SUGAR LAND, Texas—With 45 rigs operating in the Permian Basin—more than any other company—and plans to triple its production in the basin by 2025, it is no secret that Exxon Mobil Corp. (NYSE: XOM) is bullish on the long-term potential of the largest oil-producing region in the U.S.
“We see clear value for the development today and even more so as we consider what new technology and enhanced development approaches will do to value for the future,” said Staale Gjervik, senior vice president of Permian integrated development for Exxon Mobil subsidiary XTO Energy.
Speaking during American Association of Petroleum Geologists’ Permian-focused Global Super Basins conference on Jan. 24, Gjervik told the crowd that nearly 1,000 of the more than 6,000 horizontal unconventional wells the company has drilled are in the Permian. The Irving, Texas-headquartered company has amassed more than 1.6 million acres in the basin.
“Combined with our operating expertise and our leading edge technology and research organization, we can efficiently and profitably develop this resource at less than $40 dollars per barrel,” Gjervik said, adding the company is also working to continue lowering its unit development and operating costs while increasing recovery.
He said the company is producing more than 230,000 net barrels of oil equivalent (boe) across its Permian Basin leasehold. Exxon Mobil is on a mission to boost its production to about 600,000 boe by 2025. XTO expects its horizontal rig count to rise 65% over the next several years.
The push to grow production comes as the industry faces more near-term uncertainty about oil prices. Fearing lower oil prices, some drillers have plans to remove rigs, Reuters reported Jan. 25, although the rig count released by Baker Hughes Inc. (NYSE: BHGE), a GE company, showed drillers added 10 oil rigs this week. The Permian count rose by three.
However, “for the month, drillers cut 23 rigs in January, the most removed in a month since April 2016. Over the past two months, they pulled two rigs in December and added 12 in November,” the agency reported.
“Although the large E&Ps are the ones most associated with unconventional activity and have been at the forefront of unlocking the Permian over the last several years, a number of IOCs have also amassed large acreage positions and are in the process of ramping up operations—irrespective of the price of oil,” Barclays analysts said in its Global 2019 E&P Spending Outlook.
The analysts pointed out Exxon’s pursuit of a “manufacturing mode” approach to the basin and its ability to drill and complete wells with long rows of five-well pads—the benefits of having continuous acreage— along with efficient use of logistics, facilities and power sources. In November, Denmark’s Ørsted said it had entered agreements with Exxon Mobil to provide 500 megawatts of wind and solar power in the Permian Basin.
Technology will also likely play a key role in helping Exxon Mobil add value and reach its goal. In addition to leveraging the benefits of hydraulic fracturing and long laterals, Gjervik said the company is gaining actionable insights using data science, advancing new artificial lift technologies to improve the economics of low rate wells and developing smart applications to wirelessly monitor and control wellhead activity to improve efficiency.
As the company grows production, it is also making midstream improvements to ensure the flow of production from wellheads to refineries and chemical plants along the Gulf Coast. Investments have included the 2017 acquisition of a crude terminal in Wink, Texas, with a more than $2 billion expansion project in the works. The company is also building a 48-mile pipeline system in Texas to help transport oil from the Delaware Basin.
“These midstream investments are critical because of the production bottlenecks in the Permian. Our goal is to develop infrastructure either alone or in partnership with other companies to help break the bottleneck and allow our assets in the Permian to achieve their full potential,” Gjervik said.
But infrastructure woes are not the only challenge being faced in the Permian Basin. Gjervik spoke on several others while discussing what he called three elements needed to maintain a license to operate effectively and efficiently: water usage and managing produced water disposal, reducing methane emissions and improving the quality of life for communities where it operates.
Water: Given the abundance of water needed for hydraulic fracturing, water management is a recurring topic of discussion and concern in the Permian, where the rate of produced water from operations is high. “In some areas of West Texas, for example, the water-oil ratio for producing wells can be as high as 15-to-1, five times higher than wells in the nearby Colorado Rockies,” Gjervik said.
“One solution that we are putting into action is the development of an integrated water management system,” he added. “Currently under construction in New Mexico, our system will allow us not only to move water efficiently across a very large acreage position, it will also allow us to treat produced water and reuse it again and again.”
Methane: Exxon Mobil and XTO have also undertaken several methane emissions reduction initiatives. These include implementing an enhanced leak detection and repair program across its production and midstream segments as well as upgrading facilities.
“In the Permian we also completed a pilot project and tested new low emission facilities that use compressed air instead of natural gas to operate pneumatic equipment that helps regulate conditions such as level, flow, pressure and temperature,” Gjervik said, later adding Exxon Mobil aims to reduce methane emissions companywide by 15% by 2020.
Quality of Life: While soaring oil and gas production in the Permian Basin has brought jobs and generated tax revenue, growth caused by the influx of people and activity has had some negative impacts on communities. Traffic volumes have increased, some local schools are underperforming academically, and access to health care has become an issue, he said.
To help address these issues among others, 19 companies active in the region—including XTO—have formed the Permian Strategic Partnership. In November, the partnership said $100 million had been pledged for the effort. Gjervik added there are plans to open an office and hire staff to support the partnership’s mission of working with government and other community stakeholders to address challenges.
“Our responsibility is to keep improving. … There is great promise in the Permian—the promise of reliable, affordable energy supplies for the U.S. and the rest of the world, the promise of economic development … and the promise of opportunity for our companies and our industry,” Gjervik said. “But it’s important to remember that this promise is not guaranteed. To fully unleash the Permian’s potential, we must continue to innovate and collaborate, and we must continually earn a license to operate each and every day.”
Velda Addison can be reached at firstname.lastname@example.org.
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