The Permian Basin | October 2020
Located in West Texas, the Permian Basin has been producing oil for over 100 years. It leads the US in oil production and estimates put 43 billion bbl of oil still in the Permian; 80% of those reserves are believed to be at less than 10,000 feet. Some top formations are the Wolfcamp, Upper/Lower Spraberry, and the Leonard.
State Drilling Statistics (End of October)
Active Drilling Rigs in Basin- 142
Total Rigs in Texas- 132
Total Rigs in United States- 296
Total U.S. Rigs down 65% YTD
Permian Top Producers
Top Gas Producer – Cimarex Energy
Top Oil Producer – Diamondback Energy
Pioneer to Become a Larger Presence in the Permian
Amidst depressed prices, many mergers have cropped up in the past few months. One of the larger is the Pioneer Natural Resource deal which bought out Parsley Energy in a $7.6 billion deal announced at the end of October. The deal is expected to generate $325 million in cost savings per year. This deal followed the ConocoPhillips acquisition of Concho Resources who is also based in the Permian. This deal was slightly larger than the Aforementioned Pioneer deal at $9.7 billion which is expected to save the company $500 million per year. The consolidation of the Permian Basin’s oil and gas companies could prove to bolster the struggling market, but it may take a few years to see the rewards of these moves.
New Mexico on the Chopping Block
In October, the US Department of Energy published a report that claimed over the next two decades 68 percent of energy consumption in the US would come from natural gas. The claim was supported by the hypothesis that natural gas will play a key role in the energy transition to a low carbon future. This report was released from the DoE office based in New Mexico which is precisely where part of the Permian bleeds out of Texas. In New Mexico, tax revenue from the oil and gas industry contributes to 39 percent of the state’s budget. This generates $16.6 billion in annual economic activity, employs more than 134,000 people, and funds $1.4 billion for the state’s public schools. This means that the Biden/Harris plan to transition away from fossil fuels would be absolutely devastating for many families employed by the energy sector, and many schools in the state of New Mexico. In fact, a recent analysis by the American Petroleum Institute projects that if oil and gas bands were implemented in Mexico in 2021, more than 62,000 jobs would be lost by 2022.
Big Rig Gains
The end of October showed growth in the rig count with big gains seen primarily in the Permian. The week ending on October 28 showed gas drilling activity was at a 21-week high, and the Permian saw its largest week-on-week increase dating back to before the pandemic. The number of rigs chasing gas rose 2, and the oil rigs lost one. Basin by basin, the story is a bit different as the Permian basin was the clear outlier jumping 10 rigs to 155 total. This is the largest increase since the end of February 2020 and put the number of rigs active in the basin at the highest since the week ending on June 3. The neighboring Eagle Ford lost one rig and watched idly as activity in the Permian continued to rise.
Top Gas Producers (2020 cum)
Top Oil Producers (2020 cum)
Texas Oil Production
Texas Gas Production
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