A flat rig count, persistent cost pressures, supply-chain snags, problems with well productivity and concern that the best acreage has already been tapped, have combined to cast a shadow over prospects for the prolific Permian basin of west Texas and southeastern New Mexico. But while a growing consensus among oil executives and analysts holds that the Permian will start to plateau towards the end of this decade, it will still be the main driver of US output growth for some time to come. “The Permian is going to be the gift that keeps giving for a long, long period of time,” ConocoPhillips chief executive Ryan Lance said after an investor meeting in New York last month.
At its pinnacle during the past decade, the basin was the centre of frenzied activity by independent producers that snapped up acreage at breakneck speed in the pursuit of growth, which often came at the cost of profit. Nowadays, the Permian is a more sedate affair. While output from the basin has recovered to pre-pandemic levels and then some, the unprecedented drilling boom that sparked a wave of bankruptcies and an angry backlash from investors has been replaced with a more disciplined approach by publicly listed independents and the US majors. And privately held operators have recently put onthe brakes.
Yet while the rate of growth is likely to slow, the top-performing US basin may yet defy the odds. And although publicly traded producers are focused on boosting shareholder returns rather than expanding drilling, they are at least expected to see some respite this year as inflation pressures subside.
But maintaining record output will get trickier. ConocoPhillips has lifted drilling efficiency in the Permian by 50pc since 2019 by targeting deeper wells. “Our position in the Permian is growing for the next couple of decades,” Lance says.
Consultancy Rystad Energy acknowledges that there has been a notable drop in the productivity of oil wells in the Permian, but believes it might be overstated. “There’s plenty of good acreage, plenty of quality drilling locations out there that will be drilled and will continue the production growth story for US shale” albeit at a slower pace than before, senior analyst Matthew Bernstein predicts.
Permian output will start to plateau around 2027 before peaking at just under 7.7mn b/d in 2030, according to Rystad, with some potential upside if demand for associated natural gas takes off. Although the EIA forecasts that Permian production will rise by 13,000 b/d to a record 5.69mn b/d next month, that would be the slowest rate of growth this year.
Basin for growth
Even so, top shale executives have gone out of their way to talk up the Permian this earnings season. “We have not yet seen peak production from the Permian,” Occidental Petroleum chief executive Vicki Hollub says, adding that the basin could help drive overall US crude output back to pre-pandemic highs of around 13mn b/d if not this year, then in 2024. “The Permian is the only growing oil shale basin,” Pioneer Natural Resources chief executive Scott Sheffield says. “The rest of the oil shales are flat to declining and will continue to do that.”
ExxonMobil and Chevron are also counting on the Permian to drive low-cost output in the years to come. And private-sector firms, which have slowed activity in the past year, could stage a comeback if oil prices rally. In the long term, it would be a mistake to underestimate the Permian, even as growth tails off. “I would never bet against technology in this business, I would never bet against the ability to extract more resources out of that,” Lance says.