Unveiling the Key Economic Factors Behind the Diverging Success Between the Two Basins
The Powder River Basin (PRB) has attracted renewed interest from oil and gas companies, yet it still trails behind more established regions like the Delaware Basin. While the PRB boasts substantial oil potential through its stacked pay zones and improved horizontal drilling technology, challenges remain. Regulatory and environmental risks and fluctuating oil prices present hurdles for operators in the basin. Despite favorable geological conditions, the PRB remains underdeveloped compared to the Delaware Basin, where years of investment in infrastructure and advanced drilling techniques have led to booming production and higher investor confidence. By leveraging Well Economics Data in Well Data Analytics, we analyzed which factors are responsible for the slower development pace in the PRB, which continues to limit its ability to compete head-to-head with the Delaware Basin regarding production and profitability. For example, the analysis revealed that despite the Powder River Basin’s promising geology, its significantly higher costs—up to $12.8 per barrel compared to $5.5 in the Delaware Basin—continue to hinder its competitiveness against more developed basins.
According to data pulled from Well Data Analytics, the Delaware Basin and the PRB exhibit contrasting oil and gas activity despite both being resource-rich. The Delaware Basin, with approximately 95,000 wells, strongly emphasizes horizontal drilling, with 96% of its 168 active rigs targeting horizontal wells. Since 2022, approximately 40% of its wells have been drilled in the Wolfcamp and ~28% in the Bone Spring formations. Conversely, the Powder River Basin, despite a similar well count of around 96,000, is dominated by vertical wells, with 86% vertical and only 3.7% horizontal wells. Its average rig count is significantly lower at 14, with 85% of the rigs drilling horizontal wells, and roughly 50% of recent wells targeting the Niobrara formation (Figure 1). While the Delaware Basin thrives with horizontal drilling and formation diversity, the PRB has not experienced the same growth. This is despite industry leaders considering it comparable to prominent basins like the Permian, SCOOP, or STACK due to its oil richness and stacked horizons.
Taking a deeper look at both basins' data, TGS explores and analyzes the potential reasons behind the basin's lack of development. According to an article published by TGS back in August, the average oil production in the first 90 days of a PRB oil-type well ranks 8th when compared to an average well in the Delaware basin, which ranks 2nd. Similarly, figures 2 & 3 showcase type curves for oil, gas, and water for a type well put on production in the Niobrara Formation and the Wolfcamp Formation after January 2022, respectively. Higher volumes always translate into higher economics, and Delaware wells produce more of it all, including the not-so-wanted produced water. In addition to volumes, the total variable cost to produce a barrel of oil equivalent in the Delaware Basin is significantly lower at close to $5.5/boe compared to the PRB, which can be as high as $12.8/boe. This value encompasses lease operating expenses, GP&T and water management costs. On top of it all, much of the oil and gas drilling in the PRB occurs on federal land, particularly in areas managed by the BLM. The presence of federal land introduces regulatory complexity, such as environmental reviews and restrictions related to wildlife protection, which can slow development compared to areas with a higher concentration of private or state land.
Running the TGS well economics model on the type curves (Figures 2 & 3) reveals distinct differences in economic performance between the Delaware Basin and the Powder River Basin. The Delaware Basin shows strong results, with a 44.2% internal rate of return, an NPV of $16.1 million, a 2.2-year payout period, and a breakeven price of ~$29.1 per barrel. In contrast, the Powder River Basin type curve yields a 20.9% internal rate of return, an NPV of $6.9 million, a longer 3.5-year payout period, and a higher breakeven price of $50.1 per barrel. While these are still solid economic results, they are less attractive than those obtained in the Delaware Basin.
Nevertheless, the PRB is gaining ground, with companies like Devon and EOG Resources increasingly investing in the area. Also, on October 15, 2024, Peak Resources LP disclosed the terms for its unit IPO in an S-1/A filing. The company is offering 4.7 million units at a price range of $13.00 to $15.00 to $65.8 million, intending to raise capital for future development in the basin.
In conclusion, while the PRB has significant untapped potential, its slower development and market risks make it less attractive than the booming Delaware Basin. The PRB may offer long-term gains for investors, but the Delaware Basin remains the more lucrative choice for now.
For more information about TGS Well Data Analytics or to schedule a demo, contact us at WDPSales@tgs.com.
Figure 1. Well Data Analytics Dashboard: Top 5 Operators, Production by Vintage, Well Percentage by Trajectory for the Delaware Basin (left-hand side in red) and the Powder River Basin (right-hand side in blue).
Figure 2. Type Curves in the Niobrara Formation (PRB) for horizontal wells put on production after January 2022. Well economic outputs are displayed on the right-hand side, run at $75/bbl and $3.5/mcf flat.
Figure 3. Type Curves in the Wolfcamp Formation (Delaware Basin) for horizontal wells put on production after January 2022. Well economic outputs are displayed on the right-hand side, run at $75/bbl and $3.5/mcf flat.
