The Permian shale formation has been drawing a lot of attention recently, and it’s more likely than not to continue drawing even more in the immediate future, now that it has essentially become the new center of the shale revolution.
According to a recent report from commodity analysts with Barclays, the Permian will be the only shale play that will see a production increase this year, while all the rest will see declines. It’s worth noting here, though, that the Barclays analysis came out before Donald Trump took office on January 20: this week, the new president revived the Keystone XL oil pipeline that was vetoed by the Obama administration.
Trump also signed an executive order for the restart of the Dakota Access pipeline, which could provide a major boost to Bakken operators. According to Barclays, output in the Bakken will rise by a modest 10,000 bpd, and this won’t take place until the second half of the year.
With or without the Dakota Access, the Permian will continue to lead the way, adding as much as 490,000 bpd from the last quarter of 2016 to the last quarter of 2017, according to Barclays. That’s apparently despite expectations that production costs will begin to increase across the shale patch as oilfield service providers seek to share in the benefits from higher international oil prices. Already, oilfield service companies are announcing larger than expected capital budgets.
The Permian has seen a major influx of energy companies and investment firms within the last couple of weeks, seeing four major deals: Anadarko’s exit from the Eagle Ford to expand its footprint in the Permian, Exxon’s acquisition of US$6.6 billion worth of assets in the play, Noble Energy’s US$2.7-billion acquisition of Clayton Williams, and most recently, Targa’s asset buy in the Permian, worth up to US$1.5 billion. Related: Cash Strapped Iranian Oil Industry Braces For Trump Impact
E&Ps are raising their capex budgets too, determined to make the best of the price rebound. Some of them, namely Hess and Noble Energy, have upped their 2017 guidance by as much as 60 percent.
On the whole, Barclays’ report is just the latest in a string of bullish reports on the Permian, which first started drawing attention last year, when prices rebounded from the February lows of sub-US$30 a barrel and touched US$50. Low production costs because of better-quality acreage and the more recent announcement by the USGS that the Wolfcamp Basin contains 20 billion barrels of crude were the main reasons for the play’s attractiveness.
Barclays’ opinion is also in tune with the International Energy Agency, which earlier this month forecast that U.S. shale plays will add more than 500,000 bpd to average daily production this year, with the global supply beginning to shrink even before the OPEC deal that was reached November 30.
The possibility of oil prices crashing again before the year’s end still remains. What all these producers flocking to the Permian will do then is extremely important, because if prices do crash again, oilfield service providers may not be positioned to slash prices again. In the meantime, producers and service providers are making the best with what they have.
By Irina Slav for Oilprice.com
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