HEW-TEX INDUSTRY NEWS ROOM

OilPrice.com – By Tsvetana Paraskova – Jan 16, 2018, 5:00 PM CST

The ‘hottest shale play’ has been the media’s favorite cliché for the Permian Basin over the past year. And while cliché, the basin straddling West Texas and New Mexico has lived up to this description—its oil production, unlike that in other basins, did not fall off a cliff during the downturn, it recently beat its own record from the 1970s, and is expected to continue to increase production more than any other U.S. shale play and account for most of the American oil production growth.

The Permian has been pumping oil since the 1920s. Conventional oil production started to decline in the late 1970s, but the fracking boom revitalized the oil-producing region in the early 2010s, and as oil prices rose last year, the Permian beat its previous record for annual oil production dating back to 1973.

The Permian surge in oil production is also revitalizing other industries in small Texas towns, from frac sand trucking and oilfield services to overbooked hotels and full restaurants, as Robert Rapier wrote in Forbes about his recent visit to the Permian.

This shale basin will continue to drive the U.S. oil production growth in the short to medium term, forecasts suggest. But analysts have started to question just how long the Permian can keep pumping at this relentless pace before hitting geological or financial constraints.

The Permian is now nearing 2.8 million bpd of oil production, EIA data shows. To compare, in October 2013, before the oil price crash, Permian production was 1.29 million bpd. In January and February 2016, when oil prices dipped to below $30 a barrel, the Permian production was still ticking up and exceeded 2 million bpd, compared to drops in all other main producing shale regions, including the Eagle Ford and the Bakken. Read more…

Robert Rapier , FORBES CONTRIBUTOR
Opinions expressed by Forbes Contributors are their own.

Boomtown

Last week my day job took me to the Permian Basin. A colleague and I arrived late at night at our hotel in Fort Stockton, Texas. The hotel parking lot was full. The vehicles in the parking lot represented every type of oilfield-related business imaginable.

At the front desk, I was told that the hotel had overbooked us. So, we had to search for new accommodations at 11 p.m, but every hotel parking lot in town was full.

After an hour of searching, we finally located a pair of the last rooms in town. The carpet in my room smelled like crude oil, but I was happy to have a bed for the night.

That’s the way it goes in the Permian these days. In fact, I heard someone say that if you can’t make money in the Permian right now, you aren’t trying.

A Century of Production

After the oil price crash that began in mid-2014, crude oil production growth in the U.S. stalled. In 2016, annual production in the Bakken and Eagle Ford formations fell by 10-20%, but production in the Permian Basin continued to grow. Read more…

WSJ : Alison Sider : Jan. 10, 2018 : 2:18pm

Oil prices have been grinding higher and higher, spurring forecasters to predict they could hit $80 a barrel this year.

Oil is already trading at its highest levels in three years after a 22% gain for U.S. crude futures over the past 12 months, and some market watchers expect prices to take out new milestones as the rally continues in 2018.

On Wednesday, U.S. crude futures rose 0.97% to $63.57 a barrel and Brent, the global benchmark, was up 0.55% at $69.20 a barrel.

Byron Wien, vice chairman of the Private Wealth Solutions group at Blackstone, put $80 West Texas Intermediate on his annual list of 10 surprises in store for markets this year.

“Demand is going to continue to increase faster than supply,” he said in an interview. “It’s out of consensus, but people are underestimating the expanding middle class in the developing world and their resultant demand.”

Shrinking inventories, commitment by the Organization of the Petroleum Exporting Countries to cut output through the year, and only modest production growth from outside the group could all also push prices higher, he said.

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Production cuts by OPEC and other major producers and unexpectedly strong demand were a potent mix last year, helping pull prices out of a three year downturn.

Citigroup also said $80 is a possibility. In a note Tuesday, the bank said the right combination of geopolitical crises could tip crude prices into the $70 to $80 range. With supplies already so tight, any unexpected disruption could cause prices to surge.

Much of last year was relatively calm in the oil world, with unexpected interruptions reducing supplies by about 2 million barrels a day at the end of last year—half the 2016 peak. But there are looming risks to production in Iran, Iraq, Libya, Nigeria, and Venezuela.

“After hitting a 5-year low in September 2017, global oil supply disruptions could materially increase in 2018” and and in particular from OPEC countries, the Citi analysts said.

