Regional Report: Permian Basin

The venerable Permian basin is once again the bright spot in the industry. Pick nearly any metric for growth, and the good old Permian shines.

Permian production continues to increase, and it may reach 2.9 MMbopd by the end of 2018. That would be about 30% of total U.S. crude oil production next year. The rotary rig count, about 40% of the U.S. total, is 207 units ahead of last year. Railroad Commission drilling permits at mid-year are within 626 of the total issued in 2016.

There’s a lot driving this growth. Technological leadership in developing unconventional resources; an extensive and growing infrastructure; a skilled workforce; and a long stretch of painful cost-cutting have driven down expenses, and improved well economics to put some assets within reach of $40 oil. Production for the last half of the year is being hedged at a relatively low $50/bbl. And, lo and behold, WTI crude prices that were above $50 at the start of the year and flirted with $43 in June had rallied back to near $50 at the end of July.

The pace of mergers, acquisitions, and divestitures adds to the churn, with an influx of money, ownership and ambition. Properties continue to change hands at a blistering rate, building momentum from 2016’s $28 billion in land acquisitions. The year started with ExxonMobil’s $6.6-billion expansion and Noble Energy’s $2.7-billion agreement, followed quickly by Parsley Energy’s $2.8-billion addition and a slew of other deals.

All of this investment rests on massive, stacked pay resources sprawled across 86,000 mi², two states and 52 counties. Today’s 2-mi laterals and multi-stage completions have come a long way, and through a lot of ups and downs from 1923, when Texon Oil and Land Co. brought in the Santa Rita No. 1. But, perhaps modern Permian basin wells haven’t ventured far in spirit from the original discovery near Big Lake. Spudded on the day that the permit was due to expire, the well struck oil after 21 months of cable tool drilling, and it produced for nearly seven decades.

RIGS, PERMITS, AND PRODUCTION NUMBERS

During the week of July 28, Baker Hughes counted 931 U.S. rigs, up from 440 last year. Texas had 462 rigs making hole (214 in 2016), and the Permian basin accounted for 379 of them—about 80% of Texas rigs and 40% of U.S. rigs. That’s up from a bleak 172 rotary rigs last year. (For perspective, the Permian basin rig count reached 568 in late 2014 before falling to a low of 134 in spring 2016, Fig 1.) Read more…