Permian Basin News Pulse September 2020

Posted: October 14, 2020

The Permian Basin | September 2020

Field Overview

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 September)

Active Drilling Rigs in Basin- 125
Total Rigs in Texas- 113
Total Rigs in United States- 261
Total U.S. Rigs down 70% YTD

Permian Top Producers

Top Oil Producer – Diamondback Energy
Top Gas Producer – Cimarex Energy

Financial & Economic Updates

Money Coming Back to Roost

As oil prices continue to see slight improvements, more and more people are attempting to capitalize on projects in the Permian. US Energy Development Corp. has decided to develop $40 million worth of additional Permian assets to pair with the properties that it acquired in 2019. This is a decent indication that some operations are looking to take a larger share of what is considered one of the US’s greatest oilfield assets. Even so, a spokesman for the New Mexico Oil and Gas Association mentioned that even though people are sinking into future projects, “the geology has not changed, and the longer-term value of those resources has not changed.”

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State Highlights

Too Many Pipelines

The Permian used to be a hotspot for massive amounts of flaring and needless waste of energy. In order to combat that, a massive network of pipelines has been constructed to better transport natural gas to facilities that can make use of it. Now, the Permian produces only about 4 million barrels a day of oil leaving an unused capacity of about 3 million barrels. Although gas producers are joyous and appreciative of the extra space, pipeline operators are hurting from the decreased demand of their infrastructure. Companies like Enterprise Products Partners are delaying or fully scrapping plans they had to increase pipeline capacity in certain regions. With little incentive to construct new conduits, it could be time for mergers between many midstream companies in the area to make the most of what the Permian already has. Even further down the supply chain, fuel refineries are not able to scoop up cheap crude that results from a congestion in these once full pipelines. At the very least, gas producers don’t have to beg markets to take their shipments anymore… it is now the other way around.

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Colombians Go Drill Crazy

In a joint venture with Occidental Petroleum, majority state owned Colombian oil company Ecopetrol SA plans to drill 100 wells by the end of 2021. The location of these wells is likely to be concentrated within the Permian basin. Although the company drilled 22 wells between November 2019 and June 2020, production slowed during the pandemic and operations were put on pause. Now, things are looking busy for the Colombian Company. The primary reason listed for getting involved in this area is Colombia’s desire to diversify their portfolio. Historically, they have dealt with a lot of heavy crudes and the oil they plan to get from Texas will likely be around 40 API. Although it may seem absurd to drill this many wells, Ecopetrol’s customer base is Asia (China being the largest) with expansions into India and South Korea markets in the works.

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Texas Oil Production

Texas Gas Production

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