Posted on 05/25/2014 9:39:44 AM PDT by ckilmer
May 24, 2014 |
It may not look like much, but this might be the biggest oil field in the world (Source: Devon Energy Media Resources).
The pride and joy of Saudi Arabia's oil industry has been the Ghawar oil field, which has been recognized as the largest in the world ever since its discovery in 1948. That is, perhaps, until now. A shale oil formation deep beneath the plains of West Texas has been sitting right under our noses for years, and Pioneer Natural Resources (NYSE: PXD ) estimates that it could usurp the Ghawar field's 60-year reign. Let's look at what Pioneer has discovered, and what this find could mean for producers with heavy investments in the Permian, including Pioneer, Occidental Petroleum (NYSE: OXY ) , EOG Resources (NYSE: EOG ) , and Devon Energy (NYSE: DVN ) .
Hiding in plain view
By the time the Ghawar field was discovered, commercial oil production had been taking place in the Permian Basin in Texas for more than 25 years. Estimates of the Permian's reserves were somewhere in the 10 billion-12 billion barrel range. That's nothing to scoff at, but it certainly didn't come close to the 71 billion barrels in that single formation under the Saudi desert. Apparently, those oilmen simply didn't look hard enough, because they missed the rest of the oil in the Permian.
All 75 billion barrels of it.
Source: Pioneer Natural Resources Investor Presentation.
To be fair to those wildcatters of old, they didn't know that oil trapped in shale would someday be commercially extractable. Now that hydraulic fracturing has made it possible, we are discovering increasing amounts of oil in the Permian. Pioneer Natural Resources -- one of the most prominent landholders in West Texas -- estimates that the recoverable resources in the field's different shale layers could make it the world's largest single source of recoverable oil ever found.
This isn't just a lot of oil. This is a "completely change the dynamics of global production" amount of oil. This is an "enough to supply all of America by itself for more than a decade" amount of oil. If Pioneer's estimates are accurate, and this resource can be de-risked to be considered proved reserves, the U.S. could triple its proved reserves and vault from No. 11 in global reserves to sixth, right behind Iraq. Then there's the really crazy part of all this. Look at the last line of that slide above: Pioneer didn't even include several other potential shale formations that are found in the Permian.
Getting more bang from a previously spent buck
The Permian is not a newly discovered formation that could be subject to a land-grab rush like we saw five to 10 years ago. Most of the acreage in the region is already claimed by the players noted above, possibly placing these companies in an absolutely amazing growth position for the next several years. The potential of the Permian Basin is enough to profoundly impact the total reserves on the books for all four companies.
| Company | Proved Reserves (millions of barrels) | Net Acreage in Permian Basin |
| Pioneer Natural Resources | 845 | 717,000 |
| Devon Energy | 2,963 | 1,300,000 |
| EOG Resources | 2,119 | 413,000 |
| Occidental Petroleum | 3,483 | 1,900,000 |
Source: Company 10-Ks via sec.gov.
Tastes like chicken :)
Cute theory but it just doesn't work economically. If this strategy were attempted seriously on a macro scale as global Saudi output and reserves dwindled, prices would rise to a point where the Permian lease holders would be foolish NOT to sell and produce their reserves.
The fact is, it is not possible to hoard to any great extent a global product like crude oil that is available widely and reserves have been studied for so long. When output declines in one place, causing prices to rise, output will always increase elsewhere pressuring prices back down again. Moreover, Saudi Arabian oil will never run dry, nor will the global supply. You might wind up with some capped wells with very expense reserves, but no one will ever run out as long as the free market is dictating supplies and prices.
I was in Midland/Odessa last week.
The place is humming like I’ve never seen before. It is a boom of major proportions. Just wish I could figure a way to get some of it!
Friends of my son moved to Midland from The Northeast about 12 years ago.
They said they’d last about 2 years.
They are still there and are planning on staying.
.
I do agree that oil in the ground is money in the bank.
Your geopolitical take may or may not be correct, but oil companies are in the business of producing oil.
