Trends in Drilling and Completion Costs in the Permian Basin

Drilling and completion costs

According to IHS Markit, there will be a 10% increase in the cost index for the Permian region by the end of 2017 (the base year is assumed to be 2000).

Drilling costs in the Permian region are expected to increase 6.7% in 2017. The increase will be driven by costs related to land rigs and cementing.

Trends in Drilling and Completion Costs in the Permian Basin

Unconventional completion costs are expected to increase 20% in 2017. Unlike conventional resources where hydrocarbons are extracted using conventional vertical drilling techniques, hydrocarbons from unconventional resources are extracted using unconventional drilling techniques such as horizontal drilling and hydraulic fracturing, or fracking. The IHS expects the Permian fracking demand to increase 106% in 2017, while supply is expected to increase 60%. The increase in demand will likely result in an increase in fracking costs as well.

Operating expenses in the Permian region are expected to increase 2.7% in 2017. That will probably be driven mainly by transportation costs.

Apache (APA), Concho Resources (CXO), and Pioneer Resources (PXD) are key upstream players in the Permian region. Integrated companies with Permian exposure include Chevron (CVX) and ExxonMobil (XOM).