Flowing Shale Wells Sooner Would Add Billions to Sector Cash Flow
Authors: Jacobs Trent 
Published: November 2019

Trimming the time that exists from the day drilling begins to the delivery of first oil represents a largely overlooked opportunity for US shale producers to improve free cash flow. In the Delaware Basin alone, accelerating this cycle time would save the shale sector more than a billion dollars.

This is according to a recently published study from Westwood Global Energy Group and the Project Production Institute (PPI), a San Francisco-based non-profit that promotes a method called “operations science” for major capital planning and management projects. Their findings offer a new quantitative look at the hidden costs of the shale sector’s nonproducing asset base.

The biggest issues boil down to two periods in the life of a shale well: when it is a drilled-but-uncompleted (DUC) well, and after it is completed but still waiting to be attached to a sales line. Holding too large an inventory of these dormant properties means locking up large sums of capital indefinitely. On the other hand, a lower balance of DUCs coupled with achieving initial production on a quicker basis frees more of that sunk capital to generate revenue.

DUCs and completed wells awaiting hookup are categorized in the study as a single measurable called “work in process.” This metric includes drilling and completions, but it is the nonoperational days where producers have the most room to improve. Excessive work in process also includes drilling permits sitting idle, pads that are built but not yet drilled upon, well design lead times, and other delays.

Amanda Goller, who leads research for PPI, acknowledges that while overall cycle times have remained relatively constant in spite of larger well pads and longer laterals, nonoperational time on multiwell pads is steadily creeping higher. This is attributed to the fact that, generally, the shale sector has not considered work in process an effective way to benchmark capital management•performance.

“Most oil companies have scheduling software to track what their work in process is—but that won’t tell them what it should be,” she explained, adding that, as a result, “The industry does not control its work-in-process inventory.”

Goller is both the director of analysts communications at PPI and the director of analytics with Strategic Project Solution, which develops operations science software. She said this class of software deviates from traditional planning programs because it “uses mathematical formulas to tell you pretty much in real time, where everything should be every day.”

The PPI website offers this definition: “Operations science focuses on the interaction between demand and production and the variability associated with either or both.”

As evidence that operational practices are a difference maker, Goller points to the wide disparity of cycle times among the 15 largest unconventional operators in the Delaware Basin. The study found that mean cycle times across the basin are 154 days, with the poorest performers averaging 233 days from spud to initial production. The top percentile sees first oil in 88 days.