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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Can The Permian Outgrow The Giant Saudi Ghawar Field?

When the Permian Basin in West Texas—which has been pumping oil for nearly a century—was fueling the U.S. and Allied forces in World War II, currently the world’s biggest conventional oil field, Saudi Arabia’s Ghawar, had not even been discovered.

Ghawar, discovered in 1948, was put in production in the 1950s, and is now thought to be producing oil at a rate of 5 million barrels per day. Meanwhile, the Permian had been set for a decline in output until a decade or so ago. Hydraulic fracturing technologies allowed drillers to start fracking through shale formations which gave new life to the basin, whose current production is around 2.2 million bpd of oil.

Now, a shale patch executive believes that the Permian can outgrow Ghawar in terms of oil production, thanks to substantially increased efficiency and lowered breakeven costs.

Scott Sheffield, the founder of one of the companies with the biggest exposure to the Permian—Pioneer Natural Resources—told the Daily Telegraph last week:

“People just don’t seem to realize how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world”.

According to Sheffield, the Permian could produce 8-10 million bpd in oil, gas, and liquids within the next 10 years, around 70 percent of which would be crude oil.

Currently, the Permian is producing around 2.2 million bpd of oil, with the EIA estimating that this month’s output would grow by 70,000 bpd over February to stand at 2.25 million bpd. The year-over-year summary shows that the Permian was the only major shale play in the U.S. to keep production rising amid the oil price slump that had forced drillers in the Bakken and the Eagle Ford, for example, to cut back drilling.

Pioneer Natural Resources’ March 2017 investor presentation states that the Permian will drive long-term U.S. oil production growth, and oil production in the basin in 2025 would be around 5 million bpd. Pioneer, for its part, targets to raise production from 234,000 barrels of oil equivalent per day (boepd) in 2016 to around 1 million boepd in 2026, assuming oil price at US$55.00 per barrel.

“As long crude prices are around $50 to $55, we’re in the sweet spot. The rig count is going to take off,” Sheffield told the Daily Telegraph.

At these prices, the total U.S. production is also expected to increase this year. In its latest Short-Term Energy Outlook from earlier this week, the EIA estimates that U.S. crude output will grow to average 9.2 million bpd in 2017, compared to an estimated 8.9 million bpd produced in 2016.

IHS Markit is more optimistic and sees U.S. crude production rising by over 500,000 bpd this year, with the Permian supporting the entire production growth wedge. High drilling activity and productivity gains are seen to lead to the Permian increasing output by 700,000 bpd this year, and total liquids output to exceed 4 million bpd by 2021. Productivity growth would slow down after 2021, but Permian output is still expected to continue rising to add another 500,000 bpd by the mid-2020s, IHS Markit suggests. Related: IEA: Huge Oil Price Spike Inevitable

The Permian is poised to raise its production, and although there has been concern that the land rush to secure acreage may grow into a bubble, the basin has shown its resilience in the face of the lower-for-longer oil prices.

According to Pioneer’s Sheffield, the Saudis badly misjudged the Permian’s capability to withstand the Saudi-orchestrated price war to push shale out of business and the global markets.

The Saudis still possess the biggest oil field in the world, Ghawar. But it’s not certain how much oil it has been pumping. According to the EIA, Ghawar is estimated to have remaining reserves of 75 billion barrels, and its production capacity, as of 2012, was 5.8 million bpd of Arab Light crude. The Saudis are not releasing figures and are keeping their oil secrets close to themselves. However, the planned IPO of Saudi Aramco next year will probably involve assets and books evaluations by third-party auditors so that the banks and investors can put a value on the company. The audits may shed light on some Saudi oil secrets and the industry may finally look into, and assess, how much Ghawar can pump.

One thing Ghawar and the other Saudi fields did – inadvertently – was to help the Permian stand out as a superbasin amid the oil price crash. Pioneer’s Sheffield said to the Telegraph:

“It was the $100 oil environment for four years that allowed us to do what we did. If they had kept oil down at $70 to $75, it would have been a helluva a lot slower.”

So, has the Permian-Ghawar race started?

By Tsvetana Paraskova for Oilprice.com

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  • Naomi on March 10 2017 said:
    Permian oil costs are lower than Ghawar costs. Ghawar must count the socialist government budget to care for 30 million Saudis as a cost. Permian oil counts only the cost of employees and capital investment. The Saudis are focused on raising prices when they should be focused on cutting costs.

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