The Permian Basin in West Texas is the main engine driving Occidental Petroleum Corp. (Oxy) to record oil/gas production levels as its overseas operations continue to struggle in the Middle East/North Africa and Colombia, CEO Stephen Chazen said Thursday.
In response to numerous questions on the Permian during a 1Q2012 earnings conference call with financial analysts, Chazen refused to pinpoint specific areas or forecast percentage growth figures. Instead, he said he expects long-term growth where Oxy gets involved among the 1.3 million net acres it holds in the Permian by itself or through third-party operators.
"The Permian has gone through a really significant rejuvenation," said Chazen, adding that there always has to be some "caution" in becoming too bullish because decline rates can jump faster than increased production. "We're well positioned to reap the benefits of this [rejuvenation].
"The basin has always been very good to us, certainly, but also very good to the U.S. industry. I am bullish on the basin, but as you move toward New Mexico it becomes a lot 'gassier' and a lot of people have big acreage out that way, but that depends on your view about natural gas prices. We're pretty much an oil company."
According to SmithBits data and NGI's Shale Daily's calculations, there were 410 oil and gas rigs working the Permian Basin as of April 27, which represents approximately 22% of the total number of oil and gas rigs operating in the United States. Of the 410 rigs, 98% were in search of oil and 72% were vertical.
Six counties have at least 30 rigs in play, including Eddy, NM, (49 rigs); Reeves, TX, (35 rigs); Glasscock and Martin counties, TX, (34 rigs each); and Andrews and Upton counties, TX, (33 rigs each). Midland County, TX, is right behind at 29 active rigs (see chart).
Horizontal drilling is most prevalent in Eddy and Lea counties, NM, and Loving and Ward counties in Texas. Those four counties account for roughly two-thirds of all horizontal rigs currently at work in the Permian.
In 1Q2012, Oxy's rig count in the Permian was 26, up from 23 at the end of last year, Chazen said, and he expects it will stay at that level for the rest of this year.
"Based on what we currently believe are the likely limits of these plays, our gross networking acreage is 1 million and 300,000 acres," said Chazen, adding that Oxy is operating 24 rigs currently in those areas. He expects 300 additional wells to be drilled in those areas during the rest of 2012.
"We expect that our program and the third-party drilling will accelerate our Permian production in the latter part of this year."
Noting that well costs have not come down in the Bakken Shale, Chazen said, "we have a lot better places to put money right now than the Bakken," so we continue to reduce our efforts there. Instead, Oxy continues to ramp up in the Permian, including its steam flood, carbon dioxide (CO2) capture wells. The rest of the company's costs for horizontal drilling are "essentially flat," he said.
In response to questions about what Oxy is finding in the Permian resurgence in addition to the Wolfberry area he said, "the oily areas are doing pretty well." Chazen said if a company has a third of its production in oil at $100/bbl, "you can have a pretty economic program. In those programs where there is really no $100 oil, and all you have is NGLs [natural gas liquids] and gas, I think they are economically challenged in the Permian. Some of the plays if they are not liquids-rich are economically challenged from our perspective; somebody else may have a more limited opportunity set.
"We would expect the CO2 production to grow...and we have a sizable amount of CO2," Chazen said. "We're in very good shape on CO2 and the production in that area is growing. Every forecast I have made for the Permian in the past has been way too low."