Posted on 09/23/2013 8:43:38 PM PDT by ckilmer
In Texas these days, there’s a feeling of absolute and unwavering confidence in the concept of an US energy revolution. From the depths of reserves to the richness of the energy, an incredible transformation is taking place.
We’ve been talking about the significant impact of the US’s oil production for a while now, but the buzz about shale oil and gas is only getting louder. At Morgan Stanley’s energy forum in Houston in August, Director of Research John Derrick and Portfolio Manager Evan Smith said shale was the prevailing topic.
One area that’s driving this game-changing trend is located only hours from our headquarters. It’s the Permian Basin located in western Texas and southeastern New Mexico, covering an enormous area.
Three component parts make up the Permian: the western Delaware, Central Basin and eastern Midland. If you overlay the Eagle Ford and Bakken basin areas over the Permian, you can see that both the Bakken and the Eagle Ford shale formations easily fit inside.
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The area isn’t new to the oil industry, as companies have been drilling in the Permian area for almost a century. Back in the 1970s, oil production reached 2 million barrels per day, but fell to 800,000 barrels per day in 2007.
It wasn’t because the oil wells had dried up, but more so because companies couldn’t get at the resource. But now since the introduction of shale technology, oil production began increasing once more to 1.2 million barrels per day by 2012.
And as more data is released, the more convinced we are that this incredible growth will continue. According to Tudor Pickering Holt & Co., by 2025, oil production is projected to more than double to more than 3 million barrels per day. That’s about as much oil that is produced these days by Kuwait, the third largest oil producer in OPEC.
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Natural gas in the Permian Basin is also estimated to substantially increase, growing from about 4.3 million cubic feet per day to more than 7 million cubic feet per day.
When it comes to investment plays, ‘the Permian is red hot right now,‘ says Global Hunter Securities. The research firm finds that, on a year-to-date basis, if you invested in the ‘pure-play’ companies, including Concho Resources (CXO), Diamondback Energy (FANG) and Pioneer Natural Resources (PXD), that have a resource base in the Permian area, your portfolio would be up an incredible 39 percent.
By comparison, over the same timeframe, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased only 15 percent. The S&P 500 Index, which has had a great run so far, rose 16 percent.
Pioneer has been a long-term holding in the Global Resources Fund (PSPFX), and has benefited the fund with its handsome return of about 60 percent so far this year. We continue to be bullish on the company due to its substantial presence in the Permian. Pioneer has a net resource base of about 7 billion barrels of oil equivalent across more than 40,000 drilling locations in the Permian, according to Global Hunter. This enormous resource base translates to decades of drilling ahead.
Here in San Antonio, we’ve personally witnessed several economic benefits that have positive repercussions for the entire US. Locally, there’s been a rapid monetisation of energy assets.
Businesses have been building incredible expertise and creating a growing number of high-paying jobs. For the rest of the country, the effects of cheaper gas and readily available energy create enormous potential for a more competitive United States of America.
We’re seeing savvy investors already taking advantage of the nation’s incredible energy shift. You might not want to miss out.
I’ve spent time in Midland.
You can smell the oil in the Permian Basin.
I think the oil they pull out of the various oil fields in the permian basin will be a lot more than even the most optimistic views today.
I suspect you’re right.
I hope you are right.
That could well be. USGS estimates tend to be conservative, simply because scientific credibility is at stake and putting an overly optimistic estimate would hurt that.
Consider, though the USGS estimates of the Bakken, and later the Bakken/Three Forks reserves have doubled more than once and will likely increase even more as time goes by.
For the Williston Basin (where the Bakken Formation is found), though, this is just a couple of fifteen known oil bearing formations (not to mention the Winnipeg and Deadwood gas sands). Not all are as amenable to large scale horizontal drilling (production is more localized), but there is a lot more oil yet to be produced.
Outstanding job, Obama!
One of the biggest problems we’re having now is not enough drilling rigs, fracing crews and oil haulers. It’s been 2 months since we drilled out last well and still haven’t fraced it. With the depths were going to now allot of the old rigs just can’t take the weight, they’ve collapsed two derricks in the last two months just in this county alone. I used to get my oil hauled within 24 hours of a call in, now it may go as long as 5 days. Several times I’ve had to shut in wells due to my tanks being full.
We have had our oil hauling problems, too, but with more rail loading facilities built, those are diminishing. Just about every trucking outfit up here is looking for drivers with tankers and hazmat to haul everything from crude to fresh water, fuel, and salt water.
We have a lot of good rigs, and many are walkers, made for pad drilling that can walk from one wellhead to the next. Smaller rigs have been sent to drill and set surface casing on the pads, then bring in the walking rigs to drill the vertical, curve, and the lateral.
Pad wells have cut the need for infrastructure and make the feeder pipeline backlog shorter.
There are good big rigs which have been let go up here for lack of ability to be refit as walking rigs.
As always, experienced personnel are in short supply.
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