Diamondback: Permian Gas Next Target but Pipe, Prices Needed

More gas pipelines—and gas demand—could make the Permian Basin’s gassier rock economic, the basin’s No. 2 oil producer’s director of infrastructure said.

“There is a tremendous amount of gas wells in the Permian to also drill—some deeper wells [and] some other areas more on the fringe,” Diamondback Energy’s Michael Sollee told Independent Petroleum Association of America (IPAA) members at their annual meeting recently.

But before the Permian’s operators can go after the basin’s gas-rich formations, the area’s producers need at least enough takeaway capacity to get the current volume of associated gas to market.

“In the Permian, we're seeing only about half of the price of natural gas at Henry Hub. … In certain months, it's negative. We're literally giving it away,” Sollee said.

Meanwhile, Permian drilling is driven by oil and its price alone. The associated gas is currently some 25 Bcf/d, according to the U.S. Energy Information Administration (EIA).

“We estimate we could unlock 5 to 10 Bcf/d of gas out of the Permian if we had more pipe in the ground,” Sollee said.

Midland, Texas-based Diamondback produced some 500,000 bbl/d of oil and 1.1 Bcf/d of associated gas in the first quarter, all of it from the Permian Basin.

“There’s a huge opportunity for natural gas to be the next big investment,” Sollee said. “We have a ton of great rock in the United States. There's a lot in the Permian; there's a lot in the Haynesville; there's a lot in the Marcellus.

“As prices go up and demand goes up, it's going to be a boom for the industry.”

Atlantic Coast Pipeline ‘tragedy’

Sollee’s remarks were part of a panel discussion on U.S. electricity capacity, particularly to supply reliable power to data centers.

As for getting more Marcellus gas out of the Appalachian Basin to demand centers, Brett Vassey, president and CEO of the Virginia Manufacturers Association, said the eventual cancellation of the Atlantic Coast Pipeline project is “probably one of the greatest national fails.”

Dominion Energy and Duke Energy dropped the 600-mile, 1.5 Bcf/d joint project in 2020 after spending seven years trying to clear anti-hydrocarbon organizations’ challenges. Cost estimates grew to $8 billion.

Energy infrastructure has become “entirely politicized,” Vassey said.

Opponents “are outspending us by 20 to one in every state and nationally … and Virginia is a great example: A billion dollars in the ground for Atlantic Coast Pipeline and it's just rusting away.

“I mean that is a national tragedy.”

Nathan Ough, president and CEO of power management and generation operator VoltaGrid, noted former Google chief Eric Schmidt’s remarks concerning electric power and climate change in a recent media interview.

“He said, ‘Look, unleash the American energy machine and then let AI go solve the climate problem.’ He said it will do a better job than the version we're all doing today.”

Ryan Ullman, IPAA vice president, government relations and political affairs, said, “We don't need ‘drill, baby, drill’ so much as we need ‘build, baby, build.’”

The grid

Diamondback has been using some of its associated gas to power field operations.

“If we can get power to our developments, we get the lowest LOE [lease operating expense],” Sollee said.

West Texas is electron-short. “We spent a bunch of money on power generation because we can't be served by the [Texas] grid,” Sollee said. “As Permian Basin development just really exploded, the grid is not able to keep up.”

The Texas Legislature recently passed the Permian Basin Reliability Plan.

“It's supposed to get transmission assets and power into the basin so that we can continue to grow and to be served. But in the meantime, we're using our own natural gas to power most of our new developments.”