Permian Basin helping drive US oil production rise

The US is the only nation out of the world’s five largest oil-producing countries not to be covered by the OPEC-led production cuts, which were recently extended beyond the March 2018 deadline and through 2019 in a bid to keep 1.8mn b/d off the market. The US oil sector is taking full advantage and is expected to reach record production levels of about 10.3mn b/d by late 2018, exceeding the previous peak reached in 1970, according to the US Energy Information Administration (EIA). Some forecasters predict even higher output levels.

Production from the prolific Permian Basin will help drive US output, with the basin forecast to reach a second production peak this year, eclipsing 1973 levels by more than 25mn barrels according to market analyst IHS Markit.

The mature hydrocarbon ‘super basin’, located in west Texas and south-eastern New Mexico, reached a new oil-production record of 815mn barrels or more in 2017 (a figure that will be revised once operators report 2017 year-end production) – far exceeding its previous peak of 790mn barrels set in 1973.

‘The magnitude of the rebound in Permian Basin liquids production is unprecedented,’ says Reed Olmstead, Director, Energy Research and Analysis, IHS Markit. ‘Not so long ago, many in the industry were saying the Permian was dead, but the Phoenix has again risen from the ashes and is soaring to new heights. The Permian Basin is on track to add more than 2mn b/d in new production since 2007, and after the final-year production count is in for 2017, we will see the previous all-time liquids-production peak of 2.16mn b/d during 1973 surpassed by a significant margin, with total Permian volumes at roughly 2.75mn b/d. In turn, this surge in Permian production is projected to push total US liquids production to a new all-time high by the end of 2018. We see US production exceeding 10.5mn b/d by the end of 2018.’

Aside from the overall E&P activity and related investment that is significant to the region, the state, and operators in the basin, ‘the implications for US energy security are significant –since [the country has] become, in a relatively short period of time, more self-sufficient in terms of energy supply and less reliant on imports,’ Olmstead says.

Longer-term implications for Permian Basin oil supplies are evolving, and the future looks promising, according to IHS Markit, whose research suggests the giant basin still holds an estimated 60bn–70bn barrels of technically recoverable resources – about twice as much as the cumulative oil production to date (for details, visit https://t.co/Xk2nY92lj1).

Since it first began producing in the 1920s from the famed Santa Rita #1 well, the Permian Basin has produced more than 39bn barrels (cumulative) of oil, reaching peak volumes in 1973. As conventional oil production in the play declined steadily during the following three decades, many in the industry thought the Permian’s best days were behind it, but unconventional drilling and completion technology changed the game in the 2000s. This advance made possible the extraction of unconventional shale resources that were previously uneconomic to produce, and changed the view of geologists, who, for decades, had bypassed these less desirable targets in favour of conventional reservoirs.

‘The Permian is one of the most prolific basins in the history of oil production. With the onset of horizontal drilling and new completion technology during the past decade, the production decline in the Permian has been reversed and the basin has eclipsed its previous peak,’ comments Pete Stark, Executive Director, Upstream Research at IHS Markit. ‘The significance of this second production peak cannot be overstated, since it truly revived a basin, and in many ways, the US E&P industry. When we consider the impact on the world’s crude markets, the Permian has to be considered a global disrupter.’

IHS Markit says the Permian Basin is of such significance to the global oil and gas industry that the basin is the model it uses as the benchmark for its ongoing research study on super basins. The market analyst has identified more than onshore 25 super basins that have multiple reservoirs and source rocks, diverse play types across numerous geologic horizons, infrastructure with access to markets, and established service sector and supply chains (initial results can be seen at https://t.co/MlOAzJv0tN).

The potential upside recoverable oil from 25 global super basins is estimated to be approximately 840bn barrels. This is far larger than the resources required to generate the 40mn b/d of new oil supplies that may be required to meet estimated 2040 global oil demand, reports IHS Markit.

 ‘The key question for truly optimising the potential of these super basins is whether the global petroleum industry has the wherewithal to successfully implement the Permian Basin model in mostly onshore, international super basins,’ notes IHS Markit. ‘Established, mature super basins offer many potential advantages including lower subsurface risks, established infrastructure, existing supply chains and service sectors, as well as access to markets, but above-ground challenges pose substantial hurdles.’

Adair San Andres pumping unit located in the Permian Basin

Photo: Apache Corporation