About 15 years ago, on one of my summer trips across West Texas from Austin, I took note of scores of older oil rigs, frozen in place. They were inactive and looked as if they had been so for some time. Over the last several years on my occasional trips out west, I noticed that many of these rigs were actively pumping, as high oil prices and the new technologies of the shale boom (fracking and horizontal drilling) allowed drillers to commercially reactivate some of these older wells and to operate new ones.
With the cratering of oil prices over the last 18 months, I expected the Permian Basin to go the way of the Bakken (where about 8% of North Dakota’s completed wells are sitting idle, storing their crude and natural gas underground until prices rebound). North Dakota reported 68 rigs actively exploring for or producing oil or natural gas in September 2015, 65% down from September 2014. The Eagle Ford shale play in South Texas has also seen a major decline in activity.
But to my surprise, Permian Basin wells are not only still pumping, they are expanding. Shale oil production is booming in West Texas, defying the global energy slump and attracting investment from oil and gas giants from across the US. Indeed, production in the Permian Basin is expected to rise another 0.6% in December 2015, or more than 2.02 million barrels a day.
Why is the Permian Basin coming through while other shale basins are failing? It’s simple economics. The basin has rich reservoirs of oil that are commercially viable, even at current low prices. The Permian’s multiple layers of oil- and gas-soaked rocks, in some places 5,000 feet thick, contain plenty of places to drill that will yield 30%-40% rates of return with crude prices as low as $40 a barrel. A single layer in the Permian, the Spraberry, holds as much as 75 billion barrels of recoverable oil (enough to supply the entire world for more than 24 months).
And Big Oil has taken notice. Exxon Mobil has holdings in the Permian Basin, having made two deals in August 2015 for 48,000 acres of shale fields. The company is currently in talks with smaller producers to expand its property assets. Recently, Anadarko Petroleum made a bid (which it has since withdrawn) to acquire Apache Corporation, which has 3.2 million acres of holdings in the Permian Basin.
According to a recent report, Concho Resources CEO Will Giraud is quoted as saying, “It’s the last place you can drill in this environment and make money.”
The Permian Basin seems to be the formation where deep-pocketed oil companies can still see a boom even during the industry’s bust.
British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.