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Study: Permian producers will have to increase drilling to maintain production

At a time when independent oil and gas firms are under investor pressure to control costs, the recent pace of oil production growth in the Permian Basin means the region's operators will have to increase drilling activity just to maintain production, according to a study by IHS Markit.

The Permian Basin, which the U.S. Energy Information Administration estimates produced 4.5 million barrels per day of oil in October, is the most prolific of the U.S.' shale oil production basins and accounts for the lion's share of the country's year-over-year oil production growth.

According to the research firm, Permian Basin oil production started 2019 at 3.8 million barrels per day. IHS expects the Permian Basin's base decline rate — the cumulative decline in well production at wells online at the start of the year — will reach 40% by the end of the year.

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"Unless intentionally choked back, new individual unconventional wells decline very rapidly, often 65% to 85% in the first year," Raoul LeBlanc, IHS vice president of unconventional oil and gas, said. "So companies with many young wells in their inventory see significant declines in production compared to companies with a balance of younger and older wells."

LeBlanc said initial decline rates flatten over time, with production at older wells declining at 20% or less each year. "The key here is that older wells in an operator's inventory help offset the rapid declines of newer wells," he said.

IHS Markit said the "challenge of base declines" varies by firm and depends "especially on the decisions the firm has made concerning production growth and capital allocation."

The research firm expects total U.S. production growth to be 440,000 bbl/d in 2020 before leveling in 2021. Modest growth,"in stark contrast to the boom levels of recent years," will resume in 2022, according to IHS Markit.