Derek Rice, partner at Rice Investment Group, helped explain the rise of investments in company’s like Cold Bore. “The E&P business model is shifting from production growth to delivering sustainable shareholder returns through efficient resource development,” he said. “An operator’s completion activity typically accounts for over 70 percent of its capital budget and can be a source of dramatic cost reduction with the right digital solutions.”

OPTIMIZE FIELD OPERATIONS 1. Automated Data Capture

2. Move Data Instantly

IIOT sensor driven software z Consolidate all service company z data into one screen Gain acces to z “frac optimization software” GOverlap any data set with another z and produce new analytics i.e. Pumpdown, with wireline

z SmartPAD attaches all service data

via time stamp to the operational log

z SmartPAD auto populates

WellView or equivalent

z SmartPAD will also auto populate

analytic platforms like Spotfire

COLD BORE TECHNOLOGY

REVOLUTIONIZING THE OIL & GAS INDUSTRY

4. Transact Down to the Second Performance Based Contracts Automated contracts allow for unlimited z adjustments to contracts with no time to process implications Being able to transact contracts very z quickly means they can be used as performance incentives

3. Reconcile Contract Adjustments With the Click of a Button z Critical path function tracks operational times

through sensors on the wellheads

OPTIMIZE OFFICE OPERATIONS SOURCE: COLD BORE TECHNOLOGY

28 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

z Pit actual data vs expect3ed well plans to

understand deliverables and missed targets

z When NPT and PEGs (non productive time /

productivity efficiency gains) are found alerts are sent via dual handshake feature where they can be immediately reconciled

Complete Monitoring As the pressure on operators to optimize well spacing and completion design in relation to wellpad layout continues to increase, some companies are helping operators follow the fracking action more closely. Reveal Energy Services, a 2016 Equinor spinoff company, has now validated more than 10,000 fracturing stages using a simple, pressure-based technology. The system relies on pressure data, which is then reviewed and verified by completion scientists before returning to the client. The goal is to allow operations to remain on track during zipper jobs taking place on multi-well pads without stopping to gather assessment data. Since Reveal reached the 10,000 fracture map completion milestone, the company has created and since released a new product that assesses the presence and severity of fracture hits. Deep Imaging, a Tomball, Texas-based company, provides a similar service to Reveal. However, the Deep Imaging approach provides real-time analysis of fracture effectiveness and presence. The company uses fluid tracers to follow the route of a frack. Operators can identify the reasons for—and solutions to—frac hits in real-time with Deep Imaging tech.

“The problem is the industry is acting on limited data to make intricate operating decisions,” said David Moore, CEO and president. “Without the right instruments to see what is happening during a well completion, operators are experiencing frac hits and are unable to identify poor cement jobs, failed plugs and unclosed zippers, all of which,” he added, “leave valuable resources in the ground. With the ability to see a frac job in real-time, operators can now truly optimize full-field development.” Other companies, like Houston-based RevoChem, are taking a different approach to helping operators understand well communication and production potential as it relates to completion strategies and successfully executing jobs. Using a drop of oil, cores or cuttings, RevoChem analyzes subsurface fluid flow, surface production issues, drainage volume and well communication by assessing the geochemical footprint of their substance provided. Turn-around time takes only hours and samples are collected at the separator without interruption of oil production. PR

RevoChem v.s. Other Reservoir Monitoring Tools Instrument Installed on Well

Preparation Time

One Time or Long-Term Monitoring

Data Density

$30,000 $50,000 per well

Zero (collect produced oil at any time)

Long-term

High

Microseismic

> $3 million per well

Yes

1+ year

One time

Medium

Fiber-optics

> $3 million per well

Yes

1+ year

Multiple times in early stage

High

Tracer

~ $100,000 per well

Yes (tracer dose)

~3 months

Cost

Geochemical Fingerprinting

Medium

Scalable, Flexible & Cost-Effective SOURCE: REVOCHEM

NorthAmericanShaleMagazine.com

INNOVATIONS ACROSS THE PERMIAN Spanning nearly 75,000 square miles across 52 counties in West Texas and Southeast New Mexico, the Permian Basin has room to add innovations across the entire field. During the last two

years, several technology providers both large and small, established or new, and known or unknown, have brought field-specific innovation to the Permian in the areas of water, roads, wells, hydraulic fracturing fleets, sand and even outer space.

30 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Produced Water Treatment To help reduce costs associated with produced water, RWI Enhanced Evaporation unveiled a new technology that cuts the cost of produced water evaporation from $.20 cents per barrel to $.06/b. Designed from scratch and tested for two-and-a-half years at a 5-acre test site, the systems float on the evaporation pond and blow treated air and water droplets downward.

