Westwood Research Highlights WIP Measurement
Oil and gas sector "cycle time" is a critical metric of operator cash flow that is underutilized, pointing to greater efficiencies in the sector, according to the latest research by consultancy Westwood Global Energy.
Defined as the time it takes for an exploration firm to drill, complete and put a well on production, Westwood notes that it is "not a metric the industry or investors have traditionally focused" yet which as a "major impact" on overall profitability.
In a joint research initiative, Westwood’s Unconventional team worked with the Project Production Institute, to study the top 15 operators in the Delaware basin.
“This study finds a huge range of cycle time between operators – ranging from 110 days to over 200 days – in the Delaware basin, and with roughly 60 percent of the cycle time being non-operational time” said James Jang, analyst at Westwood and author of the report.
Work-in-process ‘Critical’
A key finding of this new process was critical nature of work-in-process, or WIP, analysis when comparing potential projects.
“WIP is the set of wells that have been spud but have not been put on production including all wells being worked on or waiting for next operation. Almost all operators track WIP, but few know how much WIP there should be and even fewer operators are actively controlling WIP,” Yang states.
In this new study, Westwood identifies the best operators in terms of spud to first production cycle time and provides an initial estimate on the excess capital potentially tied up in WIP.
Strong Incentive
Utilizing a simple methodology to analyze and benchmark the efficiency of unconventional field development, the report aims to pave the way for greater project utilization and by extension more reliable breakbulk demand forecasts.
“In a time where capital discipline is very much to the fore. Naturally, the operators have a strong incentive to unlock free cash flow by better managing WIP,” Yang adds.
Headquartered in London, Westwood Global Energy provides market research and consulting services to the energy industry worldwide.
Photo: Delaware rig. Credit: Wikimedia
Defined as the time it takes for an exploration firm to drill, complete and put a well on production, Westwood notes that it is "not a metric the industry or investors have traditionally focused" yet which as a "major impact" on overall profitability.
In a joint research initiative, Westwood’s Unconventional team worked with the Project Production Institute, to study the top 15 operators in the Delaware basin.
“This study finds a huge range of cycle time between operators – ranging from 110 days to over 200 days – in the Delaware basin, and with roughly 60 percent of the cycle time being non-operational time” said James Jang, analyst at Westwood and author of the report.
Work-in-process ‘Critical’
A key finding of this new process was critical nature of work-in-process, or WIP, analysis when comparing potential projects.
“WIP is the set of wells that have been spud but have not been put on production including all wells being worked on or waiting for next operation. Almost all operators track WIP, but few know how much WIP there should be and even fewer operators are actively controlling WIP,” Yang states.
In this new study, Westwood identifies the best operators in terms of spud to first production cycle time and provides an initial estimate on the excess capital potentially tied up in WIP.
Strong Incentive
Utilizing a simple methodology to analyze and benchmark the efficiency of unconventional field development, the report aims to pave the way for greater project utilization and by extension more reliable breakbulk demand forecasts.
“In a time where capital discipline is very much to the fore. Naturally, the operators have a strong incentive to unlock free cash flow by better managing WIP,” Yang adds.
Headquartered in London, Westwood Global Energy provides market research and consulting services to the energy industry worldwide.
Photo: Delaware rig. Credit: Wikimedia
