The Permian Basin might have been discovered nearly a century ago, but it has a future like perhaps no other U.S. oil field.
The venerable West Texas oil and natural gas field is home to 546 drilling rigs, according to the Baker Hughes rig count. That’s more than a third of the 1,530 rigs looking for crude oil onshore in the United States, Pioneer Natural Resources CEO Scott Sheffield reminded a crowd in Fort Worth on Wednesday.
Sheffield spoke at Hart Energy’s Permian Basin Conference, which continues today at the Fort Worth Convention Center.
He and other petroleum producers and analysts said they foresee years of growth in the Permian, which already pumps out about 1.5 million barrels of oil a day. The field was discovered in the 1920s, and production peaked in the 1970s at about 2 million barrels a day.
Darrel Koo, an energy researcher at ITG Investment Research in Canada, forecast that the Permian Basin’s oil production will grow to 2.5 million barrels a day by 2025 under his base case, which includes oil prices at around $90 a barrel. With higher prices and other favorable conditions, that could rise to 3.2 million barrels a day by 2025, he said.
West Texas intermediate, the benchmark U.S. crude oil, settled Wednesday at $104.07 in futures markets.
South Texas’ Eagle Ford Shale and North Dakota’s Bakken Shale have grabbed more than their share of headlines by growing from literally nothing a decade ago to more than 1 million barrels a day today.
But Sheffield said he expects those fields to peak between 2016 and 2020 and the Permian Basin to keep climbing.
Sheffield said he thinks Permian Basin oil production could be as high as 3.5 million barrels a day within 10 years.
When Fort Worth-based Athlon Energy was formed in 2010, its organizers went straight to the Permian, focusing on the Midland Basin, one of two principal structures in the Permian. The other is the Delaware Basin, which is farther west and extends northward into New Mexico.
Athlon was backed by Apollo Global Management, a big investment fund, and Athlon CEO Bob Reeves joked at Wednesday’s conference that company executives promised a low-risk, low-return approach. Apollo suggested low-risk, high-return, and Athlon ended up drilling vertical wells in the northern portion of the Midland Basin.
“They’re very stable; they’re very predictable,” Reeves said of the wells.
But Athlon has also found that its horizontal wells, despite costing much more, are producing a greater rate of return and should keep the company busy for years. It has mineral interests on about 134,000 acres in the field and expects to spend about $750 million this year, nearly all of it on drilling and fracturing.
While the Permian Basin covers about the same surface area as the Bakken, its oil-bearing formations are much thicker, Koo and others said. Those formations, with names like the Spraberry, Wolfcamp, Cline, Strawn and Atoka, are stacked atop one another like pancakes over thousands of feet, promising continued growth as each is explored and developed.
Ben Shattuck, an analyst with consultant Wood Mackenzie, said he expects about $18 billion to be spent drilling in the Permian this year. That’s expected to grow as producers move to horizontal drilling, which now accounts for just about half of new wells drilled.
Sheffield said he believes that the Permian Basin, which has already produced about 30 billion barrels of oil, according to the Texas Railroad Commission, could hold about 75 billion barrels of recoverable crude oil.