New-Era Pumps After a century relying on the same downhole artificial pump system, Veretek has brought a new approach to oilfield artificial pumping. The company has created and deployed a pump designed specifically to handle high sand concentrations and erratic gas slugs. In Q3 2019, Veretek reported record sales because of the V-pump. "Many of the artificial lift solutions available in the market today were not designed to pump the high sand concentrations and gas slugs common in today's oil wells. Centrifugal ESPs use an antiquated design that hasn't changed materially in more than a hundred years and forces production fluids to take a complicated and tortuous flow path,â&#x20AC;? said Greg Hottle, CEO. The V-pump is a contra-helical screw pump used in the production of oil and gas. In addition to its unique design, the pump decreases the number of well interventions needed for a shale wellâ&#x20AC;&#x2122;s first year of production.

Data Refinery Already recognized as an innovative and needed company by the Governor of New Mexico, Descartes Labs has gone to outer space to help with methane emissions monitoring. Descartes Labs uses a Sentinel-5P satellite, for now, to measure emissions from space. The satellite data is combined with other sources of information to form a data refinery. In the next two years, satellites with higher resolution capture ability will become available and Descartes Labs plans to add them to their fleet. NorthAmericanShaleMagazine.com

Sci-Fi Fluids With Countertrace LLCâ&#x20AC;&#x2122;s new macroparticle, hydraulic fracturing fluids can be better optimized. The company developed a patentpending polymer macroparticle that can be programmed to identify and selectively contain contaminants from complex fluids before they are reused or disposed of. Reusable macroparticle spheres, sized 1 mm to 10 mm in diameter, are covered in receptors that bind the targeted contaminant, signal the acquisition of the target via a color changing sensor and then is easily filtered for reclamation. This technology reduces the amount of chemicals and water needed in the extraction process.

Flare-To-Power

Satellites Watching Water For every barrel of oil produced in the Permian Basin, there are more than ten barrels of associated water that are sourced, recycled, transported and disposed of, according to Joshua Adler, CEO of Sourcewater. Adler has developed an oilfield water intelligence survey that utilizes proprietary satellite imagery analytics, government databases, market research and internet of things sensors that generate insights on oilfield water markets.

Calgary-based Certarus Ltd. is bringing its virtual natural gas pipeline to West Texas shale country. The company announced plans to deploy a flare gas capture process used to power an electric hydraulic fracturing operation in the Delaware and Midland Basins with a multinational American supermajor not yet disclosed. Certarus has been operating a system that captures, compresses and reutilizes natural gas streams throughout Canada.

Electrified Fleet Evolution Well Services is one of many electric frack fleet providers heading to the Permian. Evolutionâ&#x20AC;&#x2122;s multi-patented electric fracturing fleets are powered by a proprietary, built-for-purpose natural-gasburning turbine generator package, which is designed and packaged by its affiliate, Dynamis Power Solutions. The company has already started working with a major E&P on a 30-month contract.

32 NORTH AMERICAN SHALE MAGAZINE PERMIAN REPORT 2019/2020

Blockchain Blockchain, a technology used to secure and provide accurate data logs, is now in the Permian. Data Gumbo Corp., a Houston firm, has deployed what it calls the GumboNet for a water midstream firm. The blockchain-based tech is used to help handlers, users, disposal services and others maintain transparency of records for contracts and volume updates on the water system.

VR On The Road Virtual reality simulators could be the key to maintaining oil and gas production in some of North America’s most prolific—and truck-dependent—shale plays. In the Permian, a play short roughly 4,000 truck drivers, virtual reality is now used to mimic training seen in the aviation industry. Many Permian drivers now receive a textbook, on-the-road instruction and simulator access.

Direct Air Capture Oxy Low Carbon Ventures LLC, is using direct air capture sequestration technology to capture and store CO2 from the air into the ground permanently. Working with Carbon Engineering, the duo intends to build a plant in the Permian. The proposed project will start with one DAC plant that captures 500 kilotonnes of atmospheric CO2 per year and is expected to expand to include multiple DAC plants, each capable of capturing one megatonne of atmospheric CO2 annually.

Treated Sand Plants Hexion has brought new frack sand and new frack sand treatment and handling tech to the Permian. Working with Black Mountain Sand, Hexion has brought a resin-coated sand product to the field. A mobile resin coating service was added to give remote well sites a closer option for unique sand products. The system can treat several tons of sand and can be moved if necessary. PR

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