FORT WORTH, Texas—On a productivity basis, Tier 1 Delaware Basin Wolfcamp wells are outperforming Tier 1 Midland Basin Wolfcamp wells, adjusted for lateral length, according to Matt Portillo, managing director of E&P researchat Tudor, Pickering, Holt & Co. Inc.

“This is purely on production performance,” Portillo told attendees of Hart Energy’s recent DUG Permian Basin conference. “There is a difference in cost.”

Meanwhile, the Permian Basin’s core acreage is tending to outperform the core of the Eagle Ford and Bakken. “And we continue to think the rates of return will continue to improve throughout the Permian as a whole,” he said.

Reduced drilling time to fewer than 15 days could save operators about $500,000 per well. Moving to pad development could knock out another $500,000 per well, he added.

Currently, Delaware and Midland breakeven economics are roughly 10% to 15% lower than in other popular oil basins.

“In thinking about where the market is likely to go, we continue to believe the core of both the Delaware and Midland basins will see the greatest acceleration of drilling activity than any of the three main big oil basins in the U.S.” The Delaware, in particular, “will drive a higher and faster rig count acceleration than the rig market currently expects,” Portillo said.

About 130 rigs were at work in the Permian. Portillo estimated that there is potential for twice as many in the next 18 months.

Jessica Pair, upstream manager for Stratas Advisors, said, “there is so much to learn from this basin as it continues to outshine expectations we previously had.”

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The firm has analyzed characteristics and results of about 6,800 of the basin’s wells that have been drilled since 2012. Three counties are core: Reeves and Loving counties in the Delaware Basin and Midland County in the Midland Basin.

The Permian Basin’s average EUR is currently 340,000 barrels of oil equivalent (Mboe), and median breakevens are between $40 a barrel (bbl) and more than $70/bbl, Pair said. For the top 25% of wells, however, the median breakeven in 2015 was between $25/bbl and $30/bbl. “Those outside this quartile, market prices must increase to about $60 and $70 a barrel for a majority of the region to break even,” she said.

The number of well completions grew 22% in the Delaware Basin in 2015, while the number held steady in the Midland Basin. Most of the increase in completions is in Reeves and Loving counties in the Delaware, she added.

Permian-wide, operators are using raw sand 65% of the time as proppant and slickwater have overtaken cross-linked gel, which is now about 34% of the fluid recipe, according to Pair. The average lateral is now 4,875 ft, up from about 2,700 ft in 2012. Proppant per lateral foot is about 1,150 pounds (lb), up from about 570 lb in 2012.

Michelle Michot Foss, chief energy economist and program manager for Bureau of Economic Geology’s Center for Energy Economics at the University of Texas at Austin, analyzed the 2009 to 2015 cash flow from operations of 16 E&P companies.

Cash flow averaged about $25/boe. In 2014, capex was $93.4 billion with about $50 billion of that spent on development and $40 billion roughly split on exploration expense and proved and unproved property acquisitions.

“To rebuild cash positions, companies will need returns substantially better than 10%,” she said.

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Large Permian producers’ cost for finding and development, cost of capital and a 10% return was $40 in 2014. Cash flow from operations was nearly $40/boe, and capex was more than $40, from 2009 to 2015.

Portillo said that Permian operators are better positioned than others among 28 producers he analyzed. At the 2016 strip, leverage among Permian producers is 2.0x. Among Appalachian producers, leverage is 4.7x; in the Williston Basin it is 5.0x. Large-cap producers have 2.7x, while small- and mid-cap producers have 4.2x. The average is 3.7x.

The total capital raised for deployment in the Permian Basin from 2013 to 2016 year-to-date is $19 billion.

“The Midland Basin did dominate capital programs in 2013 and 2014,” Portillo said. “In 2015, we started to see a move to Delaware Basin operators.

“Going forward, deal flow will likely accelerate in the Delaware Basin, based on improvements on returns we’ve seen. You’re going to see a shift in the industry’s perception of the resource quality and an improvement in capitalization toward the Delaware Basin.”

As for the oil-price outlook, Foss isn’t optimistic. “If you want to argue that oil prices will recover to $60, or to $70, or to $80, there needs to be some backing for that,” she said.

Countries accumulated a lot of debt between 2006 and 2014. “If you were India or Indonesia or [another country], you were buying oil beyond what price your customer base could afford. To continue to make those oil purchases, you borrowed. … This is a really terrible thing.”

The message was that a higher oil price could be sustained, and this was misleading, Foss said. Many governments are trying to dismantle the imbalance “and this is going to be more demand-responsive to prices going forward rather than less. In our own country, this is going to continue to be true.”

She added that another common idea today is that cheap U.S. natural gas will continue. “It’s not good to feel that way, given the tremendous call on gas that we’re creating through all of our demand built out.”

She noted that new LNG export facilities have pre-existing import facilities within their footprints.

Nissa Darbonne can be reached at ndarbonne@hartenergy.com.