While the incredible amount of resource unlocked in North America by the widespread application of horizontal drilling and completion techniques in unconventional oil and liquids-rich reservoirs is well understood in 2020, what remains enigmatic and debated even among industry experts is how these reservoirs will perform towards the end of their lives on primary recovery. Specifically, there is an understandable concern that relative permeability issues arising from reservoir depletion below the bubble point, commonly seen in conventional reservoirs, may impair recoveries by truncating the tail end of well lives. We have written extensively on this topic of rising gas-oil ratios (GORs) and so-called "bubble point death" (see below) and suffice it to say we do not believe it is a pervasive issue in major horizontal oil plays in the U.S.
While looking at a basin-aggregate data set, such as 2014 Midland Basin wells in our Central sub-play, one can often observe a steep decline at the tail end of the average well performance line (Figure 1). Based on this, one may interpret this as evidence of bubble point behavior and be tempted to hang a forecast on that trend. However, we believe it's important to consider the data informing the average, in particular the sample size, along the time series. In this instance, the final month of data contains only 18 wells, or 5% of the original sample. While this "tail end" subset does not show materially different decline or GOR profiles compared to the total population (Figure 2), the wells are significantly less productive and drag the average line down (Figure 3). In other words, the steep decline in the final months of this curve is an artifact of survivorship bias as opposed to obvious evidence of reservoir damage, in our view. We believe data artifacts like this are often the culprit where there is a "step change" in an average well curve's trajectory.
FIGURE 1 | 2014 Midland Basin Central - Production Rate
FIGURE 2 | 2014 Midland Central - Tail Wells vs. Total Sample (Declines)
FIGURE 3 | 2014 Midland Central – Tail Wells vs. Total Sample (Rate vs. Cumulative)