Permian Shale: Such a Paradox

Shale is no longer new news to those that have any involvement in oil and gas upstream operations. We know it it is one of the larger industry disruptors of our careers. Right up there with 3D seismic technologies, directional drilling, MWD, and a host of other technologies developed in our life time. 

On September 27, Chronicle presented yet another data set about the most active drilling areas in the US; West Texas and New Mexico's shale fields. Colin Eaton wrote the article titled: "Prolific basin in West Texas and New Mexico is likely to soon produce more oil in a year than the previous high mark set in 1973"

I've read previous articles stating there is more oil in place in this single area than Saudi Arabia. Colin states: "there's more oil in place than Kuwait and Argentina combined". And then goes on to say that "up to another 70 billion barrels may still be recoverable". None of this is really new news. 

Yet here's the paradox. Texas and New Mexico has more oil in place than they can shake a stick at in an area that was in my career deemed dead in the water never to come alive again. YET - they have to make money or it will begin to slow down. 

Obviously some portion of those wells are not profitable because as the article states: 

"One piece of evidence that many of today’s cluster of oil wells aren’t profitable: Oil companies have left almost 2,300 wells dormant, waiting for crude prices to rise before they bring the drilled but unfinished wells into production."

This would then lead one to imagine that there may be many more wells that could be drilled but won't till prices climb, and when that happens another surge will occur putting pressure on the upward momentum of price increases. 

We are only talking about West Texas and New Mexico. We know there are other oil and gas Shale plays yet to be developed and yet to be discovered in the world. It would certainly appear that shortages are not on our global horizon any time soon. Especially with OPEC and Russia espousing their "temporary" production cuts. 

Which leads to perhaps the biggest paradox of all. Assuming somehow, the price of oil does begin to rise and appears to be sustainable just like the last 5 times in my career that it rose and appeared to be sustainable; more wells will surely be drilled in shale producing regions and if it really looks sustainable, we will see offshore subsea begin to roll again......and even more production will hit the markets. 

As a footnote, another article appeared in the Chronicle this morning Oct 4, 2017 written by Collin Eaton - "Permian Land Rush Looses Steam" - "Rising production costs, high acreage prices and a shareholder push for financial discipline have dramatically slowed the land rush in the Permian Basin, one of the world’s most active oil fields.

Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion, energy research firm Wood Mackenzie reports."

What a business to be in. And to think, many of us lived through almost 50 years of this kind of roller coaster price and activity swings. And I'd do it all over again. 

T.