For Shaky Upstream, Delaware is the Rock to Lean On

The Daley Note: August 4, 2023

As rig counts falter in many oil and gas plays, the Delaware Basin is proving the rock that producers can lean on. Powered by the majors and large independents, Delaware rig counts hit new highs for the year in July, bucking a downtrend elsewhere in the upstream.

Total Permian Basin rig counts were at 334 last Friday (July 28, 2023), according to weekly data in East Daley’s Energy Data Studio. While overall Permian rigs are down from 354 in January 2023, the Delaware sub-basin has held relatively stable, while Midland activity has decreased by 16 rigs (-10%). This brings Delaware rigs to 193, or a 57% share of the Permian, with the Midland at 144 rigs. 

Overall US rig counts peaked in November 2022 at 762 and have been in steady decline through 2023. US rigs totaled 643 in late July, a low for the year. Previous stalwarts like the ArkLaTex, Anadarko and Eagle Ford have seen momentum activity falter recently. The Delaware has outperformed all 15 US basins tracked in Energy Data Studio. 

The majors ExxonMobil (XOM) and Chevron (CVX) and many deep-pocketed independents continue to focus capital on the Delaware over the Midland. The top eight Permian operators with dual Delaware/Midland programs include XOM, CVX, Pioneer Natural Resources (PXD), Occidental Petroleum (OXY), ConocoPhillips (COP), EOG Resources (EOG), Devon Energy (DVN) and Diamondback Energy (FANG). These operators currently make up ~38% of all Permian rigs, with 77 rigs in the Delaware and 51 rigs in the Midland. Overall, the top Permian producers expect to see their 2023 average production grow 5-8% vs 2022, driven by the Delaware.  

CVX increased its Permian production by 11% Y-o-Y, to 772 Mboe/d from 2Q22 to 2Q23. CVX accounts for 4% (930 MMcf/d) of total Permian production. Growth from CVX in the Delaware will increase throughput on G&P systems owned by Enterprise (EPD), Targa (TRGP) and Energy Transfer (ET). Roughly 60% of the total market share in West Texas and New Mexico is concentrated on these three systems.  

As noted in Natural Gas Weekly, the Permian Basin pipeline sample hit a record high in July. Daily interstate pipeline scrapes averaged 6.0 Bcf/d through late July vs a 5.6 Bcf/d average in June 2023. The previously observed high was last seen in March of this year, averaging 5.9 Bcf/d for the month.

The sub-basin pipeline samples support that the Delaware is driving growth while the Midland sub-basin remains relatively flat M-o-M. have been averaging ~650 Mb/d in the 1H23 and Louisiana Gulf of Mexico production is ~1.5 Mb/d. –  Maria Paz Urdaneta Tickers: PXD, OXY, COP, EOG, XOM, DVN, FANG, CVX, EPD, TRGP, ET

Upcoming Webinar: Organically Grown: The Shifting Landscape For Growth in the Midstream Sector

August 16, 2023 | 10 AM MT | Online Webinar

Understanding how the commodity markets are influencing the business risk of the assets midstream companies own is a core component of the East Daley process and key to understanding how the market will evolve.  This webinar will focus on reviewing the Base Business Risk Indicator (formerly the Treadmill) a key East Daley analysis that ties fundamental commodity analysis to the commercial outcomes of assets across the gas, oil, and NGL sectors.  We will review where commodity markets are headed and which assets are capturing value, which are losing value, and pontificate on what could change. 

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