Considered by many oil and gas professionals to be the world’s original “super basin,” the Permian Basin has produced billions of barrels of oil for approximately 100 years since its discovery. Finally, after decades of decline, emerging technologies have given new life to the basin, but how long can this upsurge continue?
Raoul LeBlanc, managing director of energy for IHS Markit, noted that in his estimation, there are two major factors acting as barriers to the success of the Permian. One factor, he said, is the complexity of the earth.
“This industry is an earth industry,” LeBlanc explained, addressing delegates at CERAWeek by IHS Markit, held recently in Houston. “We’re about trying to unlock what’s down there in a way that works. So, in that sense, dry holes are the foe.”
The second factor specifically impacting “the most capital-intensive industry on the face of the planet,” LeBlanc said, is the market.
“By ‘the market,’ I mean the price,” he said. “We can’t control the price. And costs are an issue, obviously.”
Travis Nichols, managing director of investment banking for Tudor, Pickering, Holt & Co., said his firm’s research analysts believe Permian production will increase from its current rate of 2 million barrels a day to roughly 3 million barrels a day in 2019.
“The Permian today has become the global swing producer for worldwide demand,” Nichols said. “We believe worldwide demand will continue to grow at about a percent a year, and we believe that a disproportionate amount of that excess supply is going to come from U.S. producers.
“And when you further analyze that and break it down, a disproportionate amount of that growth has to come from the Permian. So if the collective group of Permian producers can’t meet that call, we’re going to be in a scenario where worldwide demand is going to outpace supply.”
“The Permian Basin is pretty unique,” added Randy Foutch, chairman and CEO of Laredo Petroleum. “If you look at some of the statistics, Texas as a whole would be maybe the sixth-largest producer in the world, if it were a country. The Permian by itself is probably even No. 12 in the world, if it were its own country. So it has muscle and weight and stamina and importance way beyond what we might think about it.”
Foutch believes capital efficiency will be the industry’s goal going forward.
“What we need to do is to make sure that at the end of the day, we’re the most efficient user of service costs and doing what’s needed to make sure that the dollars we’re spending are yielding a good return,” he said.
Chris Gatjanis, Halliburton’s vice president of the southern U.S. area of the Permian Basin, agrees with Foutch’s assessment.
“You’ve got to have organizational capability and know-how to keep operating costs low so you see the returns at the end of the day,” he said. “Being disciplined and being focused on return is the key, especially right now in this inflationary environment.”
Gatjanis said another key challenge to maintaining optimum success in the Permian Basin is replenishing the workforce.
“It’s all about people,” he said. “We’ve got to be able to get more people on the payroll. Whether it’s Halliburton or any of our competitors, it’s about qualified people who understand the nature of this business.
“When the downturn came, a lot of people left the industry. But they’ll come back when they see it’s stable and it’s going to last for a period of time.” “The Permian’s been successful many times and we’re coming back there,” LeBlanc concluded.
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