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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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How Supermajors Are Transforming The Permian

The Permian Basin was once a hotbed of small, independent prospectors, wide-eyed wildcatters, and small companies hoping to strike it rich. Now, it is brimming with supermajors clamoring to buy out the region’s smaller operators and pump out the basin’s vast reserves of crude with the kind of breakneck efficiency that only massive corporate backing can achieve. Ten years ago, in 2008, United States oil production bottomed out at about 3.8 million barrels a day. Today, 3.8 million barrels are produced in a day in the Permian Basin alone.

For a bit of perspective, the entire state of California, which recently beat out the United Kingdom as the fifth biggest economy in the world, has around 10 active drilling rigs. The Permian Basin alone has nearly 500. Exxon Mobil and Chevron, the United States’ top energy moguls, have both made the Permian Basin their focus, prioritizing their investments in West Texas over all their other projects worldwide, while European supermajors including Royal Dutch Shell and BP are also working diligently on growing their presence in the Permian.

As of last year, Exxon Mobil, based in Irving, Texas, became the most active driller in the Permian basin with 38 drilling rigs running in the region that extends from West Texas to southeastern New Mexico. The Midland, Texas-based Concho Resources (previously the most active driller in the Permian before being surpassed by Exxon Mobil) comes in second with 34 rigs. Concho Resources significantly expanded their presence in the Permian Basin last year when they acquired competing company RSP Permian for $8 billion. San Ramon, California-based Chevron takes third place in regional drilling activity with more than 20 rigs in the Permian.

Chevron has recently begun ramping up the development of their holdings, and now says that their Permian Basin production spiked a whopping 80 percent in less than a year, up to its current level of about 340,000 barrels of oil equivalent per day. Displaying a similar bravado, Exxon Mobil has said it plans to produce more than 600,000 barrels a day in the Permian Basin by the year 2025. Related: Italy Looks To Block Oil, Gas Exploration Permits

Even the leading independent firms in the Permian Basin, Houston’s Occidental Petroleum and Dallas’ Pioneer Natural Resources, are both up to producing around 300,000 barrels per day now. These high production numbers and huge operations, however, simply aren’t enough to make independent companies competitive in West Texas. Occidental Petroleum and Pioneer Natural Resources are just no match for the corporate companies now throwing their full weight around in the Permian Basin. Even the biggest independent producers simply can’t compete with the scale and diversification of an international supermajor.

As the crude glut paranoia persists and oil prices remain low, supermajors with deep pockets like Exxon and Chevron can still depend on profits coming from their refining and petrochemical holdings to soften the blow of reduced cash flow in the production sector, but independent companies don’t have that cushion. As a result, many smaller firms are being snapped up by supermajors looking to increase their presence in the Permian. Midland-based Endeavor Energy is just one company currently on the market, and Shell, Exxon Mobil and Chevron reportedly are among the top bidders, eyeing the company for a sale of at least $8 billion.

Currently, Shell only has a modest presence in the area, but has expressed a desire for growth and has been increasing production by around 30 percent a year. New Shell Oil President Gretchen Watkins was quoted saying, “the Permian is certainly an area of focus for us, and one where I can see us expanding over the next little bit here.”

With the veritable black-gold rush spreading its fever over West Texas, some reporting has even speculated that the Permian could become the most productive oil field in the world. While it was long thought impossible that any field would ever surpass Saudi Arabia’s 5-million-barrel-per-day Ghawar oil field, the Permian is closing that gap in a hurry, with no signs of slowing. With a skyrocketing production rate, massive and growing drilled but uncompleted (DUC) oil well inventory, and what are estimated to be massive untapped resources, the Permian Basin is on track to exceed even the wildest expectations--but it’s safe to say that independent companies shouldn’t expect to be part of that renaissance for long.

By Haley Zaremba for Oilprice.com

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