Well costs in the lower 48 should decline 10% this year and 1% in 2025, Wood Mackenzie projects in a recent report. The firm attributes the drop in prices to declining costs for oil country tubular goods, proppant and diesel, as well as more efficient drilling and completion operations.

“Since 2020, rig efficiency has increased by over 30% and pressure pumping efficiency has increased between 30% and 100%, depending on the technology used,” Wood Mackenzie details.

Despite the efficiency gains, the need for rigs should grow next year, Wood Mackenzie says. “We forecast rig demand to increase by 40 units by the end of 2025, led by gas plays and the Permian,” the firm clarifies.

This demand will not prove strong enough to prompt significant capacity additions, Wood Mackenzie predicts. Instead, the service company suggests service companies will look to maintain high utilization rates to preserve prices and margin.

“Rig and pressure pumping rates are trending lower but have remained mostly sticky, as demand for high-performance and technology-focused equipment remains strong,” Wood Mackenzie observes. With pricing unlikely to fall significantly, future cost reductions “must come from additional efficiency improvements,” the firm advises.

According to Wood Mackenzie, future cost trends depend on the interplay between efficiency and gradually rising unit pricing, meaning price trends will be operator-dependent based on the technology and equipment used.

“Operators are looking for step-change cost savings that are sustainable through market cycles,” Wood Mackenzie writes. “The deployment of ‘simulfrac’ and ‘trimulfrac’ (to complete) two or three wells at once provides step-change savings. These techniques increase pumping hours per day, reducing spend on idle time and fuel. Fewer completion days save money on rentals and ancillary services.”

Triple Impact

Wood Mackenzie highlights electric pumping units as another enabler of faster and cheaper operations, noting that electric units use less space, require fewer on-site workers and need less maintenance than diesel equipment. “Operators that have adopted electric frac spreads and simulfracs have already released significant cost savings,” it says.

“The largest producers with the scale to commit to longer-term contracts (one-three years) for new equipment will release additional efficiency gains and keep costs lower,” the firm assesses. “The most in-demand equipment will be high-spec, efficient and enable lower emissions. Simulfrac and trimulfrac will be the industry standard. Artificial intelligence, machine learning, downhole monitoring and big data could unlock further upside.”

While technological advances should continue, oil and gas prices have the largest effect on drilling and completion costs. “Rising prices have a triple impact of higher input costs for fuel, higher indirect transport costs and higher activity levels, increasing demand for oil field materials and services,” Wood Mackenzie explains.

“Lower prices for consumables like OCTG and proppant are the biggest drivers of cost deflation,” the firm continues. “Relatively stable prices for rigs and frac are necessary to allow for faster operations, as high-spec kit and services are critical.”

A slide deck with graphs related to well costs, efficiency gains, activity levels and rig rates can be downloaded by filling out a form on Wood Mackenzie’s website (the form appears to the right on desktop and at the top of the page on mobile). For the full report on the trends discussed above, see 2024 Tight Oil Costs: the Push and Pull Between Efficiency and OFS Rates.