Analysts predict more drilling in US shale plays in 2014

Houston (Platts)--27Dec2013/358 pm EST/2058 GMT

With thousands of shale and other unconventional wells drilled in the US this year, could 2014 possibly get any better? Most analysts seem to think so.

If more equals better, then 2014 will likely be another sizzling year for the drill bit in the US, with a cascade of funds chasing a horde of anticipated initial public offerings, expanded oil-company development programs, greater drilling efficiencies and more horizontal wells than ever, analysts and upstream experts say.

"The focus will continue to be on the core resource plays," Topeka Capital Markets analyst Gabriele Sorbara said. "Dollars are going into development mode."

To that end, "I think you'll see a robust IPO market," Sorbara said, as private operators gear up to grow in established plays such as the Permian Basin in West Texas, the Eagle Ford in South Texas, the Bakken in North Dakota and Montana, the Niobrara in Colorado, and the Utica and Marcellus plays in Ohio and Pennsylvania.

Moreover, capital budget hikes will be "very robust -- north of 10%, with a lot of guys ramping up and adding rigs in the core plays," Sorbara said. "We'll see even more increased efficiencies, increasing the need for higher [capital expenditures], and there will be a lot of equity raises and debt offerings."

Sorbara predicted IPOs next year will focus on the Utica Shale and especially the Permian Basin of West Texas, where he said "tremendous amounts of capital are required to unlock the upside via horizontal development."

Earlier this month, investment bank Barclays Capital projected in its twice-annual global spending survey that US upstream companies will spend a collective $156 billion next year, up 8% from $144 billion in 2013.

And the US Energy Information Administration's Annual Energy Outlook for 2014 projected shale and unconventional oil production to peak in 2021 at 4.8 million b/d, or 51% of total US crude output, up from 2.3 million b/d, or 35% in 2012.

After 2021, in EIA's view, shale supplies will decline "as more development moves into less-productive areas."

RISING WELL COUNT

Accordingly, analysts predict a steady upward march in the US well count. RBC Capital Markets in a recent report projected a 2014 horizontal well count of 20,061 for the US. That number includes 12,399 wells in the Permian, Eagle Ford, Bakken and Marcellus, which together are known as the Big Four. Well figures include oil, liquids and gas plays.

That compares to an estimated 18,580 wells this year, 10,793 of them in the Big Four. And for 2015, RBC also foresees 21,551 US wells, 13,553 of them from the four major plays.

The percentage of all US wells accounted for by the Big Four plays is also forecast to rise, accounting for 58% this year, 62% next year and 63% in 2015, according to RBC.

"In 2014 and 2015, we are projecting that the horizontal well count will increase by about 8% and 7% year-on-year, [respectively], led by the Permian and Niobrara," the Canadian investment bank said.

In lockstep with more wells anticipated, the US land rig count is also pegged to increase. RBC last week increased its US land rig forecast for 2014 to 1,756, up 3% from 1,708 this year. That includes an estimated 1,184 horizontal rigs in shale and unconventional plays, up 8% from 1,101 this year.

"We forecast that by the end of 2014, horizontal rigs will comprise 70% of all working US land rigs versus 66% currently," RBC said.

Analysts generally foresee the Permian, which has seen almost a century of drilling, out front in new upstream activity next year because it benefits from an ongoing shift to horizontal drilling. The basin has come late to horizontal wells -- which have proven effective in unconventional plays elsewhere -- because verticals there have been so profitable for so long.

RBC has predicted a 30% year-over-year horizontal well count growth in the Permian next year, to 3,125 wells, and 18% year-over-year for the Niobrara, to 1,091 wells in 2014 and 1,252 in 2015.

Even within a multi-layered or "stacked" basin such as the Permian, where a dozen horizons are either proven or thought productive, some zones that have long produced using vertical well development -- such as the Spraberry, a field that dates from the 1940s and found around 6,000-8,000 foot depths -- are only now being tested for horizontal potential.

UNDRILLED WELLS

Barclays said new technology and a "growing inventory of undrilled wells" top its short list of things to watch for in the new year.

"We think the stage has already been set for a prolific period of activity in the US land basins," the UK-based investment bank said in a recent report. "We are becoming increasingly confident that activity levels will rise by double-digit percentages year-over-year in the US."

Proved oil reserves have surged to the highest level in 30 years, and many North American independents are "sitting on multiple years and in some cases decades worth of drilling inventory," Barclays said.

Longtime Spraberry producer and leading Permian operator Pioneer Natural Resources, for example, has roughly 10,000 potential undrilled wells in the Permian. The company recently announced accelerated spending in the basin, where it has continually proved up untested areas such as the Permian's northern Midland sub-basin.

Among newer emerging plays, analysts say one to watch is the Tuscaloosa Marine Shale, an oil play that straddles Louisiana and Mississippi. It is an older field where some vertical drilling took place in the last several decades but did not produce in notable volumes. One issue is depth. The oil is found at depths of up to 15,000 feet, making it more expensive to produce. And recent drilling has encountered problems with some particular zones, analysts said.

However, "we'll know by year-end 2014 if it's a real play or not," Stifel Nicolaus analyst Michael Scialla said. "It's a matter of, can they get the wells to be consistently economic? So far [companies] haven't proved that."

Meanwhile, increased drilling efficiencies will also continue to be a driver of shale and unconventional activity in 2014, particularly in the maturing Bakken and Eagle Ford fields in North Dakota/Montana and South Texas, respectively, analysts said.

--Starr Spencer, starr.spencer@platts.com
--Edited by Annie Siebert, ann.siebert@platts.com

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