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Permian Basin in 'Early Innings' of Tech-Driven Renaissance

The venerable Permian Basin in West Texas is in the "early innings" of an oil/gas renaissance that promises to be technology driven, riding the wave of horizontal drilling, which still represents only a quarter of Permian rig activity, according to a report released Monday by Houston-based financial services company U.S. Capital Advisors.

Rig activity is projected to increase as much as 50% to more than 700 in the next few years, which could be the biggest rig count increase of any U.S. oil/gas basin, according to Cameron Horwitz, U.S. Capital's director of E&P research and author of "Permian Basin: Renaissance in the Desert." Crude oil production should increase by 750,000 b/d to 1.8 million b/d between now and 2018, Horwitz said.

He also projected that current natural gas production declines will be turned around, stabilizing at 4.4 Bcf/d, and natural gas liquids output is set to grow by 50,000 b/d, reaching a peak of nearly 600,000 b/d in 2018.

The report concentrates on what Horwitz called "relevant Permian sub-basins," reviewing the production history for more than 3,000 wells drilled there since 2009. It is the first in a planned series of basin studies taking a "bottoms up" look at areas that are most relevant to the exploration and production (E&P) sector.

Why the Permian? Horwitz said it is a basin that could be the most incrementally impactful for the E&P sector during the next five years. Part of that growth potential is based on the relatively low level (25%) of horizontal activity in the Permian to date, compared with other major basins. That leaves some "significant upside" as the new technology is more widely applied.

"While the basin is mature, it still accounts for 20-25% of the U.S. liquids reserve base and spans more than 10 million acres, so there is still plenty of running room," Horwitz said in the 96-page report, which calls the Permian "highly complex."

The Permian is the main engine driving the largest acreage holder in the basin, Occidental Petroleum Corp. (Oxy), to record oil/gas production levels in recent quarters (see Shale Daily, April 30).

Near-term focus should be on the Delaware sub-basin and in turn its Bone Spring sub-play, according to U.S. Capital's analysis. Longer term the focus will widen to Delaware and Midland Wolfcamp plays for their economic and productivity growth potential.

Another plus for the Permian is that it offers what Horwitz called "minimal regulatory risk," given its 80-plus years of production history that makes it a "hydrocarbon-friendly operating environment."

In addition to providing comparative data on more than two dozen major operators in the Permian, the U.S. Capital report includes a sub-play assessment for six plays in the Delaware and Midland sub-basins -- Bone Spring, Wolfbone and Wolfcamp in the Delaware, and Spraberry, Wolfcamp and Cline in the Midland.

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