• 2 days Iraq Begins To Rebuild Largest Refinery
  • 3 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 3 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 3 days China's CNPC Considers Taking Over South Pars Gas Field
  • 3 days BP To Invest $200 Million In Solar
  • 3 days Tesla Opens New Showroom In NYC
  • 3 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 3 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 4 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 4 days Goldman Bullish On Oil Markets
  • 4 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 4 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 4 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 4 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 4 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 5 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 5 days Aramco On The Hunt For IPO Global Coordinators
  • 5 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 5 days India Feels the Pinch As Oil Prices Rise
  • 5 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 6 days API Reports Huge Crude Draw
  • 6 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 6 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 6 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 6 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 6 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 6 days Exxon To Start Reporting On Climate Change Effect
  • 6 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 7 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 7 days Forties Pipeline Could Remain Shuttered For Weeks
  • 7 days Desjardins Ends Energy Loan Moratorium
  • 7 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 7 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 7 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 9 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 9 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

EIA Reports Major Draw In Crude Inventories

Adding to bullish news of…

Alt Text

Don’t Count On A Utah Shale Boom

President Trump has announced a…

Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

More Info

Is Trouble Brewing In The Permian?

Permian

The Permian shale play has been attracting so much attention lately it’s started to get a little bit boring. But not for oil investors. The rush to the Permian has continued as everyone forecasts growing production there. The projections suggest strong growth—doubling production over the next three years according to some Permian producers.

But one analyst thinks that this explosive growth is a rather unlikely event.

At a recent event, Michael Hanson from merchant bank Parkman Whaling said that there is a set of conditions that producers in the Permian will need to meet if their vision of doubling production by 2020 is to become a reality. These are all conditions that do not depend on the producers themselves, but on a lot of factors they have no control over, which makes the challenge all the greater.

For starters, despite the Permian’s reputation for being a low-cost play, costs are not equally low across it. If production is to go from 2.2 million bpd currently to 4 million bpd, according to Hanson, international oil prices will need to remain higher for longer. Though the chances of this happening right now look good, nothing is ever certain in oil, and OPEC’s upcoming meeting in Vienna may very well disappoint.

If you think you have your finger on the pulse of the oil market, think again. Even Andy Hall—the oil trader known as “God”—earlier this year shut down his hedge fund, admitting his inability to predict today’s oil markets.

Another challenge for the Permian is cost inflation. For the production boom to happen, it needs to remain low, but like oil prices, this metric is out of producers’ hands. Capital availability is another challenge; many producers have very high debt levels, causing banks to be wary of lending them more, despite the bright-future shale oil predictions of authorities including IEA and EIA. Related: Thanksgiving Travelers Smash Records

Finally, says Hanson, oil needs infrastructure to be transported to its destination.

All these challenges do not mean that production in the Permian will soon slacken. A lot of analysts are very bullish on its medium to long-term development. A recent event at the University of Houston discussed these with a lot of participants that seemed to share the optimistic outlook. Wood Mac research director R. T. Dukes, for instance, compared Permania to the production boom in the Eagle Ford that occurred between 2012 and 2014, only, he said, this one will be bigger, “as much as 50 percent bigger.”

While a lot of observers share this attitude, there are some who question the hype. Oil consultant Art Berman is one notable contrarian. Berman noted earlier this year that the vast reserves of the Permian may in fact be grossly exaggerated and a couple of months ago warned that while some producers in the Permian were making money in the then-current oil price environment, most were not. While he acknowledged the potential of the Permian in terms of reserves and production costs, Berman remains cautious about its ability to turn the United States into a swing producer.

Others note that it’s not all about supply in today’s world. Houston Chronicle’s business columnist, Chris Tomlinson, noted at the UH event that there is a push to move away from fossil fuels altogether on a global scale, and this was bound to affect production trends in the Permian as it reshaped demand patterns in the future.

Tomlinson’s words to the other panelists at the event foretell of some major developments we are likely to witness in the energy industry in the next few years.

“People need your product, but they fundamentally don’t like it,” Tomlinson said. “As much as people in the oil industry may believe sincerely that they are doing a public good, your customer doesn’t see it that way. And they will switch to an alternative at the first chance they get.”

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Lee James on November 23 2017 said:
    “People need your product, but they fundamentally don’t like it,” Tomlinson said.

    Ideally, oil companies will find support among the public and investors for becoming clean energy companies. We still need oil, but can these companies transition to clean energy production at a faster pace?

    Our U.S. companies might take a look at what Shell, Total, Statoil and Eni are planning and implementing in order to clean things up.

    What is the future of energy?

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News