Stratas Advisors is a Hart Energy company.

Formations being developed in the Central Basin Platform (CBP) have led us to revise our third-quarter 2014 Permian Basin unconventional production forecast by 10%. Historically, the CBP has seen resources extracted through conventional means in a number of different formations. Recent company disclosures and state drilling records suggest that unconventional resource development in the CBP has the potential to add to Permian Basin oil production.

Legacy operators such as Chevron, Apache Corp. and Occidental Petroleum hold large positions in the Permian Basin. These large legacy acreage-holders have done mostly conventional drilling and EOR projects. The smaller operators, on the other hand, such as Diamondback Energy, Laredo Petroleum and Parsley Energy, grabbed acreage and have had success utilizing unconventional techniques to extract resources throughout the Permian Basin. Success in horizontal development by smaller operators has triggered many legacy operators to shift to horizontal development.

According to the state historical well data, Chevron, Devon Energy, Royal Dutch Shell and Anadarko Petroleum are the top operators drilling for unconventional stacked formations in the CBP such as the Trend area, Bone Spring, Wolfcamp and Spraberry. Chevron and Devon’s unconventional activities in the CBP are mainly focused in Ector and Andrews counties in Texas, whereas Anadarko and Shell’s CBP unconventional activities are focused in Phantom Field in Ward County, Texas.

The accumulated playwide forecast was revised upward by 4% for the 2014 to 2030 forecast period to account for unconventional development in the CBP. Our revision does not consider conventional targets such as Tubb, Wichita-Albany, Strawn, Clear Fork and other vertically drilled formations in the CBP. Unlike unconventional activities in the Delaware and Midland basins, we do not expect short-term horizontal development will be rapidly ramping up in the CBP.

Operators that have conventional activities in the CBP are currently testing horizontal redevelopment. Apache reported that it is applying horizontal development techniques in the Wichita-Albany and Strawn zones in the CBP. If the horizontal development picks up in the Wichita-Albany and Strawn formations, we will consider adding those formations to our North American Shale Quarterly unconventional Permian coverage.

The historical operator-level production estimate for the CBP was also updated from state records. The estimated production for Chevron, Devon, Shell and Anadarko for the 2014 to 2030 forecast period was increased by 11%, 1%, 44% and 26%, respectively. Other operators’ forecast categorized under the “others” forecast was also revised by 9% for the period.

The playwide Permian forecast now peaks at 2.13 million barrels of oil equivalent per day (MMboe/d) in 2030. Some 58% of 2014 production contribution is estimated from the Midland Basin, 32% from the Delaware Basin and 10% from the CBP. Our short-term production forecast accounts for the gradual ramp-up of production given the time needed for the delineation of unconventional formations, and ramping up of mid- and long-term forecasts to account for successful testing of different stacked formations. We continue to see historical production pointing to oil-driven activity in the Permian Basin. Our production splits average 65.5% oil, 1.5% condensate, 15% NGL, and 18% dry gas for the 2014 to 2030 forecast period.

Given stacked potential of the play, the Permian Basin will be one of the hottest plays in North America for decades. Although vertical drilling still holds a substantial proportion of activity in the play, horizontal drilling has ramped up over the past few years and is likely to hold a larger proportion of activity. Both 2013 and year-to-date 2014 have proved busy for M&A in the play and we expect more to come, as larger operators try to consolidate their assets and many smaller pure-play operators increase their acreage positions.

Permian Basin gross operated production is forecast to exceed 2 MMboe/d by 2030, with Central Basin Platform volumes contributing 10%.

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