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No End in Sight for Permian Bonanza

By Robert Rapier on November 17, 2016

This week the U.S. Geological Survey (USGS) announced its largest ever estimate of oil deposits for a U.S. basin. It’s in a place drilled so frequently for so long that you would never think to look there for such a hoard — Texas. In fact, it’s in the Permian Basin, which is one of the country’s oldest oil production regions.

The Permian Basin began producing oil in 1921. The Texas side of the Permian has now produced nearly 30 billion barrels of crude, as well as 75 trillion cubic feet (Tcf) of natural gas. Just to put that in perspective, at current market prices the cumulative oil and gas production to date in the Texas Permian alone would be worth over $1.5 trillion.

According to the Energy Information Administration’s (EIA) most recent Permian Region Drilling Productivity Report, the Permian is presently producing 2 million barrels per day (bpd) of oil and 7.3 billion cubic feet per day (Bcf/d) of natural gas. This accounts for more than 23% of U.S. crude oil production, and exceeds the combined output of the Bakken and the Eagle Ford:  

20161117TELpermian

Permian crude oil production has more than doubled since 2010 thanks to six low-permeability formations: Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso and Delaware. The new USGS survey estimates that there are 20 billion barrels of undiscovered, technically recoverable oil in the Wolfcamp alone. Quoting from the USGS news release:

“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, program coordinator for the USGS Energy Resources Program. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”

This reminds me of one of the mistakes made by M. King Hubbert, the Shell geophysicist who is well known as the “father of peak oil.” Hubbert projected a U.S. oil production peak in 1965, but said that it was possible it might be delayed  until as late as 1970. But he expressed skepticism about the latter date because it would require finding additional oil in “an amount equal to eight East Texas oil fields.”

Yet that oil was indeed found, largely as improvements in technology increased the amount of oil recovered from existing fields. Thus it is with the Permian Basin. Hydraulic fracturing and horizontal drilling have opened up huge new reservoirs within existing oil fields.

But it is important to understand what this news is, and what it isn’t. This oil has been assessed as an “undiscovered resource.” This scientific assessment means the forecasters have a high degree of confidence that the oil is there, but the fact that it is called a “resource” refers to the technically recoverable oil in place for this particular assessment. The amount that would be economically worthwhile to recover at recent commodity prices — which would be classified as “proved reserves” — will be a smaller subset of the 20 billion barrels. It could even be zero at a sufficiently low oil price. This is merely an attempt by the USGS to estimate that amount of oil that we could extract over time if we found it all and if cost was not an object.

So, they still have to find all that oil. But don’t bet against that like King Hubbert did. For actionable advice on investments in the companies already exploiting this immense resource, join us at The Energy Strategist and MLP Profits.    

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


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