Not to worry, the feds are slowing/stopping oil production everywhere they control property, and they control a lot of properties.
The discoveries are great news. Our national security is enhanced. Oil markets will be more stable, oil will be more affordable than otherwise, and wasteful, expensive “green energy” takes another hit.
Great news all round.
Don't need the crickets. They'll shut it down claiming the oil rigs and associated equipment present an unnatural hazard to illegals navigating at night and for their safety and well being, drilling rights are being denied!!!
Thanks ckilmer.
Jed Clampett….Jeb Bush…..:)
And as far as gasoline prices are concerned, building new refineries will help a lot more in the short-to-medium term than extracting more domestic crude.
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That story about the USA not building new refineries has been around for decades. Meanwhile US refining capacity has been steadily rising.
What’s happening? The refiners found it cheaper to expand capacity of existing refineries rather than build new ones. No big deal.
The tough part is that a lot of US refining capacity is designed for sour crude (high sulpher content) oil. But all the new shale oil is light sweet (low sulpher content) crude. There’ll be a cost to reconverting US refineries back over to handle light sweet crude.
Until the price of gas drops, who cares?
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The huge oil increases are keeping the FED’s QE infinities from cratering the dollar. As well, US oil companies are bringing all their investments home to the USA. The result is that 100’s of billions of dollars of new money is being spent in the USA. Also the federal deficit and the US trade deficit are declining.
Eventually the price of gas will go down — but that may not come for another five years or until natural gas houses, trains trucks and buses plus electric cars turn down USA demand for oil. Meanwhile the greatest effect of the new oil production is the recaptializing of America.
Which is really important on many levels.
I’m happy for the jobs it has and will create. I’m glad drilling companies
and oil companies are making lots of profit.
However, until the American consumer see’s a reduction in oil prices,
which affect everything we buy including gas, food, electricity etc
I don’t think you will see many Americans celebrating in the streets,
except for the few that are now benefitting directly.
The Permian Basin is the only place I’ve ever been where you can actually smell the oil. No kidding.
Completely agreed. People cannot look at this like “well, that’s the end of the problem”. This buys TIME. I may be OK in my lifetime but the grandchildren of many people here won’t be. Furthermore, I believe that people 200 years from now will wonder how we could have been so stupid as to burn or explode such a useful product. It still blows my mind that people in the NE still warm their homes with OIL in the winter (nowhere else in the developed world is this done). And, you can bet that they vote for the Dems.
Don't worry. The Democraps have the ability to screw this up.
The first way is to strangle production with regulations. They did it with coal. They can do it with oil.
The second, and most easily accomplished way, is to expand federal spending proportionately.
The Democraps have to go.
What do they use? Gas? We get most of our heat from a pellet stove and use oil for hot water heating and supplementing the pellet stove on ten-degree winter nights.
If they bought a house 12 years ago the value has probably increased significantly.
However, until the American consumer see’s a reduction in oil prices,
which affect everything we buy including gas, food, electricity etc
I don’t think you will see many Americans celebrating in the streets,
except for the few that are now benefitting directly.
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I don’t disagree with you on this. the benefits for most of the US population are indirect and long term for now. (like lower federal deficits)But no one will notice or care until gas prices go down. imho that’s a couple years off.
The Permian Basin is the only place I’ve ever been where you can actually smell the oil. No kidding.
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People in Nevada say that are a couple of counties North of Reno where you can also smell the oil. that’s why imho there’ll like be a big oil strike there. alas its mostly on federal lands. so nothing much will be done there soon.
This buys TIME.
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Agree;
It still blows my mind that people in the NE still warm their homes with OIL in the winter
.......
I’ve been reading articles about how a lot of these houses are being converted to natural gas—for the same reason as trains trucks and buses. to take advantage of the the cheaper fuel.
I also think that natural gas buys time.
Basically for a successful 21st century new sources of energy have to be found that collapse the cost of energy and make it orders of magnitude more plentiful and easier to access everywhere.
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