Still, others remain skeptical. Analysts at Commerzbank said Wednesday that market participants are ignoring the risks of an onslaught of new production from U.S. shale—something that looks increasingly likely at these high prices.

“Selective perception is the reason why the market is completely ignoring this just now. Attention is paid only to news that tallies with the picture of rising prices,” the analysts wrote.

Citi also cautioned in a separate note last week that high prices might not last.

“Higher oil prices (WTI>$60, Brent>$65) now will lead to a correction later in the year,” analysts wrote.

in Closing Bell Story / Energy News / Oilfield Services   by— Oil & Gas 360 – December 27, 2017

That’s on top of 35% rise in 2017; 51% of surveyed oil and gas companies thought rising oil field costs would erase at least 75% of their hard-won efficiency gains achieved during downturn

From the Houston Chronicle

Oil producers are convinced they’ll have to pay more to drill wells and pump oil next year as crude prices surge toward the $60-a-barrel mark. In a recent survey by the British bank Barclays, 90 percent of U.S. oil producers said they expect oil field costs to climb next year.

Those costs rose in places like the Permian Basin in West Texas this year, as drillers sent oil rigs back into

Almost two-thirds of the surveyed companies said overall costs could rise up to 10 percent. Hydraulic fracturing costs could climb as much as 15 percent, most of the companies said.

That’s good news for Houston’s crop of oil field services companies – companies that cut tens of thousands of jobs in 2015 and 2016 after crude prices collapsed. Services companies, such as Halliburton and Baker Hughes, both of Houston, and Schlumberger, which maintains one of its principal offices here, provided deep discounts to their customers and accepted greatly reduced profit margins to hold onto business during the downturn.

They slashed jobs to lower costs – for both the services firms and their production company customers.

But with U.S. drillers planning to pump a record amount of oil, rising services costs will follow. Across North America, oil and gas producers plan to increase spending 21 percent next year after boosting spending 35 percent this year, according to Barclays.

Much of this year’s spending surge was concentrated in West Texas’ prolific Permian Basin. Permian production hit a record 815 million barrels in 2017, blowing past the previous mark of 790 million barrels set in 1973, business research firm IHS Markit said Tuesday.

“The magnitude of the rebound in Permian Basin liquids production is unprecedented,” analyst Reed Olmstead said in a report. “Not so long ago, many in the industry were saying the Permian was dead.”

In 1973, operators pumped an average of 2.16 million barrels of oil and gas liquids per day. Permian volumes this year will average 2.75 million barrels per day, IHS said, a rise of more than 25 percent, or about 600,000 barrels, per day. By the end of 2018, the Permian surge should push total U.S. liquids production to an all-time high of 10.5 million barrels per day, Olmstead said.

“The implications for U.S. energy security are significant,” Olmstead said, “since we have become, in a relatively short period of time, more self-sufficient in terms of energy supply and are less reliant on imports.”

The Barclays survey was based on oil prices hovering around $55 a barrel next year. On Tuesday, U.S. crude prices climbed 2.6 percent to settle at $59.97 a barrel, the highest close since June 2015. The rally came after news that an explosion crippled a Libyan pipeline.

Rising services costs will test whether oil producers can make money on cheap oil. Over the past few years, U.S. energy companies have touted efficiency gains that have made it cheaper to produce oil and gas. Those efficiency gains are a mix of low oil field services prices and technological breakthroughs.

More than half of the surveyed companies (51 percent) thought rising oil field costs would erase at least 75 percent of those efficiency gains.

Market Realist – By Keisha Bandz  – Dec 14, 2017 | 9:43 AM

Market Realist – By Keisha Bandz – Dec 14, 2017 | 9:43 AM

Permian production forecasts

In its November drilling productivity report, the EIA (U.S. Energy Information Administration) stated that oil production is expected to rise 58,000 barrels per day in December 2017 compared to November. In contrast, the Niobrara region, which has the second-highest production growth forecast, is expected to increase its production by 7,000 barrels per day in December.

Total oil production at major US shales is expected to rise 80,000 barrels per day, implying that ~73% of that growth will come from the Permian Basin.

