Go Big or Go Home, Part 2 - Will Large-Scale Pad Drilling Buoy Crude Output?

When crude oil prices crashed in the second half of 2014 and 2015, producers survived by becoming leaner and more efficient. That transition included drastic reductions in the rates paid to services companies while wringing ever more oil and gas out of each well and, in the process, permanently altering the economics of drilling and completion. This year, producers are again facing a lower-price environment; since early October (2018), crude prices have dropped more than 30%. In the current, more conservative investment environment, can producers do it again? Can additional value be squeezed out with bigger well pads and longer laterals? Today, we continue a series exploring the benefits and risks of these highly concentrated and highly complicated operations. 

In the first episode of this series, we explored the origins of pad drilling and the factors that catalyzed its widespread adoption across the oil patch. By splitting the substantial infrastructure, logistical, and rig-mobilization costs among multiple wells, pad drilling helped improve efficiency the last time crude prices dropped. That blog’s focus was on Northeast gas producers. Now we turn our attention to the crude-focused Permian. We’ll start with a look at a “mega-pad” with more than 60 wells and a couple of somewhat smaller pads, then conclude with a high-level analysis of the pros and cons of “going big.”

Superpad Drilling in the Permian

Everything is bigger in Texas, and in the Permian, they take pad drilling to a whole other level –– several other levels, in fact. Encana Corp., which in November 2018 announced a merger with Newfield Exploration valued at about $5.5 billion, has publicized the “cube” variation of pad drilling, so named because it taps multiple layers of source rock. Encana has employed the technique on what would typically be considered mammoth pads in the Montney Shale in Western Canada — but those pale in comparison to its ambitious Permian project. In Midland County, TX, the heart of the Permian’s Midland Basin, the company’s RAB Davidson mega-pad has 64 planned wells squeezed into 16 acres with laterals from the pad spaced around 400 feet from each other. Using Drillinginfo data, we can identify 33 wells drilled in 2015-16, each with 6,000- to 9,000-foot-long laterals.