Must-know: Recent activity and growth in the Permian Basin

By Avik Chowdhury - Disclosure • Jun 25, 2014 1:00 pm EDT

The Permian Basin and U.S. energy independence

As we’ve seen, the Permian Basin has been one of the primary drivers of domestic oil growth and has been heralded as one of the pillars to move the U.S. closer to energy independence. The following statistics convey a sense of the recent growth and activity in the region.

Recent growth

The chart below shows the growth in oil produced from the Permian Basin over the past few years. Production in the region had bottomed out in the mid-2000s until beginning to rise around 2007.

Enlarge Graph

Also, the amount of drilling permits issued in the Permian Basin has increased dramatically, having increased nearly threefold from 2009 to 2013.Enlarge Graph

Rig counts in the Permian Basin have increased nearly threefold from 2009 to 2013, according to Baker Hughes and the Railroad Commission of Texas.Enlarge Graph

Not only have rig counts increased, but the composition of horizontal versus vertical rigs has also changed recently. As lately as 2011, 96% of rigs in the Spraberry and Wolfcamp drilling regions of the Permian Basin were vertical rigs, as compared to 58% in May 2014. The prevalence of horizontal drilling has grown, as wells are more expensive upfront, but generally, horizontal wells generate greater hydrocarbon production, making the increased initial cost worth it.

Enlarge Graph

Growth isn’t confined to recent years, but Permian-based companies such as Pioneer (PXD) anticipated greater production in the future as well. The following chart displays PXD’s projections for production in the Spraberry and Wolfcamp formations in the Permian Basin.Enlarge Graph

Notice how production increases in the Permian basin have been flattening over the last couple of years—while the number of drilling rigs and the percentage of horizontal wells has been increasing.

correct me if I’m wrong — but wouldn’t this tend to suggest that somewhere in the future the slope of the line for production increases should start to get steeper upward. That is that we should at sometime in the future see bigger production increases.

I don't know how you make that jump from lower production increases with increased rigs and more horizontals.

...................

This graph shows a flattening of the curve upward for production increases--especially after 2013

Oil Production In Permian

These two graphs show rising number of drilling rigs and rising number of horizontal drilling rigs.

Oil Rigs in Permian

= Spraberry Wolfcamp rig count

so you would think that with the rising number of drilling rigs and the rising number of horizontal wells -- that oil production in the permian should be rising faster -- showing an ever steepening slope rather than the flattening slope of production increases of the last two years.

It looks like Pioneer Resources expect ever higher growth over the next 24 months.

Its unknown as to whether the other drillers in the Permian also expect much faster production rates over the next 24 months. For this year anyway, EOG looks to be putting most of their capital into the Eagle Ford. And they don't seem all that excited about the permian basin.

I agree with Thackney.
From a technical standpoint, horizontals have been drilled for some time in the Permian, just not as common as verticals.

Key will be whether the geology will react to horizontals like other areas.

I have my doubts. the lack of continuity in the carbonate pods are elusive and one cannot frac the shales with success.

Again, they have already started using more rigs and more horizontals but with smaller increases. What do you see changing the results of the same activities?
..............
I’m just thinking that if you have more rigs and more horizontal drilling —you should get higher production rate increases because the yield on horizontal drills are much higher than vertical drills and with more of these types of wells —it stands to reason that there should be higher production increases.

bestintxas completes the thought.

Key will be whether the geology will react to horizontals like other areas.

I have my doubts. the lack of continuity in the carbonate pods are elusive and one cannot frac the shales with success.
....................
So this remains the big question of the next 12 months or so. Will the Permian produce the steep yield curves that Eagle Ford and Bakken have done? Or Not?

Unless the decline rates are faster than the new production being brought online increases the total. Horizontal wells in tight formations tend to have steep initial decline curves. In the Bakken/Three Forks, they usually settle down to 10-20% of IP within a year to 18 months, and then decline slowly from there.

if you have more rigs and more horizontal drilling —you should get higher production rate increases

As this article stated, the first two have happened but not the third.

All oil fields are not equal.

Key will be whether the geology will react to horizontals like other areas.

Correct. It hasn't. Don't automatically assume it will.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.