On a year-over-year basis, oil production growth is expected to be the highest in the Permian Basin in December 2017, as you can see in the above chart. However, natural gas production is expected to be the highest in the Appalachian region (Marcellus and Utica) on a year-over-year basis.

Key Marcellus players include Cabot Oil & Gas (COG) and Range Resources (RRC), while Chesapeake Energy (CHK) is one of the top players in the Utica.

In the following part, we’ll look at production trends and forecasts in various regions of the Permian this year.

Market Realist – By Keisha Bandz – Dec 14, 2017 | 9:43 AM

Permian crude production by play

According to the EIA (U.S. Energy Information Administration), Permian Basin production will increase to 4 million barrels per day by 2019.

The Wolfcamp Midland and Wolfcamp Delaware benches are expected to see the highest production growth compared to the Spraberry, Bone Spring, and other formations in the Permian. Both the Wolfcamp Midland and Wolfcamp Delaware are expected to add 1 million barrels per day in production by 2019.

According to a report by IHS Markit, among all the Wolfcamp Midland benches, Wolfcamp B is favored by operators. The report noted that the leading operator in the region in terms of the number of wells in the Wolfcamp (approximately 170) saw increased productivity, with an increase from 64 boe/d (barrels of oil equivalent per day) per 1,000 lateral feet in 2014 to 105 boe/d in 2016.

A separate report noted that the Wolfcamp Delaware on average has shorter lateral lengths than the Wolfcamp Midland. Companies with positions in the Wolfcamp benches include Apache (APA), Callon Petroleum (CPE), Cimarex Energy (XEC), EP Energy (EPE), and Parsley Energy (PE).

IHS Markit projects that the Permian region will increase its horizontal rig count by 32% from 2017 to 2022. We’ll look at the trends in Permian rigs in the next part of this series.

Market Realist – By Keisha Bandz – Dec 14, 2017 | 9:43 AM

Permian rig counts

In the latest US rig count report released by Baker Hughes (BHI), the number of active US rigs drilling for oil rose by two to 751 in the week ended December 8, 2017, compared to the previous week. There were 498 active oil rigs a year ago.

The report noted that as of December 8, 2017, the number of rigs in the Permian Basin was 400. That number represents 43% of the total oil- and natural gas–directed rigs, or 931 rigs operating in the United States.

However, the EIA forecasts that the Permian’s rig count will fall to 345 at the end of 2017 but rise to 370 by the end of 2018.

New-well production

While rig counts have risen between 2016 and 2017, new-well oil production per rig has declined during the same period.

Top Permian players include Concho Resources (CXO), Apache (APA), and Chevron (CVX).

In the following part, we’ll look more at productivity in the Permian Basin.

Market Realist – By Keisha Bandz – Dec 14, 2017 | 9:43 AM

Permian productivity

According to a report released by the EIA (U.S. Energy Information Administration) in July 2017, productivity in the Permian Basin in terms of new-well oil production per rig in barrels per day decreased for the tenth consecutive month in June.

Because oil only flows after the completion of a well, drilled but uncompleted wells tend to lower output per drilling rig. As a result, the inventory of drilled but uncompleted wells (or DUCs) increases.

Permian DUCs

The EIA’s November 2017 DPR (Drilling Productivity Report) showed that DUC wells for the seven regions (Bakken, Appalachian, Eagle Ford, Permian, Niobrara, Anadarko, and Haynesville) rose 138 to 7,342 in October 2017. The Permian Basin alone added 103 DUC wells, surpassing other regions. The second-highest number of DUCs in October was seen in the Eagle Ford, adding 33 DUC wells in May.

Key E&P (exploration and production) producers in the Eagle Ford include EOG Resources (EOG) and ConocoPhillips (COP).

Reason for lag in well completions

In the above chart, we can see that there has been an increasing number of wells drilled than completed since July 2016.

The EIA noted that the reason for this could be a wider spread between the WTI (West Texas Intermediate)-Midland crude and the WTI-Cushing crude, which suggests the possibility of transportation constraints. Implementation of strategies could be another reason for lags in well completions where completion equipment might not be deployed until all wells are drilled from a single pad.

Despite the lag in well completions, the EIA suggests that average output per well indicates that productivity based on initial production rates has continued to rise in the Permian region.

In the next part, we’ll look at trends in drilling and completion costs in the Permian Basin.