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Does The Permian’s Sweet Spot Hold 8 Times More Oil Than Predicted?

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What with all the rig additions, land deals, and low breakeven costs, the Permian basin has been the subject of much love from the oil industry as of late, and recently revised estimates are now showing that the Permian holds a whole lot more oil than previously thought.

Horizontal drilling and technological breakthroughs of the past decade have made the U.S. shale industry a force to be reckoned with, but they have also prompted the U.S. Geological Survey to start re-assessing how much technically recoverable continuous (unconventional) oil and gas resources lie in today’s hottest shale play—the Permian.

The latest USGS assessment, conducted in May, shows that the Spraberry Formation of the Midland Basin in the Permian holds technically recoverable resources of 4.2 billion barrels of oil and 3.1 trillion cubic feet of gas.

The previous assessment, published in 2007, had put a mean estimate of 510 million barrels of oil in the Spraberry Formation. But ten years ago, the assessment was based on historical production from vertical wells, the USGS said in this month’s survey.

“Since 2007, multiple intervals within the Spraberry have been targeted with horizontal drilling,” the USGS noted.

Advances in fracking technology were the reason why the USGS revised upwards its estimates for technically recoverable resources at Spraberry. Shale drillers now have more sophisticated technology, well data, and experience than they did 10 years ago.

“Technology was a reason to go in and look at an area with a fresh set of eyes,” research geologist Stephanie Gaswirth told Midland Reporter-Telegram in a telephone interview.

“The jump is similar to the situation with the Wolfcamp,” Gaswirth noted. Related: Iraq Agrees With Deal Extension, But Boosts Oil Exports To Record Levels

In November last year, the USGS published an assessment of oil reserves for the Wolfcamp shale in the Midland Basin of the Permian, revealing the largest estimate of continuous oil that the agency has ever assessed. The USGS estimates that the West Texas shale formation could hold an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids.

The USGS is also conducting a continuous assessment of the Delaware sub-basin, and first results are expected in 2018, Gaswirth told Midland Reporter-Telegram.

Meanwhile, the rise of U.S. shale output, which started at the end of last year, is set to continue. And it’s mostly a Permian story.

According to the EIA’s latest Drilling Productivity Report, total oil production from the seven most prolific U.S. shale regions is expected to rise by 122,000 bpd in June over May, to reach 5.401 million bpd. The Permian will account for more than half of that increase, with output in this West Texas region seen up by 71,000 bpd on the month. Related: Tight Supply Boosts Natural Gas Prices In 2017

With oil prices much higher than last year’s lows, companies drilling in the Permian are increasing capex this year as they are re-focusing on growth, Wood Mackenzie said in an analysis in March. While some internationally focused majors are still sticking to capital discipline and cutting capex, upstream companies with exposure to the US Lower 48, the Permian in particular, plan to grow investments and production, according to WoodMac.

As far as production breakeven prices are concerned, Rystad Energy said in March that Permian Midland slashed average wellhead breakeven prices from US$71/barrel in 2014 to US$36/barrel in 2016, effectively realizing a 49-percent decrease, the highest among all main U.S. shale oil plays.

The latest USGS assessment for the technically recoverable oil at Spraberry shows a dramatic jump in estimates. But it remains to be seen how much the potential tapping into those resources would cost drillers, and would technological breakthroughs make extracting more resources at the formation economically profitable. This, of course, will depend most of all on the price of oil.

By Tsvetana Paraskova for Oilprice.com

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